Market Reaction to the Disclosure of Unfunded Pension Benefit Obligation Write-Off Policies in Japan

Abstract

This paper investigates whether stock prices react to the corporate

disclosures of pension cost write-off policy, and if they do, whether the

direction and the magnitude of such reaction are associated with the

level of unfunded pension benefit obligation and firm profitability in the

Japanese context. The results of the analysis partially support the

signaling explanation whereby financially affordable firms with large

amount of unfunded obligations are expected to be more likely to adopt

shorter term based write-offs, which are rewarded with favorable price

reactions.