Corporate Post-Retirement Benefit Plans and Leverage

Defined benefit pension and health care plans are important for firm leverage around the world. While consolidating off-balance sheet post-retirement plans increases effective leverage by 32%, firms reduce their level of regular debt by only 22 cents for every dollar of projected benefit obligation,...

Full description

Saved in:
Bibliographic Details
Published in:Review of Finance 2016-03, Vol.20 (2), p.575-629
Main Author: Bartram, Söhnke M.
Format: Article
Language:English
Subjects:
Debt management
Defined benefit plans
Leverage
Obligations
Off balance sheet items
Retirement benefits
Retirement plans
Studies
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Defined benefit pension and health care plans are important for firm leverage around the world. While consolidating off-balance sheet post-retirement plans increases effective leverage by 32%, firms reduce their level of regular debt by only 22 cents for every dollar of projected benefit obligation, yielding overall 23% higher total leverage of plan sponsors compared with similar firms without post-retirement plans. The most important driver of substitution rates between regular debt and post-retirement obligations is rule of law, followed by labor market freedom and taxes. In contrast, pension guarantee funds and priority of unfunded pension obligations are less important for substitution rates.
ISSN:1572-3097
1875-824X
DOI:10.1093/rof/rfv021