Determinants of Expected Rate of Return on Pension Assets: Evidence from the UK

Li, Yong; Klumpes, Paul J. M.

doi:10.2139/ssrn.989559

Cited by 10 publications

(27 citation statements)

References 39 publications

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“…This confirms the work of Li and Klumpes (2013) who used a different approach to duration; this suggests that further work in this area would be useful.…”

Section: Insert Tables 3 4 5 Heresupporting

confidence: 78%

“…We also find support for US evidence (Feldstein and Mørck 1983;Bodie et al 1987) of a relationship between assumptions and the size of the pension plan relative to the company's size. Our UK evidence of reporting under IAS 19 does not, however, indicate any link between pension assumptions and company profitability, or debt ratio, contrary to the findings of three US papers (Bodie et al 1987;Godwin et al 1997;Asthana 1999) and one UK paper (Li and Klumpes 2013). We therefore add to the three UK papers which provide contradictory evidence on the factors influencing the choice of assumptions used in the valuation of DBP liabilities under earlier UK standards (see discussion below of these papers: Byrne et al 2007;Sweeting 2011;Li and Klumpes 2013).…”

Section: Introductioncontrasting

confidence: 63%

“…But the RFR result masks the potential endogeneity problem that high discount rates lead to low reported liabilities and high RFRs. None of the previous UK papers used standardised ratios, and they found contrasting results: Byrne et al (2007) found that companies with high discount rates reported stronger funding positions; Sweeting (2011) found no evidence of a link between funding position and choice of discount rate; and Li and Klumpes (2013) found that companies with weaker pension plans used higher rates. Table 5 also shows that the results for the price inflation and salary inflation assumptions are reversed when using SFR and RFR.…”

Section: Insert Tables 3 4 5 Herementioning

confidence: 96%

“…Various papers (Byrne et al 2007, Sweeting 2011, and Li and Klumpes 2013 using UK data; Feldstein andMørck 1983, andBodie et al 1987 using US data) included company size as an explanatory variable in determining assumptions. We therefore tested alternative measures of company size (assets, equity, number of employees), but none were significant and we do not report these results.…”

Section: Insert Table 7 Herementioning

confidence: 99%

See 3 more Smart Citations

Discretion in accounting for pensions under IAS 19: using the ‘magic telescope’?

Billings

O’Brien

Woods

et al. 2016

Accounting and Business Research

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We use a panel data set of UK-listed companies over the period 2005 to 2009 to analyse the actuarial assumptions used to value pension plan liabilities under IAS 19. The valuation process requires companies to make assumptions about financial and demographic variables, notably discount rate, price inflation, salary inflation, and mortality/life expectancy of plan members/beneficiaries.We use regression analysis to analyse the relationships between these key assumptions (except mortality, where disclosures are limited) and companyspecific factors such as the pension plan funding position and duration of pension liabilities. We find evidence of selective 'management' of the three assumptions investigated, although the nature of this appears to differ from the findings of US authors. We conclude that IAS 19 does not prevent the use of managerial discretion, particularly by companies whose pension plan funding positions are weak, thereby reducing the representational faithfulness of the reported pension figures. We also highlight that the degree of discretion used reflects the extent to which IAS 19 defines how the assumptions are to be determined. We therefore suggest that companies should be encouraged to justify more explicitly their choice of assumptions.

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“…This confirms the work of Li and Klumpes (2013) who used a different approach to duration; this suggests that further work in this area would be useful.…”

Section: Insert Tables 3 4 5 Heresupporting

confidence: 78%

Section: Introductioncontrasting

confidence: 63%

Section: Insert Tables 3 4 5 Herementioning

confidence: 96%

Section: Insert Table 7 Herementioning

confidence: 99%

See 2 more Smart Citations

Discretion in accounting for pensions under IAS 19: using the ‘magic telescope’?

Billings

O’Brien

Woods

et al. 2016

Accounting and Business Research

View full text Add to dashboard Cite

show abstract

“…Unlike Kusano and Sakuma (2019), we focus on DB pension plans, which allows us to explore whether auditors expend more validation effort on recognized amounts than on disclosed financial information. Previous studies find that firms manage reported earnings by employing pension assumptions (e.g., An et al, 2014;Bergstresser et al, 2006;Comprix and Muller, 2006;Glaum, 2009;Li and Klumpes, 2013;Naughton, 2019). Prior research also reveals that the change in pension accounting standard from disclosure to recognition causes firm managers to change actuarial assumptions in order to manage reported accounting numbers (Fried and Davis-Friday, 2013;Jones, 2013).…”

Section: Accounting Standard For Retirement Benefits (Asbj 2012)mentioning

confidence: 99%

Recognition versus Disclosure and Audit Fees and Costs: Evidence from Pension Accounting in Japan

Kusano

Sakuma

2020

Journal of International Accounting Research

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Statement No. 26, Accounting Standard for Retirement Benefits, requires Japanese firms to recognize previously off-balance sheet pension liabilities on their balance sheets. We explore auditors' responses to recognized versus disclosed pension liabilities in the Japanese audit market. We use a pre-Statement No. 26 versus post-Statement No. 26 setting to analyze whether and how disclosed versus recognized pension information affects audit fees and costs. We show that disclosed pension liabilities are processedsimilarly to recognized previously off-balance sheet pension liabilities when audit fees are determined. However, we find that associations with audit costs differ between disclosed and recognized pension liabilities. We also find that audit costs' differential relations with disclosed and recognized pension liabilities are particularly pronounced for firms with alarge pension plan deficit. Overall, our results suggest that auditors scrutinize recognized amounts more closely than disclosed financial information, thereby increasing the reliability of accounting information.

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Does recognition versus disclosure of pension liabilities affect credit ratings? Evidence from Japan

Kusano

2023

Journal of International Accounting, Auditing and Taxation

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Determinants of Expected Rate of Return on Pension Assets: Evidence from the UK

Cited by 10 publications

References 39 publications

Discretion in accounting for pensions under IAS 19: using the ‘magic telescope’?

Discretion in accounting for pensions under IAS 19: using the ‘magic telescope’?

Recognition versus Disclosure and Audit Fees and Costs: Evidence from Pension Accounting in Japan

Does recognition versus disclosure of pension liabilities affect credit ratings? Evidence from Japan

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