Corporate Pension Funding Status and the Market for Corporate Control: The Disciplinary Role of Pension Deficits in Mergers and Acquisitions

摘要

This paper examines the disciplinary role of corporate pension deficits (the difference in value between pension liabilities and pension assets) in the market for corporate control. We find that during the 1981 to 2008 period, firms with larger pension deficits are less likely to engage in mergers and acquisitions (M&As), particularly diversifying M&As, than those with smaller or no pension deficits. We also find that the announcement returns of both the acquirer and the value-weighted portfolio of the acquirer and the target increase with acquirers’ pension deficits. Further, acquirers’ pension deficits are negatively related to the premiums paid to targets, but positively related to the percentage of cash used in payment to targets. These results are evident only for financially unconstrained acquirers, however, suggesting that our results are not driven by lack of acquirers’ internal funds. Our findings therefore indicate that corporate pension deficits provide employees with strong incentives to monitor managerial performance and influence managers to make value-enhancing investment decisions.