Does Recognition Versus Disclosure Affect Value Relevance Evidence From Pension Accounting

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Does Recognition Versus Disclosure Affect Value Relevance Evidence From Pension Accounting

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Author : Kun Yu
language : en
Publisher:
Release Date : 2013

Does Recognition Versus Disclosure Affect Value Relevance Evidence From Pension Accounting written by Kun Yu and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with categories.

This study examines whether institutional ownership and analyst following affect the value relevance of disclosed vs. recognized pension liabilities. Using a sample of firms with pension liabilities that were disclosed under SFAS No. 87 and subsequently recognized under SFAS No. 158 from 1999 to 2007, I find that off-balance-sheet pension liabilities are more value relevant for firms with a higher level of institutional ownership or analyst following in the pre-158 period. More importantly, I find that SFAS No. 158 increases the value relevance of previously disclosed off-balance-sheet pension liabilities for firms with a low level of institutional ownership or analyst following, and that the increase in the value relevance becomes less pronounced for firms with a higher level of institutional ownership or analyst following. Overall, the results are consistent with the view that institutional ownership and analyst following affect the value relevance of disclosed information as well as the valuation difference between disclosed and recognized information. This study also highlights the importance of considering institutional ownership and analyst following in the value relevance research.

Does Recognition Versus Disclosure Matter

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Author : Kun Yu
language : en
Publisher:
Release Date : 2009

Does Recognition Versus Disclosure Matter written by Kun Yu and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2009 with categories.

Abstract: An important area of research and issue of interest for standard setters is whether information disclosure in the footnotes is a substitute for recognition in the financial statements. SFAS 158, issued in 2006, requires the recognition of pension liabilities that were only disclosed in the footnotes under SFAS 87, for the fiscal year ending after Dec. 15, 2006. I empirically examine whether the recognition of the previously disclosed off-balance-sheet pension liabilities affects investors' valuation and firms' contracting costs. I also incorporate levels of investor sophistication in my analyses. Using a sample of firms with pension liabilities that were disclosed under SFAS 87 and subsequently recognized under SFAS 158 from 1999 to 2007, I find that, without considering investor sophistication, SFAS 158 generally does not increase the value relevance of the previously disclosed off-balance-sheet pension liabilities. However, after taking into account investor sophistication, I show that the disclosed off-balance-sheet pension liabilities are more value relevant for firms with a higher level of investor sophistication in the pre-158 period; more importantly, I find that SFAS 158 significantly increases the value relevance of the previously disclosed off-balance-sheet pension liabilities for firms with a low proportion of sophisticated investors, and the increase in the value relevance is less pronounced for firms with a higher proportion of sophisticated investors. Consistent with the contracting theory, I find that requiring the recognition of previously only-disclosed liabilities affects the debt contracting cost and the cost of capital. However, only sophisticated investors appear to understand the effect of SFAS 158 on the debt contracting cost and the stock price. Overall, the results support that recognition affects investors' valuation and firms' contracting costs. The results also highlight the role of the level of investor sophistication in the value relevance of disclosed vs. recognized financial information.

Does Recognition Versus Disclosure Affect Debt Contract Design Evidence From Sfas 158

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Author : John Donovan
language : en
Publisher:
Release Date : 2019

Does Recognition Versus Disclosure Affect Debt Contract Design Evidence From Sfas 158 written by John Donovan and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.

We study how recognition versus disclosure affects the control function of accounting through the use of debt covenants. While research shows that recognition affects the value-relevance of reported amounts, the effect on contracting is unclear. We examine whether covenants changed around SFAS 158 adoption, which required recognition of previously disclosed pension liabilities. We find that pension underfunding is negatively associated with the use of capital (i.e., balance sheet) covenants prior to recognition. Post-SFAS 158, pension underfunding is associated with a higher likelihood of using capital covenants relative to the pre-period. We find no evidence that SFAS 158 alters the use of income statement covenants. Additional analysis suggests a decrease in cost of debt with no corresponding change in credit risk. Collectively, the evidence suggests that recognition enables more effective allocation of control through the use of covenants because financial statements better represent the financial condition of the borrower.

