What have research studies indicated about whether a firm’s unfunded pension benefits are interpreted as liabilities?
What will be an ideal response?
ANSWER:
If a firm’s unfunded pension benefits are interpreted as liabilities, then stock prices should be lower in the presence of unfunded benefits since they would lessen the value of residual stockholder claims. Several studies have reported this to be the case. Also, there is evidence that bond ratings are lower and interest rates are higher in the presence of unfunded benefits, which is consistent with the market acting as if they are liabilities.
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