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Corporate financial policy with pension accounts: an extension of the Modigliani-Miller theorem

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  • Chongmin Kim

Abstract

We build a model of an incomplete market economy with a firm, which we apply to the study of corporate financial policies with pension accounts. We show that prior to ERISA, even though the sponsoring firm's integral financial policy is neutral for its market value, it may affect the economy by creating a pension call option. On the other hand, in the post-ERISA periods, the firm's financial policy is not only neutral for its value but also has no real effect on the economy. Thus, the Modigliani-Miller theorem is valid in this sense.

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  • Chongmin Kim, 2004. "Corporate financial policy with pension accounts: an extension of the Modigliani-Miller theorem," International Economic Journal, Taylor & Francis Journals, vol. 18(2), pages 215-236.
    • Handle: RePEc:taf:intecj:v:18:y:2004:i:2:p:215-236
    DOI: 10.1080/1016873042000228349
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    References listed on IDEAS

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