Investors in FTSE 100 companies with defined benefit plans are penalizing those companies for their pension liabilities regardless of the pension plan's funded status, said a study by U.K. economics consultant Llewellyn Consulting.
The study, funded by the Pension Insurance Corp., matched financial and pension fund data from company financial statements and compared it with stock market performance and company valuation data from January 2006 to March 2013. It said investors add up to 20% to reported pension liabilities when they value those companies.
“Share price performance implies that investors, whether consciously or unconsciously, investors are effectively are writing up the value of those liabilities when they get to the value of what the company is worth,” said David Collinson, head of strategic development at Pension Insurance Corp., in a telephone interview.
“The trouble is obviously by necessity quite academic, but that's the overall conclusion (that) a business with a pension liabilities reports it as a billion, the valuation of the business is consistent with the liability being 1.2 billion,” Mr. Collinson said.
With total pension liabilities at £500 billion ($817 billion) among FTSE 100 companies, Mr. Collinson said that means that investors are valuating those companies as if there were a total of £600 billion in liabilities, affecting their perception of the balance sheets and driving down their share prices.
The study is available on Pension Insurance Corp.'s website.