TY - JOUR
T1 - Unfunded pension liabilities and sponsoring firm credit risk
T2 - An international analysis of corporate bond spreads
AU - Gallagher, R.
AU - McKillop, D.
N1 - Copyright 2010 Elsevier B.V., All rights reserved.
PY - 2010/4/1
Y1 - 2010/4/1
N2 - This paper tests empirically whether pension information derived by corporate pension accounting disclosures is priced in corporate bond spreads. The model represents a hybrid of more traditional accounting ratio-based models of credit risk and structural models of bond spreads initiated by Merton (1974). The model is fitted to 5 years of data from 2002 to 2006 featuring companies from the US and Europe. The paper finds that while unfunded pension liabilities are priced in the overall sample, they are not priced as aggressively as traditional leverage. Furthermore, an extended model shows that the pension-credit risk relation is most evident in the US and Germany, where unfunded pension liabilities are priced more aggressively than traditional forms of leverage. No pension-credit risk relation is found in the other countries sampled, notably the UK, Netherlands and France.
AB - This paper tests empirically whether pension information derived by corporate pension accounting disclosures is priced in corporate bond spreads. The model represents a hybrid of more traditional accounting ratio-based models of credit risk and structural models of bond spreads initiated by Merton (1974). The model is fitted to 5 years of data from 2002 to 2006 featuring companies from the US and Europe. The paper finds that while unfunded pension liabilities are priced in the overall sample, they are not priced as aggressively as traditional leverage. Furthermore, an extended model shows that the pension-credit risk relation is most evident in the US and Germany, where unfunded pension liabilities are priced more aggressively than traditional forms of leverage. No pension-credit risk relation is found in the other countries sampled, notably the UK, Netherlands and France.
UR - http://www.scopus.com/inward/record.url?partnerID=yv4JPVwI&eid=2-s2.0-77951032647&md5=a244d3ffc6c3e38211019b4f61ff66f6
U2 - 10.1080/13518470903211665
DO - 10.1080/13518470903211665
M3 - Article
AN - SCOPUS:77951032647
SN - 1351-847X
VL - 16
SP - 183
EP - 200
JO - European Journal of Finance
JF - European Journal of Finance
IS - 3
ER -