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Do investors misprice components of net periodic pension cost?
Author(s) -
Shin YongChul,
Yu Kun
Publication year - 2016
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/acfi.12089
Subject(s) - pension , accrual , valuation (finance) , cash flow , business , institutional investor , cash , monetary economics , economics , actuarial science , accounting , finance , earnings , corporate governance
We examine whether and how investors misprice the components of net periodic pension cost under SFAS No. 87 and 158. We find that investors appear to have difficulty in understanding the transitory feature of other net periodic pension cost ( PPOPCC ) and thus overestimate its persistence, which in turn leads to the mispricing of PPOPCC in the pre‐158 period. We also find that SFAS No. 158 appears to reduce the mispricing of PPOPCC , suggesting a positive effect of SFAS No. 158 on investors' valuation of pension items in the income statement. Additional analysis suggests that investors also overestimate the persistence of, and thus misprice, pension‐related cash flows and accruals in the pre‐158 period and that SFAS No. 158 reduces the mispricing of pension‐related cash flows and accruals.