An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Paul Johnmarcel Klumpes
Imperial College London

Abstract: We adopt a fair valuation-based variable effect event study methodology to study the effect of unexpected changes in interest rates on the pension exposure stock price returns of samples of UK and US firms that either did or did not voluntarily switch to market based discount rate assumptions. We investigate both the incremental and relative information content of an insurance-based fair value perspective on the measurement of pension effect by measuring the impact of unexpected changes in interest rates on the association of stock price returns with the interest-rate sensitive of firms’ pension asset and liabilities. These results suggest that, relative to equivalent sample of US firms that are subject to recognition of their pension exposure, the footnote disclosure of pension exposure during an extended transitional period means that the UK stock market is unable to discriminate the differential effect of unexpected changes in interest rates on a firm’s pension exposure.

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