Nobchanok Singha‐Uthorn, M. Hassan
Dec 1, 1998
Explains the difference between defined benefit (DB) and defined contribution (DC) pension plans in the US context and the options open to companies wishing to terminate overfunded DB plans. Summarizes previous research on stock market reaction to terminations and uses event study methodology on 1986‐1994 US data to explore the relationships between share prices and DB plan terminations with new DB or DC plans. Presents the results, which suggest that terminations tend to produce negative abnormal returns when replaced by another DB plan, but positive abnormal returns when replaced by a DC plan. Considers the reasons why, consistency with other research and the implications for public policy.