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The value relevance of pension accounting information: evidence from Fortune 200 firms

Edward M. Werner (LeBow College of Business, Drexel University, Philadelphia, Pennsylvania, USA)

Review of Accounting and Finance

ISSN: 1475-7702

Article publication date: 1 November 2011




The purpose of this paper is to examine, in the context of movement towards a fair‐value based pension accounting standard, the value relevance of both recognized and disclosed pension accounting information.


Using hand‐collected data from Fortune 200 firms, this study includes both recognized and disclosed pension accounting measures (aggregated and disaggregated) in multivariate regression models. The investigation employs tests of relative and incremental value relevance in both equity and credit rating evaluation contexts.


Findings indicate that pension information recognized under a fair‐value‐based accounting model is no more or less value relevant than pension information recognized under the SFAS 87 model. Also, the disclosed off‐balance sheet pension amount is incrementally value relevant for determining share prices. However, it is not value relevant for the credit rating decision.

Research limitations/implications

This study tests the relevance and reliability of accounting information jointly. Theoretically, however, relevance and reliability affect information usefulness and, thus, valuation decisions independently.


This paper yields a number of significant implications for standard setters. The unique evidence that investors apply off‐balance sheet pension amounts in the equity valuation context implies that required recognition under a fair‐value standard may not provide a significant incremental benefit over DB plan disclosures. However, such a standard may yield potential improvements in the credit rating decision context and may be much more likely to impact credit rating decisions going forward. Considering the continued shift towards fair‐value‐based pension accounting standards internationally, recognizing transitory elements of fair‐value pension cost separately from operating income is essential for mitigating any potential loss in value relevance.



Werner, E.M. (2011), "The value relevance of pension accounting information: evidence from Fortune 200 firms", Review of Accounting and Finance, Vol. 10 No. 4, pp. 427-458.



Emerald Group Publishing Limited

Copyright © 2011, Emerald Group Publishing Limited

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