Were internal capital markets affected by the ‘perfect’ pension storm.pdf

Journal of Corporate Finance 15 (2009) 257 –271 Contents lists available at ScienceDirect Journal of Corporate Finance journal h omepage: www.el /l ocate/j corpfi n ☆ Were internal capital markets affected by the ‘perfect’ pension storm? Michael J. Alderson ⁎, Brian L. Betker Saint Louis University, United States a r t i c l e i n f o a b s t r a c t Article history: We examine capital expenditures in multi-segment firms before and after the “perfect storm” Received 16 January 2008 that affected pension plans between 2000 and 2002, when bond yields and stock prices both Received in revised form 2 December 2008 fell precipitously. Our sample of firms went from having overfunded to underfunded pension Accepted 15 December 2008 plans as a result of the storm. We examine the segment-level relation between investment, Available online 24 December 2008 Tobins q, and cash flow both before and after the event. We find mixed evidence on the change in the relation between investment and q, which may be a result of measurement error in q. We JEL classifi cation: find stronger evidence for the conclusion that after the pension storm, firms with underfunded G31 pension plans directed more investment towards segments that produce higher cash flow. G32