Strategic Bankruptcy and Private Pension Default

Orr, Douglas V.

doi:10.1080/00213624.1998.11506074

Cited by 13 publications

(8 citation statements)

References 21 publications

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“…Firm opportunistic behavior with regard to delayed payment contracts has been observed byGokhale et al (1995), who showed that wage profiles flatten after hostile takeovers in firms with a more senior workforce Orr (1998). also argued that firms use strategic bankruptcy to default on implicit contracts.…”

mentioning

confidence: 97%

Age discrimination legislation and the employment of older workers

Adams

2004

Labour Economics

108

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confidence: 97%

Age discrimination legislation and the employment of older workers

Adams

2004

Labour Economics

108

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“…Furthermore, cost reduction pressures have been largely responsible for a declining incidence of corporate pension plans as well as reductions in health care coverage for employees in the corporate sector. Indeed, some companies have undertaken "strategic bankruptcies" in order to renege on pensions promised to workers (Orr, 1998). In the analyses of a number of commentators, the combination of these and others developments has resulted in a substantial shrinking of the middle class as well as marked increases in inequality in the distributions of wealth and income in the US (Krugman, 2007).…”

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confidence: 99%

Shareholder Wealth Maximization and Social Welfare: A Utilitarian Critique

2013

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Many scholars and managers endorse the idea that the primary purpose of the firm is to make money for its owners. This shareholder wealth maximization objective is justified on the grounds that it maximizes social welfare. In this article, the first of a two-part set, we argue that, although this shareholder primacy model may have been appropriate in an earlier era, it no longer is, given our current state of economic and social affairs. To make our case, we employ a utilitarian moral standard and examine the apparent logical sequence behind the link between shareholder wealth maximization and social welfare. Upon close empirical and conceptual scrutiny, we find that utilitarian criteria do not support the shareholder model; that is, shareholder wealth maximization is only weakly linked to social welfare maximization. In view of the dubious validity of this sequential argument, we outline some of the features of a superior corporate objective-a variant of normative stakeholder theory. In the second article, we will advance and defend our preferred alternative and then discuss some institutional arrangements under which it could be implemented.KEY WORDS: shareholder wealth maximization (SWM), corporate objective function, normative corporate governance, utilitarianism, social welfare "If you will pardon me for being personal, it makes a great difference in my attitude toward my job as an executive officer of the General Electric Company whether I am a trustee of the institution or an attorney for the investor. If I am a trustee, who are the beneficiaries of the trust? To whom do I owe my obligations?"-Owen D. Young, former Chairman of GE (Dodd, 1932(Dodd, : 1154 T HE ISSUE ARTICULATED BY MR. YOUNG decades ago is still relevant today and is one that a considerable number of scholars have devoted themselves to, not in terms of particular companies, but for corporations in general. This article addresses the underlying question, one that lies at the very core of corporate governance for both practicing managers and business scholars: what should be the objective of corporations in a market capitalist economy? Put somewhat differently, what should managers, who govern these firms, strive to achieve?https://www.cambridge.org/core/terms. https://doi.org/10.5840/beq201323215Downloaded from https://www.cambridge.org/core. IP address: 52.183.12.225, on 28 Apr 2019 at 03:44:10, subject to the Cambridge Core terms of use, available at Business Ethics QuarterlyWe aim to answer these questions in two separate articles. This first article will demonstrate the weaknesses of the conventional corporate objective-shareholder wealth maximization (SWM)-from a utilitarian perspective. It will focus on the apparent logic behind SWM as part of a set of institutions intended to produce maximal social welfare, the ultimate goal of utilitarian moral thought. After finding each of the four interconnected arguments that make up that logic quite weak, we suggest a path toward a credible alternative corporate objective. The second ...

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“…Furthermore, because they set aside money today to finance those future liabilities, firms must also estimate the expected rate of return on current pension assets for the next (n + y) years, where y represents the number of years the firm expects to pay the benefits after retirement. Deviations from these assumptions, such as increased life expectancies, higher wages, or worse-than-assumed performance of pension assets, must be compensated for in the form of increased contributions (Orr, 1998). 1…”

Section: Relationshipmentioning

confidence: 99%

“…As a result, pension theory contends that for employees to be willing to forgo wages for promised future benefits, DB pensions must be coupled with an implicit promise of continued employment (Lazear, 1986). Many scholars have thus characterized the DB pension as both an economic and social contract (e.g., Orr, 1998;Shleifer & Summers, 1988).…”

Section: Defined Benefit Pensions and Retirement Riskmentioning

confidence: 99%

Risky Business: The Decline of Defined Benefit Pensions and Firms’ Shifting of Risk

Cobb

2015

Organization Science

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Since the early 1980s, employment in the United States has undergone significant transformation as the large corporations that once safeguarded employees with stable jobs and rewards for loyalty have replaced these employment relationships with ones based on cost containment and flexibility. One important consequence of these developments is that firms have abdicated their role as a critical risk bearer in society. Although evidence suggests that firms have increasingly shifted market risks onto their workforce, to date, there have been few detailed analyses exploring what factors have driven this phenomenon. This study adds to our understanding of why firms have transferred risk to their employees by examining the decline of a highly institutionalized practice wherein large U.S. firms used to bear retirement risk: the defined benefit (DB) pension plan. Through a detailed analysis, I show that variance in the presence, power, and interests of shareholders and employees at the firm level differentially affect a firm’s willingness to shift the risk of retirement onto its workers. Specifically, I demonstrate empirically that different types of shareholders have differential effects on a firm’s retirement practices, suggesting that the changing equity ownership structure of large U.S. firms has played a key role in how risk is allocated between workers and firms. Declines in employee power have also played a role because firm levels of unionization positively affect rates of DB participation for both unionized and nonunionized workers.

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Strategic Bankruptcy and Private Pension Default

Cited by 13 publications

References 21 publications

Age discrimination legislation and the employment of older workers

Age discrimination legislation and the employment of older workers

Shareholder Wealth Maximization and Social Welfare: A Utilitarian Critique

Risky Business: The Decline of Defined Benefit Pensions and Firms’ Shifting of Risk

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