The Economic Consequences of SFAS No. 158

Fried, Abraham N.

doi:10.2139/ssrn.1579539

Cited by 8 publications

(6 citation statements)

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“…Earnings can be managed if high discount rates are chosen with the purpose of lowering the service cost and the interest cost (Adams, Frank, & Perry, 2011). Fried (2010) documents the impact of SFAS 158 on the behavior of sponsoring companies and identifies that due to increased SFAS 158 related pension liabilities managers chose to use higher discount rates. Also Houmes and Boylan (2010) identifies the usage of higher discount rates after the enactment of SFAS 158 especially for sponsoring companies with decreased liquidity and increased leverage.…”

Section: Discount Ratesmentioning

confidence: 99%

“…Because pension accounting regulations asked for more transparency from sponsoring companies, pension obligations were transferred from the footnotes into companies' accounts. Fried (2010) provides empirical evidence of a negative stock price reaction around the release of SFAS 158 exposure draft as this standard proposed reallocation of already disclosed information from the financial statements footnotes to the balance sheet. Furthermore, the study identifies increased lobbying from managers of pension plans sponsoring companies against the implementation of SFAS 158 but does not continue to investigate whether or not lobbying had an effect on the measure of neutrality of the standard.…”

Section: Recognition Versus Disclosurementioning

confidence: 99%

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Economic Consequences of Pension Accounting

Sandu¹

2012

IBR

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The balancing act between neutral accounting policies and accounting policies that take economic consequences into consideration has been on the agenda of accounting regulators and researchers since the 70s. The transition to fair value accounting in conjunction with the recent economic crisis have led to a revival of interest in this balancing act especially in the field of pension accounting. Due to the negative economic consequences anticipated by companies sponsoring defined benefit pension funds (e.g., decrease in owners’ equity), pension accounting has moved from an accounting that takes into consideration economic consequences to a more neutral accounting only gradually and not in a once-and-for-all event. This paper documents identified and anticipated economic consequences of recent pension accounting changes like shifts between different types of pension plans (from defined benefit to defined contribution), changes in the governance structure between the sponsoring organization and the pension fund (less accountability by pension fund), more incentives for earnings management, and changes in investments strategies by sponsoring organizations (from equity to bonds). Recent proposals for regulatory changes (i.e., IAS 19 revised) head towards an excessive conservatism and hence diminished neutrality. During and in the aftermath of the recent economic crisis – when interest rates are low – conservative pension accounting can have negative economic consequences if pension funds look as if they are underfunded and sponsoring companies present higher retirement related expenses. Shifts in the accounting policies that depart from neutrality and have negative economic consequences should be taken into consideration by regulators when issuing accounting standards.

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Section: Discount Ratesmentioning

confidence: 99%

Section: Recognition Versus Disclosurementioning

confidence: 99%

Economic Consequences of Pension Accounting

Sandu¹

2012

IBR

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“…Consistent with this perspective, our third contribution to the literature comes from the examination of the effect recognition has on the allocation of pension assets (Chuk, 2011; Amir et al , 2010; Fried, 2010).…”

Section: Introductionmentioning

confidence: 98%

Pension accounting reform and future cash flow predictability

Dugan

Turner

Wheatley

2017

JFEP

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Purpose This paper aims to examine the association of accruals and disaggregated pension components with future cash flows and also to investigate whether investors distinguish between pension information that is recognized (SFAS 158) versus disclosed (SFAS 132). Design/methodology/approach Regression analysis is used with a proxy for expected future cash flows as the dependent variable, and the components of pension disclosures as well as controls for the 2008-2009 financial crisis as the independent variables. Findings The results reveal that incorporating disaggregated pension components increases the ability to predict future cash flows, and that investors attach different pricing multiples to the various components in the models. The authors also find that during the 2008-2009 financial crisis, the signs of the coefficients on these components changed. Finally, the results indicate that investors assign more significance to pension accounting information that is recognized, as opposed to disclosed, and that disclosure affects the allocation of pension assets. Originality/value The authors provide empirical support for the conjecture posited by Amir and Benartzi (1998) that the prediction of future cash flows will be enhanced by the incorporation of the components of pension assets and liabilities. Importantly from a standard setting perspective, the authors also find evidence that investors assign more significance to pension accounting information that is recognized in the financial statements than to pension information that is disclosed.

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“…With the recognition of actuarial gains and losses in comprehensive income, rates of return on pension assets have an economically significant impact on the book value of equity. Prior literature has found that pension funding levels have an impact on pension asset allocations (Bader, 1991;Amir andBenartzi, 1998, 1999;Chuk, 2011;Amir et al, 2010;Fried, 2010). This research suggests that companies invest more in bonds while decreasing investments in equities as a means of avoiding contributions to pension plans when cash flows are low (Friedman,1983;Bodie et al, 1984;Amir et al, 2010).…”

Section: Funded Status Of Pension Plans In the Us Prior Literaturmentioning

confidence: 92%

“…This is consistent with managers of pension fund assets seeking a "safe harbor" in times of economic downturn. This shift may also, however, be due in part to the recognition requirements imposed by SFAS 158 (Amir et al, 2010;Fried, 2010;Chuk, 2011). Table 9 presents the regression estimates from equations (12) and (13), which test the association of the components of pension assets/liabilities, revenues/expenses with future cash flows (current market value of equity) and accruals.…”

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confidence: 99%

The Market Value Implications of Pension Asset Allocation

Turner¹,

Elizabeth²

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The Economic Consequences of SFAS No. 158

Cited by 8 publications

References 0 publications

Economic Consequences of Pension Accounting

Economic Consequences of Pension Accounting

Pension accounting reform and future cash flow predictability

The Market Value Implications of Pension Asset Allocation

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