The smoothing of pension expenses: a panel analysis

The smoothing of pension expenses: a panel analysis The main purpose of this paper is to utilize recent developments in panel data techniques to evaluate whether the smoothing of pension expenses is neutral in its long-term effect on reported earnings. Adopting a long-term perspective, the empirical analysis also identifies sources of potential deviations. Results suggest that the current smoothing mechanism tends to induce significant biases in the recognized pension expenses. For a majority of the sample firms, the tendency is to overstate the sponsoring firms’ earnings in the long run. To a large extent, such biases reflect the combination of both ineffective amortization of the deferred gains and losses and questionable latitude in pension rate discretions. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

The smoothing of pension expenses: a panel analysis

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Publisher
Springer Journals
Copyright
Copyright © 2010 by Springer Science+Business Media, LLC
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-010-0213-0
Publisher site
See Article on Publisher Site

Abstract

The main purpose of this paper is to utilize recent developments in panel data techniques to evaluate whether the smoothing of pension expenses is neutral in its long-term effect on reported earnings. Adopting a long-term perspective, the empirical analysis also identifies sources of potential deviations. Results suggest that the current smoothing mechanism tends to induce significant biases in the recognized pension expenses. For a majority of the sample firms, the tendency is to overstate the sponsoring firms’ earnings in the long run. To a large extent, such biases reflect the combination of both ineffective amortization of the deferred gains and losses and questionable latitude in pension rate discretions.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Oct 17, 2010

References

  • Another look at the instrumental-variable estimation of error components models
    Arellano, M; Bover, O
  • Initial conditions and moment restrictions in dynamic panel data models
    Blundell, R; Bond, S
  • An evaluation of SFAS No. 130 comprehensive income disclosures
    Chambers, D; Linsmeier, TJ; Shakespeare, C; Sougiannis, T
  • Smoothing income in anticipation of future earnings
    Defond, ML; Park, CW
  • Industry costs of equity
    Fama, EF; French, KR

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