Pension Plan Terminations, Excess Asset Reversions and Securityholder Wealth
Posted: 5 May 2000
The total firm valuation impact of an excess pension assetreversion is an unresolved issue. Prior studies focusing on stockholder wealth provide varied evidence. This study examines the valuation effects of excess asset reversions on bondholders (straight and convertible) and stockholders of the sponsoring firm. The redeployment and the negative signalling hypotheses provide a framework for the analysis. We provide evidence of wealth expropriation from straight bondholders to stockholders. Convertible debtholders are not impacted by plan terminations. Contingency table analysis also reveals evidence in support of the negative signalling hypothesis for a significant portion of the sample. Cross-sectional regression identifies financial weakening of the firm, reversions undertaken for restructuring purposes and takeover defense related terminations as significant determinants of bondholder excess returns.
JEL Classification: G14, G30, G32
Suggested Citation: Suggested Citation