Pension Plan Terminations, Excess Asset Reversions and Securityholder Wealth

Posted: 5 May 2000

See all articles by Sudip Datta

Sudip Datta

Wayne State University - Finance Department

Mai Iskandar-Datta

Wayne State University - Finance Department

Edward J. Zychowicz

Hofstra University - Department of Finance

Abstract

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

Datta, Sudip and Iskandar-Datta, Mai E. and Zychowicz, Edward J., Pension Plan Terminations, Excess Asset Reversions and Securityholder Wealth. Available at SSRN: https://ssrn.com/abstract=6206

Sudip Datta (Contact Author)

Wayne State University - Finance Department ( email )

328 Prentis Bldg.
5201 Cass Avenue
Detroit, MI 48202
United States
(313) 577- 0408 (Phone)
(313) 577-0058 (Fax)

Mai E. Iskandar-Datta

Wayne State University - Finance Department ( email )

328 Prentis Bldg.
5201 Cass Avenue
Detroit, MI 48202
United States
(313) 577-9509 (Phone)

Edward J. Zychowicz

Hofstra University - Department of Finance ( email )

Hempstead, NY 11550
United States

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