Pension accruals and share prices: evidence from the amortization costs of transition amounts

Takafumi Sasaki

Asia-Pacific Journal of Accounting & Economics, 2017, vol. 24, issue 1-2, 216-231

Abstract: This article investigates whether the market rationally evaluates the economic value of pension plans by focusing on the impacts of amortization costs of transition amounts on share prices. Because the amortization costs of transition amounts are cost attributed to the old deficits that appeared in the adoption year, they do not contain new additional information unless managers deliver private information through accountings choices. The data-set is from Japanese firms after the adoption of the postretirement accounting standard wherein recognition costs of transition amounts had a huge impact on the bottom-line earnings of sponsoring firms. We find that investors evaluate the amortization costs of transition amounts as though they hold new, value-relevant information. On the other hand, we do not have clear evidence that managers deliver private information through accounting discretions on the amortization of transition amounts.

Date: 2017
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DOI: 10.1080/16081625.2016.1170617

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Asia-Pacific Journal of Accounting & Economics is currently edited by Yin-Wong Cheung, Hong Hwang, Jeong-Bon Kim, Shu-Hsing Li and Suresh Radhakrishnan

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