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How Does the Market Value Unfunded Pension Liabilities?

In: Issues in Pension Economics

  • Jeremy I. Bulow
  • Randall Morck
  • Lawrence H. Summers

We lead off by discussing a number of theoretical reasons for expecting various relationships between a firm's unfunded pension liability and its market value. We then discuss our doubts about the methodology of earlier papers which studied the empirical relation between funding and market value using standard cross sectional techniques. A modified cross sectional approach which alleviates some of these doubts, and a variable effect event study methodology which alleviates most of them are both employed to investigate the issues raised in the first part of the paper. Our conclusion confirms those of earlier studies that unfunded pension liabilities are accurately reflected in lower share prices.

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This chapter was published in:
  • Zvi Bodie & John B. Shoven & David A. Wise, 1987. "Issues in Pension Economics," NBER Books, National Bureau of Economic Research, Inc, number bodi87-1, July.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 6854.
    Handle: RePEc:nbr:nberch:6854
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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