How Does the Market Value Unfunded Pension Liabilities?

43 Pages Posted: 28 May 2004 Last revised: 30 Jan 2013

Jeremy Bulow

Stanford University; National Bureau of Economic Research (NBER)

Randall Morck

University of Alberta - Department of Finance and Statistical Analysis; National Bureau of Economic Research (NBER); European Corporate Governence Institute; Asian Bureau of Finance and Economic Research

Lawrence H. Summers

Harvard University; National Bureau of Economic Research (NBER); Harvard University - Harvard Kennedy School (HKS)

Date Written: April 1985

Abstract

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.

Suggested Citation

Bulow, Jeremy I. and Morck, Randall K. and Summers, Lawrence H., How Does the Market Value Unfunded Pension Liabilities? (April 1985). NBER Working Paper No. w1602. Available at SSRN: https://ssrn.com/abstract=227199

Jeremy I. Bulow (Contact Author)

Stanford University ( email )

Room L 237
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National Bureau of Economic Research (NBER)

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Randall K. Morck

University of Alberta - Department of Finance and Statistical Analysis ( email )

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Canada
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National Bureau of Economic Research (NBER)

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European Corporate Governence Institute ( email )

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Belgium

Asian Bureau of Finance and Economic Research ( email )

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1 Business Link
Singapore, 117592
Singapore

Lawrence H. Summers

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States
617-495-1502 (Phone)
617-495-8550 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

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