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SSRN
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Corporate Pensions and Financial Distress

SSRN Electronic Journal
2015
  • 2
    Citations
  • 3,637
    Usage
  • 3
    Captures
  • 1
    Mentions
  • 0
    Social Media
Metric Options:   Counts1 Year3 Year

Metrics Details

  • Citations
    2
    • Citation Indexes
      2
  • Usage
    3,637
    • Abstract Views
      3,212
    • Downloads
      425
  • Captures
    3
  • Mentions
    1
    • News Mentions
      1
      • 1
  • Ratings
    • Download Rank
      138,183

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Think twice about investing in own company

Yawen Jiao. Credit: UC Riverside Employees whose retirement plan is invested in stock of the company where they work do not pull out money as

Article Description

We examine the role of corporate pension plans in determining how firms restructure in financial distress. Both defined benefit (DB) and defined contribution (DC) plans can have significant exposures to the company’s own stock, imposing significant losses on employees if the firm defaults and/or files for bankruptcy. We find that firms with DB plans typically have little exposure to the stock prior to default; the degree of underfunding increases significantly as firms near default, but is not related to restructuring types (bankruptcies versus out of court restructurings). In contrast, large exposures to company stock in DC plans often are not reduced prior to default. High levels of own-company stock ownership are positively related to default and bankruptcy probabilities. Our evidence suggests a link between employee-ownership related managerial entrenchment and default risk.

Bibliographic Details

Ying Duan; Edith S. Hotchkiss; Yawen Jiao

Elsevier BV

Financial distress; Pension plans; Company stock; Underfunding

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