Abstract
On July 6, 2012, the United States Congress passed a transportation bill, H.R. 4348, also known as Moving Ahead for Progress in the 21st Century (MAP-21). Buried deep within this law are provisions associated with allowing companies to adjust the required contributions for private sector pension funding. This paper builds on research by others regarding the potential benefits this legislation created by these pension funding changes for companies and their shareholders. Reduction of pension contributions provides firms additional dollars that are available to be used at the firm’s discretion. Possible uses of this reallocation of funds includes reinvestment in capital, retaining earnings, or giving a dividend to shareholders. In all these cases, the reduced contributions allow a company the opportunity to increase the firm value. This research studies whether firms reduced these contributions and whether doing so increases the value of the firm as reflected in a positive abnormal return (AR). Previous research has analyzed how the market views firm value, reflected in stock price changes, as an event study with evaluation at each of the legislative steps when the bill was passed. This research contributes to the scholarly literature by focusing on abnormal returns based on steps a firm took after the passage of the legislation. Firm changes are reflected in the 2012-2013 10-K reporting and in IRS 5500 filings and show how these adjustments benefitted firms with pension plans. The research will also show support for the semi-strong efficient market theory showing increased return opportunities only after the release of new information.