Human capital, pension information and firm valuation
by Yan Li; Thomas W. Scott
International Journal of Accounting, Auditing and Performance Evaluation (IJAAPE), Vol. 11, No. 1, 2015

Abstract: We demonstrate that the reported pension information in the notes to financial statements captures human capital, in addition to the compensation expense and accounting assets/liabilities information that it is purported to represent. In explaining prices (returns), we document that the service cost for defined benefit pension firms and the pension cost for defined contribution pension firms have consistently positive coefficients that can be attributed to capturing the sustainability (growth) of human capital. This finding confirms the existence of service cost anomaly and extends to pension cost for defined contribution plans. The human capital hypothesis is supported by the finding that the coefficients of service cost (for defined benefit plans) and pension cost (for defined contribution plans) are more (less) positive for firms that are likely to have more (less) sustainable human capital. Further, in a balance-sheet-based analysis where service cost is absent, the valuation of pension assets and liabilities is biased by the omitted human capital variable. Our results are robust to sensitivity tests taking into account multi-collinearity, scale effects, standard errors, outliers, and omitted variables.

Online publication date:: Mon, 16-Mar-2015

The full text of this article is only available to individual subscribers or to users at subscribing institutions.

 
Existing subscribers:
Go to Inderscience Online Journals to access the Full Text of this article.

Pay per view:
If you are not a subscriber and you just want to read the full contents of this article, buy online access here.

Complimentary Subscribers, Editors or Members of the Editorial Board of the International Journal of Accounting, Auditing and Performance Evaluation (IJAAPE):
Login with your Inderscience username and password:

    Username:        Password:         

Forgotten your password?


Want to subscribe?
A subscription gives you complete access to all articles in the current issue, as well as to all articles in the previous three years (where applicable). See our Orders page to subscribe.

If you still need assistance, please email subs@inderscience.com