Contrasting the Information Demands of Equity- and Debt-Holders: Evidence From Pension Liabilities

https://doi.org/10.1016/j.jacceco.2020.101366

Journal of Accounting & Economics (JAE), Forthcoming

55 Pages Posted: 9 Mar 2021

See all articles by Divya Anantharaman

Divya Anantharaman

Rutgers, The State University of New Jersey - Accounting & Information Systems

Darren Henderson

Wilfrid Laurier University

Multiple version iconThere are 2 versions of this paper

Date Written: November 1, 2020

Abstract

In the setting of defined-benefit pension liabilities, we hypothesize that equity and debt investors value these liabilities differently. As expected, we find that investors’ valuations of equity more closely align with a going concern perspective that emphasizes the long-term funding needs of pension plans. In contrast, as expected, we find that investors’ pricing of short-term and unsecured debt more closely aligns with a settlement perspective that emphasizes pension termination costs. For both equity and debt securities, the settlement (going concern) perspective dominates for short-duration (long-duration) pensions. Overall, our evidence suggests that equity and debt investors perceive complex liabilities in predictably different ways that are consistent with their differing information demands, which in turn vary with the characteristics of the obligation.

Keywords: value-relevance, credit-relevance, pension liabilities, discount rates, actuarial assumptions

JEL Classification: M41

Suggested Citation

Anantharaman, Divya and Henderson, Darren, Contrasting the Information Demands of Equity- and Debt-Holders: Evidence From Pension Liabilities (November 1, 2020). https://doi.org/10.1016/j.jacceco.2020.101366, Journal of Accounting & Economics (JAE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=3765505 or http://dx.doi.org/10.2139/ssrn.3765505

Divya Anantharaman

Rutgers, The State University of New Jersey - Accounting & Information Systems ( email )

1 Washington Park
#916
Newark, NJ 07102
United States

Darren Henderson (Contact Author)

Wilfrid Laurier University ( email )

75 University Ave W
waterloo, ontario N2L 3C5
Canada

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