Corporate financial policy with pension accounts: an extension of the Modigliani-Miller theorem

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Corporate financial policy with pension accounts: an extension of the Modigliani-Miller theorem

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Chongmin Kim

Abstract

We build a model of an incomplete market economy with a firm, which we apply to the study of corporate financial policies with pension accounts. We show that prior to ERISA, even though the sponsoring firm's integral financial policy is neutral for its market value, it may affect the economy by creating a pension call option. On the other hand, in the post-ERISA periods, the firm's financial policy is not only neutral for its value but also has no real effect on the economy. Thus, the Modigliani-Miller theorem is valid in this sense.

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Publisher Info
Article provided by Korean International Economic Association in its journal International Economic Journal.

Volume (Year): 18 (2004)
Issue (Month): 2 (June)
Pages: 215-236
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Handle: RePEc:taf:intecj:v:18:y:2004:i:2:p:215-236

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

J. Michael Harrison & William F. Sharpe, 1982. "Optimal Funding and Asset Allocation Rules for Defined-Benefit Pension Plans," NBER Working Papers 0935, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- J. Michael Harrison & William F. Sharpe, 1983. "Optimal Funding and Asset Allocation Rules for Defined-Benefit Pension Plans," NBER Chapters, in: Financial Aspects of the United States Pension System, pages 91-106 National Bureau of Economic Research, Inc. [Downloadable!]
J. Detemple & P. Gottardi & H. M. Polemarchakis, 1989. "The Relevance of Financial Policy," Discussion Paper Serie A 262, University of Bonn, Germany.
Other versions:
- Detemple, J. & Gottardi, P. & Polemarchakis, H., 1989. "The Relevance Of Financial Policy," Papers fb-89-11, Columbia - Graduate School of Business.
- Detemple, J. & Gottardi, P. & Polemarchakis, H., 1990. "The relevance of financial policy," CORE Discussion Papers 1990011, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Detemple, J. & Gottardi, P. & Polemarchakis, H. M., 1995. "The relevance of financial policy," European Economic Review, Elsevier, vol. 39(6), pages 1133-1154, June. [Downloadable!] (restricted)

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