MARC Record from Library of Congress

LEADER: 02757cam a22003017a 4500
001 2005615428
003 DLC
005 20050114142335.0
007 cr |||||||||||
008 050111s2004 mau sb 000 0 eng
010 $a 2005615428
040 $aDLC$cDLC$dDLC
050 00 $aHB1
100 1 $aJin, Li.
245 10 $aDo a firm's equity returns reflect the risk of its pension plan?$h[electronic resource] /$cLi Jin, Robert Merton, Zvi Bobie.
260 $aCambridge, MA :$bNational Bureau of Economic Research,$cc2004.
490 1 $aNBER working paper series ;$vworking paper 10650
538 $aSystem requirements: Adobe Acrobat Reader.
538 $aMode of access: World Wide Web.
500 $aTitle from PDF file as viewed on 1/11/2005.
530 $aAlso available in print.
504 $aIncludes bibliographical references.
520 3 $a"This paper examines the empirical question of whether systematic equity risk of U.S. firms as measured by beta from the Capital Asset Pricing Model reflects the risk of their pension plans. There are a number of reasons to suspect that it might not. Chief among them is the opaque set of accounting rules used to report pension assets, liabilities, and expenses. Pension plan assets and liabilities are off-balance sheet, and are often viewed as segregated from the rest of the firm, with its own trustees. Pension accounting rules are complicated. Furthermore, the role of Pension Benefit Guaranty Corporation further clouds the real relation between pension plan risk and firm equity risk. The empirical findings in this paper are consistent with the hypothesis that equity risk does reflect the risk of the firm's pension plan despite arcane accounting rules for pensions. This finding is consistent with informational efficiency of the capital markets. It also has implications for corporate finance practice in the determination of the cost of capital for capital budgeting. Standard procedure uses de-leveraged equity return betas to infer the cost of capital for operating assets. But the de-leveraged betas are not adjusted for the risk of the pension assets and liabilities. Failure to make this adjustment will typically bias upwards estimates of the discount rate for capital budgeting. The magnitude of the bias is shown here to be large for a number of well-known U.S. companies. This bias can result in positive net-present-value projects being rejected"--National Bureau of Economic Research web site.
700 1 $aMerton, Robert C.
700 1 $aBobie, Zvi.
710 2 $aNational Bureau of Economic Research.
830 0 $aWorking paper series (National Bureau of Economic Research : Online) ;$vworking paper no. 10650.
856 40 $uhttp://papers.nber.org/papers/w10650