How Does the Market Value Unfunded Pension Liabilities?

Jeremy I. Bulow, Randall Morck and Lawrence Summers

No 1602, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We lead off by discussing a number of theoretical reasons for expecting various relationships between a firm's unfunded pension liability and its market value. We then discuss our doubts about the methodology of earlier papers which studied the empirical relation between funding and market value using standard cross sectional techniques. A modified cross sectional approach which alleviates some of these doubts, and a variable effect event study methodology which alleviates most of them are both employed to investigate the issues raised in the first part of the paper. Our conclusion confirms those of earlier studies that unfunded pension liabilities are accurately reflected in lower share prices.

Date: 1985-04
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Published as Bulow, Jeremy, Randall Morck and Lawrence H. Summers. "How does the Market Value Unfunded Pension Liabilities?" Issues in Pension Eocnomics, edited by Z. Bodie, J. Shoven and D. Wise, Chicago: UCP, 1987.
Published as How Does the Market Value Unfunded Pension Liabilities? , Jeremy I. Bulow, Randall Morck, Lawrence H. Summers. in Issues in Pension Economics , Bodie, Shoven, and Wise. 1987

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