Do Investors Misprice Components of Net Periodic Pension Cost?
Accounting & Finance, Forthcoming
42 Pages Posted: 2 Jul 2014
Date Written: June 30, 2014
We examine whether and how investors misprice the components of net periodic pension cost under SFAS No. 87 and 158. We find that investors appear to have difficulty in understanding the transitory feature of other net periodic pension cost (PPOPCC) and thus overestimate its persistence, which in turn leads to the mispricing of PPOPCC in the pre-158 period. We also find that SFAS No. 158 appears to reduce the mispricing of PPOPCC, suggesting a positive effect of SFAS No. 158 on investors’ valuation of pension items in the income statement. Additional analysis suggests that investors also overestimate the persistence of, and thus misprice, pension-related cash flows and accruals in the pre-158 period and that SFAS No. 158 reduces the mispricing of pension-related cash flows and accruals.
Keywords: net periodic pension cost, SFAS No. 158, mispricing, persistence, pension accruals
JEL Classification: M41, G14
Suggested Citation: Suggested Citation