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Independent directors and defined benefit pension plan freezes

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  • Vafeas, Nikos
  • Vlittis, Adamos

Abstract

We study the role of outside directors in defined benefit pension plan freezes, where the interests of shareholders are in apparent conflict with the interests of firm employees. We examine the effect of independent directors on the likelihood, valuation effects, and long term consequences of plan freezes. We find that a greater percentage of independent directors makes plan freezes more likely and more valuable to shareholders, and mitigates their effect on investment and leverage levels. Our results extend evidence on the monitoring value of independent directors from shareholder-manager to shareholder-employee conflicts, consistent the predictions of agency rather than stakeholder management theories of independent director behavior.

Suggested Citation

  • Vafeas, Nikos & Vlittis, Adamos, 2018. "Independent directors and defined benefit pension plan freezes," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 505-518.
    • Handle: RePEc:eee:corfin:v:50:y:2018:i:c:p:505-518
    DOI: 10.1016/j.jcorpfin.2017.10.003
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    Cited by:

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    4. Limin Zhang & Ruilin Tian & Jun Chen, 2022. "Text Mining for U.S. Pension De-Risking Analysis," Risks, MDPI, vol. 10(2), pages 1-18, February.
    5. Goto, Shingo & Yanase, Noriyoshi, 2021. "Pension return assumptions and shareholder-employee risk-shifting," Journal of Corporate Finance, Elsevier, vol. 70(C).
    6. Mary McCarthy & Elisabeta Pana & Andrew Weinberger, 2021. "The role of institutional investors in pension risk transfers," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 45(3), pages 451-468, July.
    7. Wei Huang & Bin Qiu, 2022. "Passive insider trading before pension freezes," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 45(3), pages 607-631, September.
    8. Zhao, Zucheng & Sutcliffe, Charles, 2024. "Why are pension schemes frozen, and how does a freeze affect the Employer's risk?," International Review of Economics & Finance, Elsevier, vol. 94(C).
    9. Tan, Xue & Yu, Lin & Fung, Hung-Gay, 2022. "Firms with short-termism: Evidence from expatriate controlling shareholders," Pacific-Basin Finance Journal, Elsevier, vol. 73(C).

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    More about this item

    Keywords

    Independent directors; Defined benefit pension plans; Plan freezes;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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