This article reviews the rich and vast literature on defined-benefit (DB) corporate pension plans. The analysis of how firms react to the taxation and regulation of pension plans and to the guarantees provided by the government has allowed researchers to test alternative corporate finance theories, including risk-shifting and risk management. The difficulty in measuring the value of pension liabilities has motivated the study of whether such liabilities are reflected in the cost of capital and in the value of sponsoring firms. The study of the sponsoring firms’ reaction to mandatory pension contribution has provided evidence on financing constraints and on the free-cash-flow hypothesis. Pension plan terminations and freezes have shed light on the nature of the employment contract between the firm and workers.


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