Firm Behaviour in Pension Funding – An Analysis of Corporate Debt Issuing

Abstract

This study investigates the commonality of United States firms using the issuance of corporate debt as a tool to fund their pension plans. The results suggest a prominence of firms in the sample utilizing debt issuances to transition their fund from underfunded to overfunded. These results are indicated through a statistically significant negative relationship between the cost of debt and an underfunded indicator when regressors are lagged by one year. Results also indicate that equity issuances may not be as utilized to fund pensions, due to an undervaluation of these firms in the market. Further research on this finding is recommended.