Prof. Vicky Kiosse (Massey University)

Programm

Datum: 13.02.2017

Zeit: 14.00 Uhr

Ort: Ludwigstr. 28, RG, Raum 416

Titel: Accounting standards and the allocation of pension assets

Abstract

This paper examines the effect of a change in accounting standards on a specific type of investment decision: firms’ allocation of pension assets. In particular, we investigate whether the elimination of a volatility-reducing accounting treatment for defined benefit pension plans under IFRS (i.e., the ‘corridor method’ of recognizing actuarial gains and losses) reduces the relative portion of firms’ pension assets invested into equity securities. We exploit the mandatory introduction of IAS 19R, which mandated immediate recognition of actuarial gains and losses—eliminating the former corridor method, a smoothing device. Under IAS 19R, firms previously smoothing pension-induced balance sheet volatility under the corridor method adopted immediate recognition of actuarial gains and losses in other comprehensive income (i.e., the OCI method). We predict and find that treatment firms affected by mandatory IAS 19R adoption significantly reduce their allocation of pension assets to equities relative to control firms unaffected by IAS 19R. These difference-in-differences results hold under a number of robustness tests, including propensity-score matching to mitigate any self-selection bias due to firms’ pre-IAS 19R accounting choice between the corridor and OCI methods. We interpret them as consistent with firms changing their investment strategy related to pension plan assets to mitigate an expected increase in pension-induced balance sheet volatility caused by a change in accounting standards. Whereas prior research focuses on managers’ concerns related to earnings volatility, our results are consistent with more general concerns about balance sheet volatility, even where earnings are smoothed.