Seeing Through News concerning Unfunded Pension Benefit Obligation Write-Off Policies in Japan : Market Reaction to News on Newspaper

Abstract

This paper focuses on the information content of the periodic allocation of expense by managers. In this paper, we analyzed the direction and magnitude of stock price changes in response to the disclosure of write-off policies of 424 Japanese companies on two newspapers. We obtained some empirical evidence that information concerning write-off policies confirms or changes the expectation of investors about the target companies. This was achieved by our examination concerning market reactions to information about write-off policies of unfunded pension benefit obligations; good and bad performances by short and long write-off periods. Companies that had disclosed their write-off policies were assigned to one of the two categories: companies with good performance or companies with poor performance. Our observation of the effect of the length of unfunded pension benefit obligation (UPBO) write-off periods on stock prices made it clear that the disclosed write-off policies contained information that either confirmed or caused the revision of investors had formed opinions regarding the target companies. In the first section, we explain the change of accounting standards and consequent burden of write-off expense. In the second section, we review previous research. The hypothesis which will be verified is offered in the third while research design is in the forth section. The results of our examination and their implications are given in the fifth section. Lastly, we make concluding remarks in the sixth section.