TY - JOUR AU - Coronado,Julia AU - Mitchell,Olivia S. AU - Sharpe,Steven A. AU - Nesbitt,S. Blake TI - Footnotes Aren't Enough: The Impact of Pension Accounting on Stock Values JF - National Bureau of Economic Research Working Paper Series VL - No. 13726 PY - 2008 Y2 - January 2008 UR - http://www.nber.org/papers/w13726 L1 - http://www.nber.org/papers/w13726.pdf N1 - Author contact info: Julia Lynn Coronado BNP Paribas E-Mail: corolynn@gmail.com Olivia S. Mitchell University of Pennsylvania Wharton School 3620 Locust Walk, St 3000 SH-DH Philadelphia, PA 19104-6302 Tel: 215-898-0424 Fax: 215/898-0310 E-Mail: mitchelo@wharton.upenn.edu Steven A.. Sharpe Division of Research and Statistics, Federal Resererve Board 20th and Constitution Avenue, NW Washington, DC 20551 E-Mail: ssharpe@frb.gov S Blake Nesbitt Pension Research Council The Wharton School University of Pennsylvania 3000 SH-DH, 3620 Locust Walk Philadelphia, PA 19104-6218 E-Mail: blake.nesbitt@gmail.com AB - Some research has suggested that companies with defined benefit (DB) pensions are sometimes significantly misvalued by the market. This is because the measures of pension cost and pension net liabilities embedded in financial statements, taken at face value, can provide very misleading picture of pension finances. The more pertinent information on pension finances is relegated to footnotes, but might not receive much attention from portfolio managers. But dramatic swings in the financial conditions of large DB plans around the turn of the decade focused widespread attention on pension accounting practices, and dissatisfaction with current accounting standards has recently prompted the Financial Accounting Standards Board (FASB) to take up a project revamp DB pension accounting. Arguably, the increased attention should have made investors wise to the informational problems, thereby eliminating systematic mispricing in recent years. We test this proposition and conclude that investors continued to misvalue DB pensions, inducing sizable valuation errors in the stock of many companies. Our findings suggest that FASB's current reform efforts could substantially aid the market's ability to value firms with DB pensions. ER -