Title
The Effect of Unfunded Pension Liabilities on Corporate Bond Ratings, Default Risk, and Recovery Rate
Document Type
Article
Publication Date
11-2014
Publication Source
Review of Quantitative Finance and Accounting
Abstract
Unfunded pension liabilities lower ratings of non-senior secured bonds but do not affect ratings of senior secured bonds due to their higher seniority. Pension funding improvement (deterioration) is associated with bond rating upgrade (downgrade). Moreover, large unfunded liabilities increase bond default risk and reduce the recovery rate of bondholders aftercontrolling for credit ratings, suggesting that bond ratings do not fully capture pension underfunding risk. Overall, our results highlight the important effects of unfunded pension obligations on bond ratings, default risk, and creditors’ payoff, and suggest that investors should look beyond bond ratings in making investment decisions.
Inclusive pages
781–802
ISBN/ISSN
0924-865X
Copyright
Copyright © 2014, Springer
Publisher
Springer
Volume
43
Peer Reviewed
yes
Issue
4
eCommons Citation
Wang, Fukuo Albert and Zhang, Ting, "The Effect of Unfunded Pension Liabilities on Corporate Bond Ratings, Default Risk, and Recovery Rate" (2014). Economics and Finance Faculty Publications. 42.
https://ecommons.udayton.edu/eco_fac_pub/42
COinS
Comments
Permission documentation is on file.