Three essays on corporate pension underfunding, securities valuation and market efficiency

This dissertation consists of three essays on corporate pension plan underfunding and securities valuation. The first essay presents evidence that sell-side stock analysts systematically underreact to pension underfunding information when they forecast firm earnings and such underreaction is associated with future stock returns. The second essay examines the effect of pension obligation overhang on ratings of a firm's bond issues with different seniority. It shows that both the level and changes of pension obligations have significant effects on bond ratings and bond liquidity of non-senior secured issues (including senior unsecured, senior subordinate, subordinate, and junior subordinate bonds), but have no effects on bond ratings of senior secured issues. Finally, the third essay reports that firms manipulate earnings to meet or beat analysts' expectations through opportunistically increasing the expected rate of return on pension plan assets.