The Impact Of Fair Value Accounting On Firms Performance And Pension Assets

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Author : Shaofeng Zheng
language : en
Publisher:
Release Date : 2017

The Impact Of Fair Value Accounting On Firms Performance And Pension Assets written by Shaofeng Zheng and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017 with Fair value categories.

My dissertation comprises of two essays: 1) The Effects of Fair Value Measurements (IFRS 13) on Operating Performance and Market Performance, and on Value Relevance of Firms across European Countries; 2) The Disclosure of Fair Value Pension Asset under SFAS No. 158, Pension Assumptions, and Earnings Manipulation. Fair value accounting has been gained a spotlight over years. My first essay focuses on Fair Value measurements (IFRS13), which provides a single source for all fair value measurements, and clarifies the definition of fair value and enhance the disclosures. I examine the effect of IFRS 13 fair value on operating performance, the market reaction to the key event of the announcement date of IFRS 13 adoption, and the effect on value relevance in the context of IFRS 13 adoption by a large sample of five countries in European Union: France, Germany, Italy, Spain, and United Kingdom from 2010 to 2014. Evidences from the analyses of the models revealed that the operating performance overally decreased after IFRS 13 adoption in France and Germany but increased in Italy, Spain and United Kingdom based on some ratios to evaluate the operating performance. Firms with higher ROA in pre-IFRS 13 might report more consecutive earnings after IFRS 13 adoption than firms with lower ROA in pre-IFRS 13. Market reaction was tested on the key event of IFRS 13 adoption: the announcement date of IFRS 13. The results of the event study indicate that the cumulative abnormal returns (CAR) are negatively associated with the release date of IFRS 13 adoption, suggesting that European markets' reaction has been somewhat negative to IFRS 13. The adjustment to earnings per share model suggests mixed evidence of a increase in value relevance. In summary, European market may perceive IFRS 13 as an important in financial reporting or a reduction in the formation asymmetry and these results have implications for investors, auditors, and educators. In September 2006, Statement of Financial Accounting Standard (SFAS) No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, required firms to disclose and recognize the full funded status of defined benefit pension plans in the balance sheet instead of only in the footnote. Comparing with recognition, there are limited researches about the effect of the disclosure of fair value pension assets on the expected rate of return (ERR). Therefore, my second essay examines the association between the disclosure of fair value pension plan assets under SFAS No. 158 and ERR. Empirical results support that firms with the Level-3 fair value of pension assets are more like to inflate ERR and are more like to meet ERR through the actual rate of return (ARR) of the Level-3 fair value of pension assets. In addition, I explore the relationship between the disclosure of fair value pension plan assets and earnings target through ERR management. The results document that firms with the Level-3 fair value pension asset more like to achieve earnings target when they marginally fall short of earnings expectations. Such disclosures could improve the efficient use of the information by market participants.

The Value Relevance Of Financial Statement Recognition Vs Disclosure

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Author : Paquita Y. Davis-Friday
language : en
Publisher:
Release Date : 2000

The Value Relevance Of Financial Statement Recognition Vs Disclosure written by Paquita Y. Davis-Friday and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2000 with categories.

This study examines whether the market values financial statement data differently if it is disclosed instead of recognized in the body of the financial statements. We identify a sample of 229 SFAS No. 106 adopters who disclose an estimate of their anticipated liability for retiree benefits other than pensions (PRB) in their financial reports prior to the year of recognition. We then test whether the disclosed estimate of the PRB liability is valued differently by the market than is the subsequently recognized PRB liability. We provide modest and model-sensitive evidence that the recognized PRB liability receives more weight than the disclosed liability in market value association tests.

