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Cambridge Endowment for Research in Finance (CERF)


Xin (Simba) Chang

Title of research: Employees as Creditors: the Disciplinary Role of Pension Deficits in the Market for Corporate Control

We aim to examine the disciplinary role of corporate pension deficits in the market for corporate control. We conjecture that companies with larger pension deficits are less likely to engage in diversifying mergers, experience higher merger announcement returns, pay lower premiums to targets, and use a higher percentage of cash in their payment. These results should be more evident for acquirers with pension plans that are dominated by actively working employees or collectively bargained by employees. Our findings would indicate that corporate pension deficits provide employees with strong incentives to monitor managerial performance and influence managers to make value-enhancing investment decisions.

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