Abstract
This study provides evidence that, when "hard" freezing their defined benefit pension plans, employers select downward biased accounting assumptions to exaggerate the economic burden of their benefit plans. Downward biased expected rates of return and discount rates allow managers to increase reported pension expenses and, for discount rates, allow managers to increase reported pension liabilities. We find that prior to the Sarbanes-Oxley Act, both rates are downward biased when firms freeze their plans, whereas after SOX the bias is lower. This finding is consistent with managers opportunistically biasing pension estimates to obtain labor concessions during periods of reduced regulatory scrutiny.
Original language | English (US) |
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Pages (from-to) | 115-133 |
Number of pages | 19 |
Journal | Journal of Accounting and Economics |
Volume | 51 |
Issue number | 1-2 |
DOIs | |
State | Published - Feb 2011 |
Keywords
- Defined benefit pension plans
- Discount rate assumption
- Expected rate of return assumption
- Pension plan freeze
- Sarbanes-Oxley Act
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics