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March 18, 2026The Accounting Review0 citations

Measurement of Financial Leverage in the Presence of Unfunded Pension Obligations.

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DDDan S. Dhaliwal

Key Points

  • The study investigates if unfunded pension obligations are perceived as debt by capital market participants and their impact on firm risk.
  • Empirical examination of unfunded pension obligations and financial leverage.
  • Utilization of Hamada's model from 1972 to relate systematic risk to financial risk and business risk.
  • Analysis of market perceptions regarding firm risk with and without including pension liabilities.
  • Including unfunded pension liabilities improves the explanatory power of financial leverage measurements.
  • The effect of unfunded pension liabilities on perceived firm risk is statistically similar to that of other debts.
  • Capital market participants generally view unfunded pension obligations as a type of debt.

Abstract

Abstract ABSTRACT: This study examines empirically whether unfunded vested pension obligations that are not recorded in corporate balance sheets are viewed as a form of debt by the capital market participants when assessing firm risk. This is accomplished by using a model developed by Hamada 1972 which relates the systematic risk of a firm to its financial risk and business risk. The explanatory power of the model is improved when unfunded vested pension liabilities are included in the measurement of financial leverage. Furthermore, the effect of unfunded vested pension liabilities on market-perceived risk of the firm is not significantly (statistically) different from that of debt and other liabilities.

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Cite This Study

Dan S. Dhaliwal (1986) studied this question.

synapsesocial.com/papers/69ba43694e9516ffd37a4addhttps://doi.org/10.2308/tar-4479052
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