Pension Deficits and Corporate Financial Policy: Does Accounting Transparency Matter?

Forthcoming, European Accounting Review

82 Pages Posted: 31 Jul 2020

See all articles by Fani Kalogirou

Fani Kalogirou

UCP-Católica Lisbon School of Business and Economics

Paraskevi Vicky Kiosse

University of Exeter Business School

Peter F. Pope

Bocconi University; London School of Economics and Political Science

Date Written: July 1, 2020

Abstract

We study changes in financial policies following a regulatory shock to the accounting transparency of defined benefit pension plans. We estimate the hidden pension deficits of French companies subject to mandatory IAS 19 adoption in 2005 using disclosures of early adopters of IAS 19. We find that financially risky companies reporting unexpectedly high pension deficits on first-time IAS 19 adoption subsequently reduce leverage and incur higher cost of debt. Our results suggest that in the absence of transparency the credit market anticipates off-balance sheet pension deficits. However, the introduction of the more transparent IAS 19 regime allows the credit market to correct estimation errors. Our study is one of the first to show that the greater transparency offered by IFRS has negative economic consequences for some companies.

Keywords: accounting transparency, defined benefit pension plans, capital structure, off- balance sheet liabilities, credit market

JEL Classification: G15, G32, M4

Suggested Citation

Kalogirou, Fani and Kiosse, Paraskevi Vicky and Pope, Peter F., Pension Deficits and Corporate Financial Policy: Does Accounting Transparency Matter? (July 1, 2020). Forthcoming, European Accounting Review, Available at SSRN: https://ssrn.com/abstract=3644325

Fani Kalogirou (Contact Author)

UCP-Católica Lisbon School of Business and Economics ( email )

Palma de Cima
Lisboa, 1649-023
Portugal

Paraskevi Vicky Kiosse

University of Exeter Business School ( email )

Exeter, EX4 4PU
United Kingdom

Peter F. Pope

Bocconi University ( email )

Dept of Accounting
Milan, 20136
Italy

London School of Economics and Political Science ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

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