Smoothing of pension costs, choice of expected rate of return and capital market consequences.

摘要

In this dissertation, I examine how the current U.S. pension accounting affects managers' reporting behavior, and how it affects investors' valuation of pension information. There are two essays in the dissertation.In the first essay, I focus on managerial discretion over the choice of pension assumptions and capital market's response. More specifically, I examine whether managers of firms with defined benefit pension plans use their discretion over the expected rate of return on pension assets (ERR) to meet or beat analysts' earnings forecasts, and how the capital markets respond to such opportunistic changes in ERR by managers. Using a sample of pension plan disclosures from 1992 to 2002 I find that managers are more likely to increase ERR when their pre-managed earnings fall short of analysts' earnings forecasts. In addition, I provide evidence that managers are more likely to use ERR as an earnings management tool when they run out of other accounting flexibilities. I also find that, on average, capital markets seem to respond positively to ERR increases, although the magnitude of the response is lower when an increase in ERR is less likely to be justifiable.In the second essay, I examine whether or not investors incorporate the actual pension expense based on the marked-to-market principle in firm valuation. Alternatively investors may be fixated on the smoothed pension expense as reported on income statement according to Generally Accepted Accounting Principles (GAAP). I find evidence that investors incorporate the actual pension expense into equity price with some time delay.