The effect of accounting aggregation on the value-relevance of financial disclosures: the case of SFAS No. 106

Article Abstract:

The relationship between share value and accounting information under different levels of information aggregation was examined. The study uses information on postretirement benefits other than pensions (PRB) disclosed by firms under Statement of Financial Accounting Standards (SFAS) No. 106 from 1990 to 1993. Findings revealed that PRB disclosures are value-relevant conditioned on earnings and pension information. Information on cost components is useful when both cost and liability elements are taken into consideration. In contrast, information on liability components has only little explanatory power. Reduced measurement error in the PRB liability via a two-stage least squares procedure results in a significant increase in the incremental explanatory power of balance sheet information. PRB sensitivity disclosures can explain cross-sectional variation in market-to-book ratios if conditioned on the PRB funded status and cost components disclosure.

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Multiperiod analysis of adoption motives: the case of SFAS No. 106

Article Abstract:

A study was conducted to investigate the adoption-timing motives of managers related to Statement of Financial Accounting Standard (SFAS) No. 106. Results showed that managers may opt for early adoption of the standard if they feel that the market's appraisal of their postretirement benefit other than pensions (PRB) liabilities is higher than the actual liabilities. Analysis revealed that 1991 adopters of SFAS No. 106 indeed had lower unexpected PRB liabilities than 1992 adopters, who in turn exhibited lower unexpected liabilities than 1993 adopters. Findings also demonstrated that firms embrace the standard in the year with the lowest pre-SFAS No, 106 earnings, which is consistent with the 'big bath' hypothesis. Finally, the study found that firms tend to defer adoption if they can effectively renegotiate with employees a PRB plan reduction.

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The expected rate of return on pension funds and asset allocation as predictors of portfolio performance

Article Abstract:

The expected rate of return on pension assets (ERR), as reported in financial statements, and the percent invested in equities (% Equity), or the composition of the pension portfolio, are related, albeit weakly. This was found in an investigation of the correlation between ERR and % Equity and an assessment of which of these two measures is a better predictor of pension investment performance. Results showed a rather tenuous relationship between the percentage of equities in the pension fund and the ERR and indicated that asset composition is a better indicator of returns on the pension portfolio than the ERR. These results suggest that instead of abolishing them, the Financial Accounting Standards Board should enforce current disclosure requirements regarding pension asset composition.

Portfolio Management, Pension, health, and welfare funds, Pension Funds & Benefit Plans, Pension Funds, Pension Fund Management, Asset Accounting, Laws, regulations and rules, Financial management, Return on investment, Assets (Accounting), Rate of return

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