This study reexamines the earlier finding of Michael J. Alderson and K. C. Chen (1986) that financial markets do not consider excess pension assets in determining share prices and that significant increases in shareholder wealth occur when an overfunded pension plan is terminated. The results document that specific event-time contamination (corporate restructuring announcements) provides the driving force for all the earlier findings.

Claims ultimately awarded to shareholders of firms in reorganization were examined for a sample of 30 filings under the 1978 Bankruptcy Reform Act. We measured the amount paid to shareholders in excess of that which they would have received under the absolute priority rule and found that this amount represents, on average, 7.6% of the total awarded to all claimants. Evidence is also reported that common share values reflect a significant proportion of value ultimately received in violation of absolute priority, suggesting that deviations from the rule were expected by the equity markets.

Claims ultimately awarded to shareholders of firms in reorganization were examined for a sample of thirty filings under the 1978 Bankruptcy Reform Act. The authors measured the amount paid to shareholders in excess of that which they would have received under the absolute priority rule and found that this amount represents, on average, 7.6 percent of the total awarded to all claimants. Evidence is also reported that common share values reflect a significant proportion of value ultimately received in violation of absolute priority, suggesting that deviations from the rule were expected by the equity markets.

This study re‐examines the earlier finding of Alderson and Chen (1986a) that financial markets do not consider excess pension assets in determining share prices and that significant increases in shareholder wealth occur when an overfunded pension plan is terminated. The results document that specific event‐time contamination (corporate restructuring announcements) provides the driving force for all the earlier findings.