Does Recognition Instead Of Disclosure Matter To The Users Of Financial Statements

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Author : Paquita Y. Davis-Friday
language : en
Publisher:
Release Date : 1998

Does Recognition Instead Of Disclosure Matter To The Users Of Financial Statements written by Paquita Y. Davis-Friday and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1998 with categories.

This paper uncovers a potential explanation for the discrepancy between Amir (1996) and Choi, Collins, and Johnson (1997) by examining whether the users of financial statement data treat information differently if it is disclosed instead of recognized in the body of the financial statements. Amir (1996) finds that the liability for postretirement benefits other than pensions (PRBs) is value-relevant conditioned on earnings and pension information while Choi et al. (1997) find that the PRB liability is measured with more error than the pension liability and is therefore less reliable. Since Amir's sample consists only of SFAS 106 adopters and the Choi et al. sample includes both adopters and non-adopters (disclosers), we identify a sample of early adopters who disclose an estimate of their anticipated liability in the Management Discussion and Analysis (MDamp;A) or notes to their financial statements. We test whether accounting information disclosed in the MDamp;A or notes (the estimate of the PRB liability) is valued by the market the same as information recognized in the financial statements (the recognized PRB liability). The results indicate that the recognized PRB liability is capitalized at a higher rate than the disclosed liability. Our evidence suggests that the market treats information disclosed in the notes in this context as less reliable than similar information recognized in the body of the financial statements.

Footnotes Aren T Enough

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Author :
language : en
Publisher:
Release Date : 2008

Footnotes Aren T Enough written by and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008 with Pensions categories.

The Oxford Handbook Of Pensions And Retirement Income

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Author : Gordon L. Clark
language : en
Publisher: Oxford University Press, USA
Release Date : 2006-07-20

The Oxford Handbook Of Pensions And Retirement Income written by Gordon L. Clark and has been published by Oxford University Press, USA this book supported file pdf, txt, epub, kindle and other format this book has been release on 2006-07-20 with Business & Economics categories.

This handbook draws on research from a range of academic disciplines to reflect on the implications for provisions of pension and retirement income of demographic ageing. it reviews the latest research, policy related tools, analytical methods and techniques and major theoretical frameworks.

The Effect Of Accounting Aggregation On The Value Relevance Of Financial Disclosures

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Author : Eli Amir
language : en
Publisher:
Release Date : 2000

The Effect Of Accounting Aggregation On The Value Relevance Of Financial Disclosures written by Eli Amir and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2000 with categories.

This study uses SFAS No. 106 disclosures to investigate the abilities of post-retirement benefit (PRB) liability components, and annual PRB cost components to explain cross-sectional variation in market-to-book ratios. SFAS No. 106 requires disclosure of the sensitivity of the PRB liability and cost to the health care cost trend rate. This study also examines the value-relevance of this new disclosure and its effect on reducing the measurement error variance in the estimation of the PRB liability and cost. Results indicate that information on PRB liability is value-relevant conditioned on earnings and pension information. When both cost and liability components are included in the model, information on cost components is value-relevant, while information on liability components has only marginal explanatory power. When the measurement error in the PRB liability is reduced using the standard's sensitivity disclosures, the explanatory power of the liability components increases significantly.

Clean Surplus

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Author : Richard P. Brief
language : en
Publisher: Routledge
Release Date : 2013-09-13

Clean Surplus written by Richard P. Brief and has been published by Routledge this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013-09-13 with Business & Economics categories.

First published in 1996. The relationship between the present discounted value of future cash flows and discounted excess earnings should be viewed as a mathematical property of a double-entry book[1]keeping system based on clean surplus. The purpose of this anthology is to facilitate future research by highlighting these historical developments and by showing how more recent theoretical and empirical research fits into the earlier history. The book is divided into four sections: historical overview; analytical properties of clean surplus; the theory of the clean surplus equation; and empirical implications.