Wotking paperThis paper examines the effect of a company’s unfunded pension liabilities on its stock
market valuation. Using a sample of UK FTSE350 firms with defined benefit pension
schemes, we find that although unfunded pension liabilities reduce the market value of
the firm, the coefficient estimates indicate a less than one-for-one effect. Moreover,
there is no evidence of significantly negative subsequent abnormal returns for highly
underfunded schemes. These results suggests that shareholders do take into
consideration the unfunded pension liabilities when valuing the firm, but do not fully
incorporate all available information
