Pension Funding Decisions, Interest Rate Assumptions and Share Prices
This paper explores how unfunded pension obligations affect the market values of firms. Finns appear to choose the interest rate they use in discounting future benefit obligations so as to balance the tax advantages of a low rate against the more healthy looking annual reports a high rate allows. Investors seem to penetrate this ruse and value firms as if obligations were figured at a standard rate. The rate thus used seems to be much lower than current long term interest rates. Pension liabilities are therefore overemphasized by the market. There is also some evidence that pension assets are undervalued. This suggests that growth of the private pension system might increase savings by investors and firms.
|Date of creation:||Jul 1982|
|Date of revision:|
|Publication status:||published as Bodie, Zvi and John B. Shoven (eds.) Financial Aspects of the U.S. Pension System. Chicago: University of Chicago Press, 1983.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
- Feldstein, Martin & Green, Jerry, 1983.
"Why Do Companies Pay Dividends?,"
3204679, Harvard University Department of Economics.
- Martin Feldstein & Stephanie Seligman, 1980.
"Pension Funding, Share Prices, and National Saving,"
NBER Working Papers
0509, National Bureau of Economic Research, Inc.
- Feldstein, Martin & Seligman, Stephanie, 1981. "Pension Funding, Share Prices, and National Savings," Journal of Finance, American Finance Association, vol. 36(4), pages 801-24, September.
- Jeremy I. Bulow, 1979. "Analysis of Pension Funding Under Erisa," NBER Working Papers 0402, National Bureau of Economic Research, Inc.
- Feldstein, Martin S, 1978. "The Rate of Return, Taxation and Personal Savings," Economic Journal, Royal Economic Society, vol. 88(351), pages 482-87, September.
- Martin Feldstein, 1983.
"Inflation and the Stock Market,"
in: Inflation, Tax Rules, and Capital Formation, pages 186-198
National Bureau of Economic Research, Inc.
- Irwin Tepper, 1981. "Taxation and Corporate Pension Policy," NBER Working Papers 0661, National Bureau of Economic Research, Inc.
- Oldfield, George S, Jr, 1977. "Financial Aspects of the Private Pension System," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 9(1), pages 48-54, February.
- Mark Gersovitz, 1980. "Economic Consequences of Unfunded Vested Pension Benefits," NBER Working Papers 0480, National Bureau of Economic Research, Inc.
- Fischer Black, 1980. "The Tax Advantages of Pension Fund Investments in Bonds," NBER Working Papers 0533, National Bureau of Economic Research, Inc.
- Kotlikoff, Laurence J. & Smith, Daniel E., 1984.
"Pensions in the American Economy,"
National Bureau of Economic Research Books,
University of Chicago Press,
edition 0, number 9780226451466, March.
- Lawrence H. Summers, 1982. "The Nonadjustment of Nominal Interest Rates: A Study of the Fisher Effect," NBER Working Papers 0836, National Bureau of Economic Research, Inc.
- Laurence J. Kotlikoff & Daniel E. Smith, 1983. "Introduction to "Pensions in the American Economy"," NBER Chapters, in: Pensions in the American Economy, pages 1-19 National Bureau of Economic Research, Inc.
- Tepper, Irwin, 1981. "Taxation and Corporate Pension Policy," Journal of Finance, American Finance Association, vol. 36(1), pages 1-13, March.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:0938. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.