The Information Content of Corporate Pension Funding Status in Japan

Goto, Shingo; Yanase, Noriyoshi

doi:10.1111/jbfa.12197

Cited by 8 publications

(11 citation statements)

References 51 publications

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“…The evidence documented in this study is more congruent with the view that managers intentionally underfund their pension plans and use retained funds for overinvestment. This evidence is similar in implications to the studies of Asthana (), Shivdasani and Stefanescu () and Goto and Yanase () who argue that firms manage the funding policy of their pension plans. These findings are in contrast to Rauh () and Campbell et al.…”

Section: Introductionsupporting

confidence: 85%

How does the Funding Status of Defined Benefit Pension Plans Affect Investment Decisions of Firms in the United States?

Chaudhry

Yong

Veld

2016

Business Fin & Account

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We investigate whether the flexibility in making contributions towards defined benefit pension plans sponsored by firms in the United States allows managers to save cash and increase investments. Firms invest more at higher levels of pension deficit, defined as pension benefit obligations less pension assets, and scaled by total assets. At the median level (90 th percentile) of pension deficit, investments increase by 6.7 cents (9.4 cents) for every dollar increase in cash. As the pension deficit increases, firms deviate more from the predicted level of investment. These findings suggest that the incremental investments are more likely to represent overinvestment by managers. Our results are robust to alternative model specifications and endogeneity concerns that may arise if investments are jointly determined with the funding policy of pension plans and the firm's target cash level. We repeat our main analysis for the United Kingdom and also find for that country that, at a fixed cash level, total investment increases as pension deficit increases.

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Section: Introductionsupporting

confidence: 85%

How does the Funding Status of Defined Benefit Pension Plans Affect Investment Decisions of Firms in the United States?

Chaudhry

Yong

Veld

2016

Business Fin & Account

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“…By dividing our sample into firms with small and large pension plan deficits, we investigate how balance sheet management influences the associations between recognized versus disclosed pension liabilities and audit fees and costs. Following the prior literature (e.g., Francis and Reiter, 1987;Goto and Yanase, 2016;Rauh, 2006), we partition our sample by year based on the median of the ratio of pension plan deficits, which is defined as plan assets minus retirement benefit obligations divided by retirement benefit obligations. We predict that, when firms have a large pension plan deficit, the Following the prior research, we include control variables regarding clients' risk, size, and complexity as well as other client-and auditor-related factors for audit fees and costs (e.g., Bae et al, 2016;DeFond and Zhang, 2014;Hay et al, 2006;Hossain et al, 2017).…”

Section: Methodsmentioning

confidence: 99%

“…In recent years, Japanese firms have gradually switched from DB pension plans to defined contribution (DC) pension plans. However, unlike U.S. firms, many Japanese firms still sponsor DB pension plans (e.g., Goto and Yanase, 2016). Employing this unique Japanese institutional setting allows us to analyze recognition versus disclosure of pension information more cleanly than prior studies have done.…”

Section: Pension Accounting In Japanmentioning

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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“…Pension schemes and their accounting are complex. Pension obligations are affected by several financial and demographic assumptions, such as interest rates, salary increases, inflation rates, and mortality rates (Bauman & Shaw, 2014;Goto & Yanase, 2016). Importantly, due to their long-term nature, pension obligations are highly sensitive to changes in these assumptions.…”

Section: Introductionmentioning

confidence: 99%