Article ID Journal Published Year Pages File Type
5083204 International Review of Economics & Finance 2017 18 Pages PDF
Abstract
The pension underfunding anomaly (Franzoni & Marín, 2006) is mainly concentrated in financially distressed sponsors. The predictability of pension underfunding levels on the cross-sectional stock returns disappears after considering sponsor financial distress. It exists when underfunding is primarily due to poor operating performance and during the initial five years of underfunding; it diminishes when underfunding is due to bad pension investment returns and when firms underfund for more than five years. The potential financial distress inherent in the most underfunded firms and the prospect of intervention by the Pension Benefit Guaranty Corporation make the arbitrage opportunity not entirely risk free.
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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