Relative Measurement Errors Among Alternative Pension Asset and Liability Measures.

Abstract The article investigates the measures of pension assets and liabilities to determine which most closely reflect those that investors assess when they value firms. Several measures considered to have conceptual merit are disclosed under SFAS 87, but no single method has been deemed most appropriate. The attributes of the three asset and five liability measurement alternatives disclosed and the controversies surrounding the Financial Accounting Standards Board (FASB)'s deliberations on these alternatives are considered in the research design. Because the pension asset and liability issues in SFAS 87 relate to measurement and reflect a variety of unresolved questions, an approach directly utilizes relevance and reliability, two primary accounting choice characteristics advanced by the FASB. These two attributes are operationalized by the variances and levels of differences between alternative measures and the implied investors' assessment. In most prior studies using cross-section valuation to address a variety of research questions, a model is posited and then tested by using book values as substitutes for unobservable variables.