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Journal cover: Review of Accounting and Finance

Review of Accounting and Finance

ISSN: 1475-7702

Online from: 2002

Subject Area: Accounting and Finance

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Are potential effects of SFAS 158 associated with firms' decisions to freeze their defined benefit pension plans?


Document Information:
Title:Are potential effects of SFAS 158 associated with firms' decisions to freeze their defined benefit pension plans?
Author(s):Cathy Beaudoin, (School of Business Administration, University of Vermont, Burlington, Vermont, USA), Nandini Chandar, (College of Business Administration, Rider University, Lawrenceville, New Jersey, USA, and), Edward M. Werner, (LeBow College of Business, Drexel University, Philadelphia, Pennsylvania, USA)
Citation:Cathy Beaudoin, Nandini Chandar, Edward M. Werner, (2010) "Are potential effects of SFAS 158 associated with firms' decisions to freeze their defined benefit pension plans?", Review of Accounting and Finance, Vol. 9 Iss: 4, pp.424 - 451
Keywords:Accounting standards, Benefits, Pension funds, United States of America
Article type:Research paper
DOI:10.1108/14757701011094607 (Permanent URL)
Publisher:Emerald Group Publishing Limited
Acknowledgements:The authors greatly appreciate the helpful comments from participants at the American Accounting Association 2008 Annual Meeting in Anaheim (especially their discussant, Siva Nathan) and the American Accounting Association 2008 Mid-Atlantic Regional Meeting. The authors acknowledge the suggestions of Joseph Comprix, several anonymous reviewers, and workshop participants at Drexel University; they also are grateful for research assistance from Lanlan Ma, Ross Roberts, Bei Wang, and Zitian Wang.
Abstract:

Purpose – The purpose of this paper is to examine whether the significant clustering of defined benefit (DB) pension plan freeze announcements during 2001-2006 is motivated at least in part by accounting concerns due to the Financial Accounting Standards Board's pending adoption of Statement of Financial Accounting Standards No. 158 (SFAS 158).

Design/methodology/approach – Using logistic regression models, the paper compares 147 “freeze firms” with a matched sample of firms that did not announce a DB plan freeze. Empirical models control for other DB plan motives including as a response to stricter contribution requirements under the Pension Protection Act of 2006 and improving the firm's competitive position.

Findings – The potential SFAS 158 impact is significantly associated with firms' decisions to freeze their DB plans. Firm profitability is also significantly associated with the freeze decision. However, there is no significant association between cash flow positions or pension plan contributions and the freeze decision.

Research limitations/implications – It is possible that economic conditions adversely affecting the funded status of DB plans also motivate the freeze decision. While this study controls for the economic environment, economic factors could exacerbate the potential effect of SFAS 158.

Originality/value – This paper considers potential effects of accounting policy by examining its influence on real management actions and has consequences for a variety of stakeholders including investors, creditors, and, importantly, pension beneficiaries and workers, as DB plans represent implicit contracts between firms and their employees.



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