How Does the Market Value Unfunded Pension Liabilities?
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.
|Date of creation:||Apr 1985|
|Date of revision:|
|Publication status:||published as Bulow, Jeremy, Randall Morck and Lawrence H. Summers. "How does the Market Value Unfunded Pension Liabilities?" Issues in Pension Eocnomics, edited by Z. Bodie, J. Shoven and D. Wise, Chicago: UCP, 1987.|
|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
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- Jeremy I. Bulow & Randall Morck & Lawrence H. Summers, 1987.
"How Does the Market Value Unfunded Pension Liabilities?,"
in: Issues in Pension Economics, pages 81-110
National Bureau of Economic Research, Inc.
- Jeremy I. Bulow & Randall Morck & Lawrence H. Summers, 1985. "How Does the Market Value Unfunded Pension Liabilities?," NBER Working Papers 1602, National Bureau of Economic Research, Inc.
- French, Kenneth R & Ruback, Richard S & Schwert, G William, 1983. "Effects of Nominal Contracting on Stock Returns," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 70-96, February.
- Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-84, December.
- 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.
- Martin Feldstein & Stephanie Seligman, 1980. "Pension Funding, Share Prices, and National Saving," NBER Working Papers 0509, National Bureau of Economic Research, Inc.
- Sharpe, William F., 1976. "Corporate pension funding policy," Journal of Financial Economics, Elsevier, vol. 3(3), pages 183-193, June.
- Mark Gersovitz, 1980. "Economic Consequences of Unfunded Vested Pension Benefits," NBER Working Papers 0480, National Bureau of Economic Research, Inc.
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