Market Reaction To Firm Inclusion On The Pension Benefit Guaranty Corporation Underfunding List

Abstract

This study investigates stock market reaction to a firms inclusion on the Pension Benefit Guaranty Corporations (PBGC) Top 50 list of firms with the most underfunded pension plans. The PBGCs 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 PBGCs implicit goal of having third parties exert pressure on firm managers to increase funding. However, for one list that is report 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.