Journal article
Valuation implications of reliability differences: The case of nonpension postretirement obligations
The Accounting review, Vol.72(3), pp.351-383
07/01/1997
Abstract
This paper examines whether accumulated postretirement benefit obligations (APBO) are useful in assessing equity market values. Using an extension of the econometric procedures outlined in Barth (1991), observed market capitalization rates are used on accounting measures to estimate "noise ratios" defined as the ratio of measurement error variance of the accounting measure. Differences in estimated noise ratios are then used to make inferences about the relative reliability of APBO and pension liability measures. It is found that APBO amounts are marginally significant in explaining cross-sectional differences in equity values, but they are capitalized at a much lower rate than pension obligations. Consistent with predicted differences in reliability, the estimated noise ratio for APBO is significantly greater than that for pension obligations. Moreover, it is found that estimated APBO noise ratios vary predictably across firms as a function of the retiree/active employee ratio and the likelihood of health care benefit reductions.
Details
- Title: Subtitle
- Valuation implications of reliability differences: The case of nonpension postretirement obligations
- Creators
- Byeonghee ChoiDaniel W CollinsW Bruce Johnson
- Resource Type
- Journal article
- Publication Details
- The Accounting review, Vol.72(3), pp.351-383
- ISSN
- 0001-4826
- eISSN
- 1558-7967
- Publisher
- American Accounting Association
- Language
- English
- Date published
- 07/01/1997
- Academic Unit
- Accounting
- Record Identifier
- 9984963042402771
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