Date of Award

Summer 7-1-2014

Document Type


Degree Name

Doctor of Philosophy (PhD)

First Advisor

Yonca Ertimur

Second Advisor

Steven K. Rock

Third Advisor

Alan Jagolinzer


This paper examines whether, by requiring firms to base their discount rate assumption on current "high-quality" corporate bond yields, current pension standards produce less decision-useful estimates of pension obligations relative to the methodology used to calculate pension obligations under the Employee Retirement Income Security Act (ERISA). To assess decision-usefulness, I investigate how well alternative measures of firms' pension obligations reflect information used by investors and creditors relative to reported obligations (PBOGAAP). Using hand-collected data, I calculate alternative measures of firms' pension obligations using discount rates based on historical bond yields, similar to ERISA methodology. I find that PBOGAAP is a more credit relevant estimate of firms' pension obligations relative to all the alternative PBO estimates I calculate. However, I do not find a significant difference in the ability of PBOGAAP to explain equity prices relative to an alternative measure calculated using a discount rate assumption based on a 10-year historical average of bond yields. Using a pre-/post- financial crisis design, I provide weak evidence that this result could be consistent with investors doubting the usefulness of PBOGAAP in the post-financial crisis era due to the unique interest rate environment that existed during this time. The findings of this paper speak to the differences in the informational needs of investors and creditors. They may also inform standard setters about the usefulness of the pension obligation estimates produced by the current standards by investigating whether the usefulness of these estimates is affected by the interest rate environment in which they are calculated.

Included in

Accounting Commons