Online from: 2002
Subject Area: Accounting and Finance
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|Title:||The value relevance of pension accounting information: evidence from |
|Author(s):||Edward M. Werner, (LeBow College of Business, Drexel University, Philadelphia, Pennsylvania, USA)|
|Citation:||Edward M. Werner, (2011) "The value relevance of pension accounting information: evidence from |
|Keywords:||Accounting standards, Credit rating, Fair value, Pension accounting, Pensions, SFAS 87, Standard harmonization, United States of America, Value relevance|
|Article type:||Research paper|
|DOI:||10.1108/14757701111185362 (Permanent URL)|
|Publisher:||Emerald Group Publishing Limited|
Purpose – The purpose of this paper is to examine, in the context of movement towards a fair-value based pension accounting standard, the value relevance of both recognized and disclosed pension accounting information.
Design/methodology/approach – Using hand-collected data from
Findings – Findings indicate that pension information recognized under a fair-value-based accounting model is no more or less value relevant than pension information recognized under the SFAS 87 model. Also, the disclosed off-balance sheet pension amount is incrementally value relevant for determining share prices. However, it is not value relevant for the credit rating decision.
Research limitations/implications – This study tests the relevance and reliability of accounting information jointly. Theoretically, however, relevance and reliability affect information usefulness and, thus, valuation decisions independently.
Originality/value – This paper yields a number of significant implications for standard setters. The unique evidence that investors apply off-balance sheet pension amounts in the equity valuation context implies that required recognition under a fair-value standard may not provide a significant incremental benefit over DB plan disclosures. However, such a standard may yield potential improvements in the credit rating decision context and may be much more likely to impact credit rating decisions going forward. Considering the continued shift towards fair-value-based pension accounting standards internationally, recognizing transitory elements of fair-value pension cost separately from operating income is essential for mitigating any potential loss in value relevance.
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