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Were internal capital markets affected by the 'perfect' pension storm?

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  • Alderson, Michael J.
  • Betker, Brian L.

Abstract

We examine capital expenditures in multi-segment firms before and after the "perfect storm" that affected pension plans between 2000 and 2002, when bond yields and stock prices both fell precipitously. Our sample of firms went from having overfunded to underfunded pension plans as a result of the storm. We examine the segment-level relation between investment, Tobin's q, and cash flow both before and after the event. We find mixed evidence on the change in the relation between investment and q, which may be a result of measurement error in q. We find stronger evidence for the conclusion that after the pension storm, firms with underfunded pension plans directed more investment towards segments that produce higher cash flow.

Suggested Citation

  • Alderson, Michael J. & Betker, Brian L., 2009. "Were internal capital markets affected by the 'perfect' pension storm?," Journal of Corporate Finance, Elsevier, vol. 15(2), pages 257-271, April.
    • Handle: RePEc:eee:corfin:v:15:y:2009:i:2:p:257-271
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    References listed on IDEAS

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    Cited by:

    1. Hieu V. Phan & Shantaram P. Hegde, 2013. "Pension Contributions and Firm Performance: Evidence from Frozen Defined Benefit Plans," Financial Management, Financial Management Association International, vol. 42(2), pages 373-411, June.
    2. Timothy Erickson & Toni M. Whited, 2012. "Treating Measurement Error in Tobin's q," The Review of Financial Studies, Society for Financial Studies, vol. 25(4), pages 1286-1329.
    3. Wang, Ting & Tang, Jian & Wang, Xiao & He, Qiankun, 2024. "Assessing capital allocation efficiency under environmental regulation," Finance Research Letters, Elsevier, vol. 62(PA).
    4. Bartram, Söhnke M., 2018. "In good times and in bad: Defined-benefit pensions and corporate financial policy," Journal of Corporate Finance, Elsevier, vol. 48(C), pages 331-351.

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