Journal of Pension Economics and Finance


The influence of pension plan risk on equity risk and credit ratings: a study of FTSE100 companies


a1 Queen's University Management School, Queen's University Belfast (email:

a2 School of Accounting, University of Ulster (email:


This paper examines the relationship between funding risk of defined benefit pension plans and both corporate debt ratings and equity risk measures for FTSE100 companies. Panel based models highlighted a direct relationship between pension plan risk and equity risk. Pension risk was also demonstrated to be factored into credit ratings with the analysis highlighting that the greater the pension risk, the greater the probability of obtaining a lower debt rating. From a rating agency viewpoint, this is positive news, particularly at present when agencies are being criticized for a perceived failure to reflect sub-prime mortgage problems in firm-specific ratings.

(Online publication March 10 2009)


The authors would like to thank Ronan Gallagher for research support. The authors would also like to thank John Wilson at the University of St. Andrews and John Goddard at the University of Wales, Bangor for useful comments and suggestions on the paper. The authors are also grateful for financial support provided by the Association of Chartered Certified Accountants.