Differential tax benefits and the pension reversion decision

Clinch, Greg; Shibano, Toshi

doi:10.1016/0165-4101(95)00412-2

Cited by 25 publications

(8 citation statements)

References 16 publications

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“…In a less direct test of the same incentives, Thomas (1988) finds time-series evidence that firms decrease DB contributions when their tax rate is falling, and cross-sectional evidence that high-tax firms have larger DB funding levels. Clinch and Shibano (1996) study pension reversions, which occur when a firm terminates an overfunded pension, settles its liabilities, and reverts the excess assets to the firm, all in one year. The reverted assets are taxable in the reversion year.…”

Section: Beyond Debt Vs Equitymentioning

confidence: 99%

A Review of Taxes and Corporate Finance

2005

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This paper reviews domestic and multinational corporate tax research. For each topic, the theoretical arguments explaining how taxes can affect corporate decision-making and firm value are reviewed, followed by a summary of the related empirical evidence and a discussion of unresolved issues. Tax research generally supports the hypothesis that high-tax rate firms pursue policies that provide tax benefits. Many issues remain unresolved, however, including understanding whether tax effects are of first-order importance, why firms do not pursue tax benefits more aggressively, and whether corporate actions are affected by investor-level taxes.

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Section: Beyond Debt Vs Equitymentioning

confidence: 99%

A Review of Taxes and Corporate Finance

2005

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“…Thomas [] shows that a decline in the plan sponsor's tax status significantly reduces contributions to pension plans and that firms facing lower tax rates are less likely to be overfunded and more inclined to choose less conservative actuarial methods and assumptions. Clinch and Shibano [] provide evidence that tax considerations also help explain pension plan terminations. Frank [] shows that firms with higher tax rates invest a larger proportion of their pension assets into bonds.…”

Section: Literature Reviewmentioning

confidence: 99%

Do Managers of U.S. Defined Benefit Pension Plan Sponsors Use Regulatory Freedom Strategically?

Kisser

Kiff

Soto

2017

J of Accounting Research

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We use historical particularities of pension funding law to investigate whether managers of U.S. corporate defined benefit pension plan sponsors strategically use regulatory freedom to lower the reported value of pension liabilities, and hence required cash contributions. For some years, pension plans were required to estimate two liabilities—one with mandated discount rates and mortality assumptions, and another where these could be chosen freely. Using a sample of 11,963 plans, we find that the regulated liability exceeds the unregulated measure by 10% and the difference further increases for underfunded pension plans. Underfunded plans tend to assume substantially higher discount rates and lower life expectancy. The effect persists both in the cross‐section of plans and over time and it serves to reduce cash contributions. We further show that plan sponsor managers use the freed‐up cash for corporate investment and that credit risk is unlikely to explain the finding.

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“…Other studies have considered other factors behind these decisions. The general focus of these studies has been to identify settings where the plans have been terminated in order to transfer wealth from employees and pensioners to shareholders or to senior managers (Pontiff et al, 1990;Petersen, 1992;Hamdallah and Ruland, 1986;VanDerhei, 1987;Mittelstaedt and Regier, 1990;Mitchell and Mulherin, 1989) or because of financing constraints (Stone, 1987(Stone, , 1991 or to minimise tax (Clinch and Shibano, 1996). We exclude such studies from further consideration because they do not address the issue of whether pension accounting rules stimulated or constrained such termination decisions.…”

Section: The Impact Of Accounting On Db Pension Provisionmentioning

confidence: 99%

Have changes in pension accounting changed pension provision? A review of the evidence

Kiosse¹,

Peasnell²

2009

Accounting and Business Research

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This article may be used for research, teaching, and private study purposes. Any substantial or systematic reproduction, redistribution, reselling, loan, sub-licensing, systematic supply, or distribution in any form to anyone is expressly forbidden. The publisher does not give any warranty express or implied or make any representation that the contents will be complete or accurate or up to date. The accuracy of any instructions, formulae, and drug doses should be independently verified with primary sources. The publisher shall not be liable for any loss, actions, claims, proceedings, demand, or costs or damages whatsoever or howsoever caused arising directly or indirectly in connection with or arising out of the use of this material.

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Differential tax benefits and the pension reversion decision

Cited by 25 publications

References 16 publications

A Review of Taxes and Corporate Finance

A Review of Taxes and Corporate Finance

Do Managers of U.S. Defined Benefit Pension Plan Sponsors Use Regulatory Freedom Strategically?

Have changes in pension accounting changed pension provision? A review of the evidence

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