[This paper examines whether accumulated postretirement benefit obligations (APBO) are useful in assessing equity market values. Using an extension of the econometric procedures outlined in Barth (1991), we use observed market capitalization rates on accounting measures to estimate "noise ratios" defined as the ratio of measurement error variance to the total variance of the accounting measure. Differences in estimated noise ratios are then used to make inferences about the relative reliability of APBO and pension liability measures. We find that APBO amounts are marginally significant in explaining cross-sectional differences in equity values, but are capitalized at a much lower rate than pension obligations. Consistent with predicted differences in reliability, the estimated noise ratio for APBO is significantly greater than that for pension obligations. Moreover, we find estimated APBO noise ratios vary predictably across firms as a function of the retiree/active employee ratio and the likelihood of health care benefit reductions.]

This paper investigates systematic changes in the value-relevance of earnings and book values over time. We report three primary findings. First, contrary to claims in the professional literature, the combined value-relevance of earnings and book values has not declined over the past forty years and, in fact, appears to have increased slightly. Second, while the incremental value-relevance of ‘bottom line’ earnings has declined, it has been replaced by increasing value-relevance of book values. Finally, much of the shift in value-relevance fiom earnings to book values can be explained by the increasing frequency and magnitude of one-time items, the increasing frequency of negative earnings, and changes in average firm size and intangible intensity across time.

Most previous studies of the dynamics of industry structure, by emphasizing changes in concentration, conceal much of the nature of underlying competitive processes. Here we employ a stochastic firm growth model, estimated on U.K. data of 1979–1986 for over 200 leading firms, to derive joint predictions about the stability of market shares and the change of concentration. We find that changes in the market shares of surviving firms are the dominant influence on concentration, which is typically fairly stable in spite of considerable market-share turbulence. Advertising plays a major role in the dynamics of market shares and, therefore, affects both concentration and turbulence.

We examine market efficiency before and after the 1987 Market Crash using the box spread strategy implemented with European-style S&P 500 Index (SPX) options. Before the Crash, apparent arbitrage opportunities were rare and simulated trades were unprofitable assuming a one-minute execution delay. After the Crash, apparent arbitrage opportunities were frequent and simulated trades were profitable even assuming a five-minute execution delay. Our analysis makes the routine assumption that quotes are good until updated to construct a time series of prevailing quotes sampled at 30-second intervals. If this assumption is valid, then arbitrage profits were actually available. If this assumption is invalid, then such profits could have been illusory. Either scenario, however, implies that SPX market efficiency decreased following the Crash—prevailing price quotes repeatedly failed to satisfy the fundamental parity relation underlying the box spread.

Abstract This paper examines whether accumulated postretirement benefit obligations (APBO) are useful in assessing equity market values. Using an extension of the econometric procedures outlined in Barth (1991), we use observed market capitalization rates on accounting measures to estimate "noise ratios" defined as the ratio of measurement error variance to the total variance of the accounting measure. Differences in estimated noise ratios are then used to make inferences about the relative reliability of APBO and pension liability measures. We find that APBO amounts are marginally significant in explaining cross-sectional differences in equity values, but are capitalized at a much lower rate than pension obligations. Consistent with predicted differences in reliability, the estimated noise ratio for APBO is significantly greater than that for pension obligations. Moreover, we find estimated APBO noise ratios vary predictably across firms as a function of the retiree/active employee ratio and the likelihood of health care benefit reductions.