Pension Accounting and Corporate Earnings: the World According to Gaap

48 Pages Posted: 14 Jul 2006

See all articles by Peter Fortune

Peter Fortune

Federal Reserve Bank of Boston

Date Written: December 2005

Abstract

This study's underlying premise is that current pension plan accounting has two important negative effects. First, it distorts the measurement of earnings and net worth in the short run, as well as the pattern of earnings over future periods. Second, this distortion can send incorrect signals to investors about a firm's health, resulting in the mispricing of a firm's outstanding debt and equity instruments. The author demonstrates how these distortions are introduced, examines the magnitude of the distortions, and discusses proposals for reform.

JEL Classification: E01, G12, G23, G35, M41

Suggested Citation

Fortune, Peter, Pension Accounting and Corporate Earnings: the World According to Gaap (December 2005). FRB of Boston Public Policy Discussion Paper No. 06-2. Available at SSRN: https://ssrn.com/abstract=917202 or http://dx.doi.org/10.2139/ssrn.917202

Peter Fortune (Contact Author)

Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

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