Market Reaction to Firm Inclusion on the Pension Benefit Guaranty Corporation Underfunding List
23 Pages Posted: 17 Aug 1998
Date Written: March 1998
Abstract
This study investigates stock market reaction to a firm's inclusion on the Pension Benefit Guaranty Corporation's (PBGC) "Top 50" list of firms with the most underfunded pension plans. The PBGC's use of the list to put pressure on firm managers to increase pension funding has been controversial. Abnormal returns calculated around press release dates are not statistically significant, inconsistent with the PBGC's implicit goal of having third parties exert pressure on firm managers to increase funding. However, for one list that is reported by The Wall Street Journal, reaction is statistically positive. The positive reaction is consistent with the theory that firms with underfunded pension obligations have a put option with respect to the PBGC.
JEL Classification: M41, G12
Suggested Citation: Suggested Citation
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