The effect of unfunded pension liabilities on corporate bond ratings, default risk, and recovery rate

The effect of unfunded pension liabilities on corporate bond ratings, default risk, and recovery... 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 after controlling 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. Review of Quantitative Finance and Accounting Springer Journals

The effect of unfunded pension liabilities on corporate bond ratings, default risk, and recovery rate

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Springer US
Copyright © 2013 by Springer Science+Business Media New York
Economics / Management Science; Finance/Investment/Banking; Accounting/Auditing; Econometrics; Operations Research/Decision Theory
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