Share prices and pension funding: An empirical test of the joint effect of pension insurance and the pension tax shield

Research paper by Paul Grier, Edward J. Zychowicz

Indexed on: 01 Sep '92Published on: 01 Sep '92Published in: Review of Quantitative Finance and Accounting


This article examines the joint significance of the tax benefits of pension funding and the value of government sponsored pension insurance in determining the efficacy of corporate pension funding. When the pension tax shield benefits are dominant, additional funding may enhance shareholder wealth. However, additional funding is observed to have negative effects on equity prices when the value of pension insurance is dominant relative to the value of the pension tax shield. When neither the tax or insurance effects are dominant, marginal adjustments in pension funding apparently will not alter corporate share prices.