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An Analysis of Debt and Equity Market Reaction to Pension Risk Transfer Announcements: What Investors Need to Know

David R. Cantor, Frederick M. Hood and Mark L. Power
The Journal of Investing Fall 2018, 27 (supplement) 8-20; DOI: https://doi.org/10.3905/joi.2018.27.supplement.008
David R. Cantor
is director of Pension Risk Management and Asset Consulting at PricewaterhouseCoopers in New York, NY
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Frederick M. Hood III
is senior lecturer of finance in the Ivy College of Business at Iowa State University in Ames, IA
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Mark L. Power
is university professor of finance and Principal Financial Group Finance Professor in the Ivy College of Business at Iowa State University in Ames, IA
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Abstract

The pension annuity buyout market continues to experience very strong growth, with record deal volumes being reported. Cantor, Hood, and Power (2017) document a large variation in stock market reaction to annuity buyout announcements. The fundamental question remains however: Does the equity market care about these transactions? In Cantor, Hood, and Power (2018), we hope to further understand the market’s view of pension annuity buyout transactions. We argue that the funded status of the pension fund and the motivation for the buyout could drive the market’s reaction. By expanding our sample and gathering data on funded status, we can test the market’s reaction based on the funded status of the plan prior to the announcement. In addition, we examine the credit market’s reaction to the buyouts. We argue that the equity and debt markets may have a different reaction to the news, conditional on the funded status and credit quality of the company. Our research has important implications for plan sponsors considering whether a pension annuity buyout is an effective transaction. Moreover, our research is relevant for investors who are trying to interpret the impact of these transactions on a company’s value.

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The Journal of Investing: 27 (supplement)
The Journal of Investing
Vol. 27, Issue supplement
Fall 2018
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An Analysis of Debt and Equity Market Reaction to Pension Risk Transfer Announcements: What Investors Need to Know
David R. Cantor, Frederick M. Hood, Mark L. Power
The Journal of Investing Oct 2018, 27 (supplement) 8-20; DOI: 10.3905/joi.2018.27.supplement.008

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An Analysis of Debt and Equity Market Reaction to Pension Risk Transfer Announcements: What Investors Need to Know
David R. Cantor, Frederick M. Hood, Mark L. Power
The Journal of Investing Oct 2018, 27 (supplement) 8-20; DOI: 10.3905/joi.2018.27.supplement.008
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  • Article
    • Abstract
    • DE-RISKING AND SHAREHOLDER VALUE
    • DE-RISKING AND THE COST OF DEBT FINANCING
    • DATA
    • ABNORMAL STOCK RETURNS AND RESULTS
    • DEBT MARKET REACTION MEASUREMENT AND RESULTS
    • SUMMARY
    • ENDNOTES
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