Description: The association between disclosed financial accounting data and firm value is examined, while incorporating the effect of managerial discretion in reporting those data. Assumptions used to compute a firm's pension liability are addressed. These findings suggest that analysts recognize managers' use of unjustified assumptions and the disclosed accounting numbers are appropriately discounted.

Description: Due to the decline in interest rates in 1993, the SEC staff began focusing on the discount rates being used for pension and postretirement benefit accounting under FASB Statement of Financial Accounting Standards FAS 87, 'Employers' Accounting for Pensions,' and FAS 106, 'Employers' Accounting for Postretirement Benefits Other Than Pensions.' Employers will need to assess their discount rates and, for some, reduce those rates significantly. To help plan sponsors comply with the SEC guidelines, Salomon Brothers has developed a Pension Discount Curve and a Pension Liability Index. This report reviews the construction of these two measures, as of December 1994.