Paper #871

Títol:

Pension plan funding and stock market efficiency

Autors:

Francesco Franzoni i José M. Marín

Data:

Juny 2005

Resum:

The paper argues that the market signifficantly overvalues firms with severely underfunded pension plans. These companies earn lower stock returns than firms with healthier pension plans for at least five years after the first emergence of the underfunding. The low returns are not explained by risk, price momentum, earnings momentum, or accruals. Further, the evidence suggests that investors do not anticipate the impact of the pension liability on future earnings, and they are surprised when the negative implications of underfunding ultimately materialize. Finally, underfunded firms have poor operating performance, and they earn low returns, although they are value companies.

Paraules clau:

Pricing anomalies, DB plans, market efficiency

Codis JEL:

G12, G14, G23, J26, M41

Àrea de Recerca:

Finances i Comptabilitat

Publicat a:

The Journal of Finance, Volume 61, Number 2, April 2006, pp. 921-956(36)

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