Further Evidence on the Association between Pension Plan Accounting and Firm Values

We compare the value relevance of pension plan accounting in the pre- and post-SFAS No. 158 periods. Before SFAS No. 158, stock prices are positively associated with pension earnings rather than net pension assets, suggesting that investors rely on pension plan information in the earnings rather than pension assets and liabilities disclosed in the footnotes to establish stock prices. The association between stock prices and net pension assets (pension earnings) significantly increases (decreases) after SFAS No.158, implying that net pension assets (pension earnings) have become more (less) important in firm valuation. Additional analyses show that value relevance of net pension assets significantly increases for firms with higher institutional ownership, larger bid-ask spread, more business segments, higher E-index and larger and more independent boards. These results suggest that investors pay more attention to the pension assets and liabilities recognized on the balance sheets and such information is better reflected in stock prices after SFAS No. 158.