The Impact of Accounting Standards on Pension Investment Decisions

73 Pages Posted: 4 Jul 2017 Last revised: 2 Nov 2017

See all articles by Christian Barthelme

Christian Barthelme

WHU - Otto Beisheim School of Management

Paraskevi Vicky Kiosse

University of Exeter Business School

Thorsten Sellhorn

Ludwig-Maximilians-Universitaet (LMU) Munich

Date Written: October 2017

Abstract

This study analyzes the ‘real’ effects of accounting standards in the context of defined benefit pension plans. Specifically, we examine IAS 19R, which increases expected pension-induced equity volatility by eliminating the so-called ‘corridor method’, a smoothing device for actuarial gains and losses. Supported by interview evidence, we show that IAS 19R leads firms to reconsider their pension investment decisions. Using matched samples of treatment and control firms, results from multivariate difference-in-differences tests indicate that firms affected by the adoption of IAS 19R significantly shift their pension assets from equities into bonds, relative to control firms. This effect is attenuated for firms with larger and better funded pension plans. Supplementary analyses suggest that this shift in pension investment is mainly due to IAS 19R’s changes in the accounting for actuarial gains and losses (the ‘OCI method’). These results are robust to several sensitivity tests, although endogeneity concerns cannot be fully ruled out. Our study informs accounting standard setters of potential shifts in firms’ real economic activities due to concerns about pension-induced equity volatility.

Keywords: Defined Benefit Plans, Pension Accounting, Pension Asset Allocation, IAS 19R

JEL Classification: G11, G30, G32, G38, M48

Suggested Citation

Barthelme, Christian and Kiosse, Paraskevi Vicky and Sellhorn, Thorsten, The Impact of Accounting Standards on Pension Investment Decisions (October 2017). Available at SSRN: https://ssrn.com/abstract=2995076 or http://dx.doi.org/10.2139/ssrn.2995076

Christian Barthelme

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany

Paraskevi Vicky Kiosse

University of Exeter Business School ( email )

Exeter, EX4 4PU
United Kingdom

Thorsten Sellhorn (Contact Author)

Ludwig-Maximilians-Universitaet (LMU) Munich ( email )

Ludwigstr. 28 RG IV
Munich, Bavaria 80539
Germany
+49(0)89-21806264 (Phone)
+49(0)89-21806327 (Fax)

HOME PAGE: http://www.rwp.bwl.uni-muenchen.de/personen/professoren/sellhorn/index.html

Register to save articles to
your library

Register

Paper statistics

Downloads
169
Abstract Views
789
rank
175,667
PlumX Metrics