The Economic Consequences of GASB Financial Statement Disclosure
63 Pages Posted: 9 Mar 2020 Last revised: 10 Feb 2021
Date Written: February 9, 2020
We examine whether Governmental Accounting Standards Board (GASB) financial statement disclosure influences local governments’ economic decision-making. To do so, we exploit a recent GASB standard that differentially changed the disclosure requirements for pension obligations for county governments. The standard, GASB 68, had no effect on pension economics nor on the annual budget—it only affected whether and how information was presented on GASB financial statements and did so differently depending on the type of pension plan sponsored by the county. Using a broad hand-collected dataset, we document that newly disclosing counties reduced public welfare expenditures, employment, and salary expenses relative to those that had disclosed such information prior to GASB 68. We conduct extensive field research and employ several cross-sectional analyses to conclude that the effects we document are likely driven by increased awareness of the financial costs of pension obligations by newly disclosing counties. More specifically, we find that GASB 68 changed these counties’ perspective of their pension arrangement from a bill (i.e., the county only has to make an annual pension contribution) to a liability (i.e., the county is ultimately responsible for funding the pension deficit), and that this new perspective generated the documented fiscal response.
Keywords: GASB, Disclosure, Real effects, Public pension
JEL Classification: M41, M48, H7
Suggested Citation: Suggested Citation