Pension deficits and corporate financial policy: does accounting transparency matter?

Fani Kalogirou; Paraskevi Vicky Kiosse; Peter F. Pope

doi:10.1080/09638180.2020.1792321

Pension deficits and corporate financial policy: does accounting transparency matter?

Fani Kalogirou^*, Paraskevi Vicky Kiosse, Peter F. Pope

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

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Abstract

We study changes in financial policies following a regulatory shock to the accounting transparency of defined benefit pension plans. We estimate the hidden pension deficits of French companies subject to mandatory IAS 19 adoption in 2005 using disclosures of early adopters of IAS 19. We find that financially risky companies reporting unexpectedly high pension deficits on first-time IAS 19 adoption subsequently reduce leverage and incur higher cost of debt. Our results suggest that in the absence of transparency the credit market anticipates off-balance sheet pension deficits. However, the introduction of the more transparent IAS 19 regime allows the credit market to correct estimation errors. Our study is one of the first to show that the greater transparency offered by IFRS has negative economic consequences for some companies.

Original language	English
Pages (from-to)	801-825
Number of pages	25
Journal	European Accounting Review
Volume	30
Issue number	4
DOIs	https://doi.org/10.1080/09638180.2020.1792321
Publication status	Published - 2020

Keywords

Accounting transparency
Capital structure
Defined benefit pension plans
Off-balance sheet liabilities

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

Access to Document

10.1080/09638180.2020.1792321

19849828Accepted author manuscript, 3.24 MBLicence: CC BY-NC

http://hdl.handle.net/10400.14/43227Licence: CC BY-NC

Cite this

@article{392e0c3902284db090c38262f4ab5cbe,

title = "Pension deficits and corporate financial policy: does accounting transparency matter?",

abstract = "We study changes in financial policies following a regulatory shock to the accounting transparency of defined benefit pension plans. We estimate the hidden pension deficits of French companies subject to mandatory IAS 19 adoption in 2005 using disclosures of early adopters of IAS 19. We find that financially risky companies reporting unexpectedly high pension deficits on first-time IAS 19 adoption subsequently reduce leverage and incur higher cost of debt. Our results suggest that in the absence of transparency the credit market anticipates off-balance sheet pension deficits. However, the introduction of the more transparent IAS 19 regime allows the credit market to correct estimation errors. Our study is one of the first to show that the greater transparency offered by IFRS has negative economic consequences for some companies.",

keywords = "Accounting transparency, Capital structure, Defined benefit pension plans, Off-balance sheet liabilities",

author = "Fani Kalogirou and Kiosse, {Paraskevi Vicky} and Pope, {Peter F.}",

note = "Funding Information: We are grateful to Paul Zarowin (associate editor) and two anonymous reviewers for valuable feedback and suggestions. We also thank Ulf Br{\"u}ggemann, Stefano Cascino, Mark Clatworthy, Panagiotis Couzoff, Christina Dargenidou, Joanne Horton, Ursa Kosi, Bart Lambrecht, Christian Leuz, Gilad Livne, Tim Marklew, Paul Metcalf, Giovanna Michelon, John O{\textquoteright}Hanlon, Per Olsson, Bill Rees, Steven Young and participants at Lancaster University and ESSEC Business School seminars, Varna INTACCT workshop, 27th EAA Doctoral Colloquium, and 34th EAA Annual Congress for helpful comments on previous versions of this paper and Mahmoud El Haj and Azeddine Elhanaoui for providing excellent research assistance in relation to extracting pension disclosures from French annual reports. Paraskevi Vicky Kiosse gratefully acknowledges financial support from Exeter University Business School. Fani Kalogirou gratefully acknowledges the support from FCT – Portuguese Foundation of Science and Technology for the project {\textquoteleft}UID/GES/00407/20013{\textquoteright}. Funding Information: This work was supported by the EU-funded INTACCT programme - The European IFRS Revolution: Compliance, Consequences and Policy Lessons (Marie Curie Actions - European Commission) (contract number MRTN-CT-2006-035850). We are grateful to Paul Zarowin (associate editor) and two anonymous reviewers for valuable feedback and suggestions. We also thank Ulf Br?ggemann, Stefano Cascino, Mark Clatworthy, Panagiotis Couzoff, Christina Dargenidou, Joanne Horton, Ursa Kosi, Bart Lambrecht, Christian Leuz, Gilad Livne, Tim Marklew, Paul Metcalf, Giovanna Michelon, John O?Hanlon, Per Olsson, Bill Rees, Steven Young and participants at Lancaster University and ESSEC Business School seminars, Varna INTACCT workshop, 27th EAA Doctoral Colloquium, and 34th EAA Annual Congress for helpful comments on previous versions of this paper and Mahmoud El Haj and Azeddine Elhanaoui for providing excellent research assistance in relation to extracting pension disclosures from French annual reports. Paraskevi Vicky Kiosse gratefully acknowledges financial support from Exeter University Business School. Fani Kalogirou gratefully acknowledges the support from FCT?Portuguese Foundation of Science and Technology for the project ?UID/GES/00407/20013?. Publisher Copyright: {\textcopyright} 2020, {\textcopyright} 2020 European Accounting Association.",

year = "2020",

doi = "10.1080/09638180.2020.1792321",

language = "English",

volume = "30",

pages = "801--825",

journal = "European Accounting Review",

issn = "0963-8180",

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number = "4",

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T2 - does accounting transparency matter?

