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

Yan Li
University of Alberta

Thomas Scott
University of Alberta

Abstract: We explain the historically equivocal evidence on the link between pension information and firm value by proposing and testing a complementary human capital hypothesis. We demonstrate that reported pension information captures more than the presumed pension cost, asset, and liability. We find that the service/pension cost for defined benefit/contribution plan firms have consistently positive coefficients that can be attributed to capturing human capital in regressions explaining price and returns. The pension asset and liability have signs and magnitude consistent with simply capturing an accounting asset or liability when service cost is included. Several specification tests confirm that these results are robust. We provide additional confirmation of the human capital hypothesis by examining firms that are likely to have more or less human capital and find that the coefficient on service cost is correspondingly more or less positive.

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