Essays on the economic consequences of pension accounting

Abstract

Corporate pension plans represent one of the largest long-term obligations for many firms and have significant implications for financial reporting, investment decisions, and capital markets. Over the past decades, changes in pension accounting standards have sought to improve the transparency and comparability of financial statements by requiring more comprehensive recognition and disclosure of pension-related assets and liabilities. However, these regulatory changes have also altered firms' financial reporting incentives, investment behavior, and the way investors interpret pension information. This dissertation investigates the economic consequences of pension accounting by examining how accounting standards influence corporate decision-making, market valuation, and investors' processing of pension-related information. The dissertation consists of three complementary empirical essays. The first essay examines the impact of the revised International Accounting Standard IAS 19 (IAS 19R) on corporate pension investment decisions. Using firm-level data and regression-based empirical analyses, the study evaluates whether eliminating the smoothing mechanism and increasing balance-sheet transparency affected firms' allocation of pension assets and their management of pension-related risks. The findings provide evidence that accounting reforms influence firms' investment strategies by changing the financial reporting consequences of pension plan management. The second essay investigates capital market reactions to the elimination of the pension smoothing mechanism introduced under IAS 19R. Through an event-study framework and difference-in-differences analyses, the research explores whether investors recognized the informational improvements associated with the revised accounting standard. The results indicate that increased transparency in pension accounting enhances investors' ability to assess firms' financial positions and reduces information asymmetry, although market reactions vary according to firms' pension exposures and reporting characteristics. The third essay examines how information-processing constraints and economic differences affect the market pricing of corporate pension plans. The analysis distinguishes between different components of pension obligations and funding arrangements while considering cross-sectional differences in firms' institutional settings, financial characteristics, and investor sophistication. The findings demonstrate that investors do not value all pension information equally; instead, the pricing of pension-related disclosures depends on both the economic characteristics of pension plans and the complexity of the reported information. The study further highlights that information-processing costs influence the extent to which pension accounting information is incorporated into market valuations. Collectively, the three essays contribute to the accounting, finance, and capital markets literature by providing comprehensive evidence on the behavioral and economic effects of pension accounting standards. The dissertation demonstrates that accounting regulation extends beyond financial reporting compliance, influencing corporate investment decisions, market efficiency, and investor behavior. These findings offer important implications for standard setters, regulators, corporate managers, institutional investors, and researchers concerned with improving the transparency, relevance, and decision usefulness of pension accounting information in global capital markets.