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Title: Essays in pension finance
Author: Larcher, Luca
ISNI:       0000 0004 7654 1233
Awarding Body: Queen Mary University of London
Current Institution: Queen Mary, University of London
Date of Award: 2018
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This work analyses how investors and market participants perceive corporate defined benefit pensions. The first chapter compares how pension obligations impact the market value of US corporations under two accounting regimes. I find that market participants take into account the net position of the pension fund only if it is recognised on the sponsor's balance sheet. Before 2006 investors seem to focus on the accrual recognized on the balance sheet rather than the net funding position of the scheme disclosed in the notes to the financial statements, thus mispricing the pension deficit/surplus when valuing the sponsor. The second chapter focuses on UK defined benefit pensions and in particular on how future liabilities are discounted. I find that equity market valuation of DB pensions is consistent with discounting that allows for no credit risk. This is the appropriate approach but differs from that used in published accounts for which IAS 19 (and SFAS 158, its US equivalent) allows for discounting with a corporate bond yield. The difference is significant, as credit risk free discounting would decrease the reported value of FTSE 100 firms by about 7%. The third chapter investigates the ability of analysts to incorporate the income effect of defined benefit pensions on their earnings estimates. The earning component of defined benefit pensions can be reliably estimated using a set of assumptions chosen by the sponsoring company and disclosed in its annual report. I find that analysts persistently fail to use this information in their forecasts. I also exploit the different reporting periods of the companies in my sample together with a change in pension accounting rules to show that analysts at first fail to incorporate the effects of the accounting revision in their forecasts, but they do so for companies adopting it later.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available