Underfunding pension obligations while paying dividends: Evidence of risk transfers

Document Type

Article

Publication Title

Critical Perspectives on Accounting

Publication Date

10-1-2000

Abstract

This research examines the differential effects of earnings, dividends, and cashflows on increases and decreases in pension liabilities. Of the 1700 firms in the Value Line Investment Survey (1997a), there were 189 firms with pension liabilities - 88 (101) firms with increasing (decreasing) pension liabilities that serve as research observations. For firms with increasing pension liabilities, there is a significant correlation between the increase in pension liabilities and earnings, cashflows, and dividends. However, none of these relationships exist for firms with decreasing pension liabilities. The underfunding of pension funds is a unilateral decision by management that effectively transfers risk away from stockholders and imposes it on employees and potentially on the society at large. This risk transfer is not associated with any compensatory returns and suggests social and regulatory policies should be reconsidered. © 2000 Academic Press.

Volume

11

Issue

5

First Page

515

Last Page

530

DOI

10.1006/cpac.1999.0406

ISSN

10452354

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