AU - Kalogirou, Fani

AU - Kiosse, Paraskevi Vicky

AU - Pope, Peter F.

N1 - Funding Information: We are grateful to Paul Zarowin (associate editor) and two anonymous reviewers for valuable feedback and suggestions. We also thank Ulf Brüggemann, Stefano Cascino, Mark Clatworthy, Panagiotis Couzoff, Christina Dargenidou, Joanne Horton, Ursa Kosi, Bart Lambrecht, Christian Leuz, Gilad Livne, Tim Marklew, Paul Metcalf, Giovanna Michelon, John O’Hanlon, Per Olsson, Bill Rees, Steven Young and participants at Lancaster University and ESSEC Business School seminars, Varna INTACCT workshop, 27th EAA Doctoral Colloquium, and 34th EAA Annual Congress for helpful comments on previous versions of this paper and Mahmoud El Haj and Azeddine Elhanaoui for providing excellent research assistance in relation to extracting pension disclosures from French annual reports. Paraskevi Vicky Kiosse gratefully acknowledges financial support from Exeter University Business School. Fani Kalogirou gratefully acknowledges the support from FCT – Portuguese Foundation of Science and Technology for the project ‘UID/GES/00407/20013’. Funding Information: This work was supported by the EU-funded INTACCT programme - The European IFRS Revolution: Compliance, Consequences and Policy Lessons (Marie Curie Actions - European Commission) (contract number MRTN-CT-2006-035850). We are grateful to Paul Zarowin (associate editor) and two anonymous reviewers for valuable feedback and suggestions. We also thank Ulf Br?ggemann, Stefano Cascino, Mark Clatworthy, Panagiotis Couzoff, Christina Dargenidou, Joanne Horton, Ursa Kosi, Bart Lambrecht, Christian Leuz, Gilad Livne, Tim Marklew, Paul Metcalf, Giovanna Michelon, John O?Hanlon, Per Olsson, Bill Rees, Steven Young and participants at Lancaster University and ESSEC Business School seminars, Varna INTACCT workshop, 27th EAA Doctoral Colloquium, and 34th EAA Annual Congress for helpful comments on previous versions of this paper and Mahmoud El Haj and Azeddine Elhanaoui for providing excellent research assistance in relation to extracting pension disclosures from French annual reports. Paraskevi Vicky Kiosse gratefully acknowledges financial support from Exeter University Business School. Fani Kalogirou gratefully acknowledges the support from FCT?Portuguese Foundation of Science and Technology for the project ?UID/GES/00407/20013?. Publisher Copyright: © 2020, © 2020 European Accounting Association.

PY - 2020

Y1 - 2020

N2 - We study changes in financial policies following a regulatory shock to the accounting transparency of defined benefit pension plans. We estimate the hidden pension deficits of French companies subject to mandatory IAS 19 adoption in 2005 using disclosures of early adopters of IAS 19. We find that financially risky companies reporting unexpectedly high pension deficits on first-time IAS 19 adoption subsequently reduce leverage and incur higher cost of debt. Our results suggest that in the absence of transparency the credit market anticipates off-balance sheet pension deficits. However, the introduction of the more transparent IAS 19 regime allows the credit market to correct estimation errors. Our study is one of the first to show that the greater transparency offered by IFRS has negative economic consequences for some companies.

AB - We study changes in financial policies following a regulatory shock to the accounting transparency of defined benefit pension plans. We estimate the hidden pension deficits of French companies subject to mandatory IAS 19 adoption in 2005 using disclosures of early adopters of IAS 19. We find that financially risky companies reporting unexpectedly high pension deficits on first-time IAS 19 adoption subsequently reduce leverage and incur higher cost of debt. Our results suggest that in the absence of transparency the credit market anticipates off-balance sheet pension deficits. However, the introduction of the more transparent IAS 19 regime allows the credit market to correct estimation errors. Our study is one of the first to show that the greater transparency offered by IFRS has negative economic consequences for some companies.

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KW - Capital structure

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KW - Off-balance sheet liabilities

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DO - 10.1080/09638180.2020.1792321

M3 - Article

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SN - 0963-8180

VL - 30

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EP - 825

JO - European Accounting Review

JF - European Accounting Review

IS - 4

ER -

Pension deficits and corporate financial policy: does accounting transparency matter?

Abstract

Keywords

UN SDGs

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CUBE: Católica Lisbon Research Unit in Business and Economics

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Pension deficits and corporate financial policy: does accounting transparency matter?

Abstract

Keywords

UN SDGs

Access to Document

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Fingerprint

Projects

CUBE: Católica Lisbon Research Unit in Business and Economics

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