IDEAS home Printed from https://ideas.repec.org/a/bla/jrinsu/v77y2010i4p893-909.html
   My bibliography  Save this article

Do Markets Like Frozen Defined Benefit Pensions? An Event Study

Author

Listed:
  • Moshe A. Milevsky
  • Keke Song

Abstract

An increasing number of North American companies are freezing or terminating their traditional defined benefit (DB) pension plans. In this article we document a positive announcement effect when a publicly traded company discloses that it has partially or fully frozen its DB plan and replaced it with—or enhanced—the 401(k) defined contribution (DC) plan. This positive risk‐adjusted return is greater for firms with higher beta and/or lower return on equity (ROE) prior to the freeze. In other words the positive impact is more pronounced for firms that are likely to face financial distress if they maintain their traditional pension plan and the associated long‐term promises.

Suggested Citation

  • Moshe A. Milevsky & Keke Song, 2010. "Do Markets Like Frozen Defined Benefit Pensions? An Event Study," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 77(4), pages 893-909, December.
    • Handle: RePEc:bla:jrinsu:v:77:y:2010:i:4:p:893-909
    DOI: 10.1111/j.1539-6975.2010.01363.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1539-6975.2010.01363.x
    Download Restriction: no

    References listed on IDEAS

    as
    1. Kazuo Yoshida & Yutaka Horiba, 2003. "Japanese Corporate Pension Plans and the Impact on Stock Prices," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 70(2), pages 249-268, June.
    2. Adair Turner, 2006. "Pensions, Risks, and Capital Markets," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 73(4), pages 559-574, December.
    3. Greg Niehaus & Tong Yu, 2005. "Cash‐Balance Plan Conversions: Evidence on Excise Taxes and Implicit Contracts," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 72(2), pages 321-352, June.
    4. Jeremy I. Bulow, 1982. "What are Corporate Pension Liabilities?," The Quarterly Journal of Economics, Oxford University Press, vol. 97(3), pages 435-452.
    5. Sharpe, William F., 1976. "Corporate pension funding policy," Journal of Financial Economics, Elsevier, vol. 3(3), pages 183-193, June.
    6. David Blake & Pat Brockett & Samuel Cox & Richard MacMinn, 2011. "Longevity Risk and Capital Markets," North American Actuarial Journal, Taylor & Francis Journals, vol. 15(2), pages 141-149.
    7. Moshe A. Milevsky & S. David Promislow, 2004. "Florida's Pension Election: From DB to DC and Back," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 71(3), pages 381-404, September.
    8. Joshua D. Rauh, 2009. "Risk Shifting versus Risk Management: Investment Policy in Corporate Pension Plans," Review of Financial Studies, Society for Financial Studies, vol. 22(7), pages 2487-2533, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Rauh, Joshua D. & Stefanescu, Irina & Zeldes, Stephen P., 2020. "Cost saving and the freezing of corporate pension plans," Journal of Public Economics, Elsevier, vol. 188(C).
    2. Kun Yu, 2016. "Excess of the PBO over the ABO and hard pension freezes," Review of Quantitative Finance and Accounting, Springer, vol. 46(4), pages 819-846, May.
    3. Vafeas, Nikos & Vlittis, Adamos, 2018. "Independent directors and defined benefit pension plan freezes," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 505-518.
    4. Joshua D. Rauh & Irina Stefanescu & Stephen P. Zeldes, 2020. "Cost Saving and the Freezing of Corporate Pension Plans," NBER Working Papers 27251, National Bureau of Economic Research, Inc.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jrinsu:v:77:y:2010:i:4:p:893-909. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley Content Delivery). General contact details of provider: http://edirc.repec.org/data/ariaaea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.