Value-relevance of pension transition adjustments and other comprehensive income components in the adoption year of SFAS No. 158
Tóm tắt
In the present study, we examine the value-relevance of pension transition adjustments and other comprehensive income (OCI) components in the initial adoption year of Statement of Financial Accounting Standard (SFAS) 158—Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans. Using a sample of 697 Standard and Poor (S&P) firms with the fiscal year ending on December 31, 2006, we perform several cross-sectional regression analyses to test the value-relevance of transition adjustments and OCI components in presence of various earnings measures. The results indicate that there is a negative relationship between both the level and change in stock returns and the magnitude of pension transition adjustments. We also find earnings measures and some OCI components are significantly associated with stock returns. When analyzed separately, we find our main results are mostly confined to the sample large S&P 500 firms. We do not find any result for the S&P mid-cap and small-cap firms. The overall results suggest the stock market negatively reacts to the adverse impact of SFAS #158 pension transition adjustments on net worth and future cash flows when the impact is substantial in its magnitude in dollar terms. The study further provides useful insight into the information processing by documenting that the market evaluates accounting information more effectively when such information is recognized in the financial statements rather than disclosed only in the financial footnotes.
Tài liệu tham khảo
Aboody D (1996) Recognition versus disclosure in the oil and gas industry. J Account Res 34:21–32. doi:10.2307/2491423
Ahmed AS, Takeda C (1995) Stock market valuation of gains and losses on commercial banks’ investment securities: an empirical analysis. J Account Econ 9(2):207–225. doi:10.1016/0165-4101(95)00396-Z
Ahmed AS, Kilie E, Lobo GJ (2006) Does recognition versus disclosure matter? Evidence from value-relevance of banks’ recognized and disclosed derivative financial instruments. Account Rev 81(3):567–588. doi:10.2308/accr.2006.81.3.567
Ali Z, Zarowin P (1992) The role of earnings levels in annual earnings returns studies. J Account Res 30(2):286–296. doi:10.2307/2491128
Ali A, Hwang LS, Trombley MA (2000) Accruals and future stock returns: test of the naïve investor hypothesis. J Account Audit Finance 15(2):161–181
Amir E (1993) The market valuation of accounting information: the case of post-retirement benefits other than pensions. Account Rev 68(October):703–724
Amir E, Gordon E (1996) Firms’ choice of estimation parameters: empirical evidence from SFAS No. 106. J Account Audit Finance 11(3):427–448 summer
Ashbauhg-Skaife H et al (2007) Financial accounting standards committee of American accounting association: response to FASB exposure draft, employers’ accounting for defined benefit pension and other postretirement plans: an amendment of FASB Statements No. 87, 88, 106, and 132R. Account Horiz 21(2):201–213. doi:10.2308/acch.2007.21.2.201
Barth M (1991) Relative measurement errors among alternative pension asset and liability measures. Account Rev 66:433–463
Barth M, Beaver W, Landsman W (1992) The market valuation implications of net periodic pension cost components. J Account Econ 15:27–62. doi:10.1016/0165-4101(92)90011-P
Biddle G, Choi JH (2006) Is comprehensive income useful? J Contemp Acc Econ 2(1):1–32
Bryan SH, Lilien S, Mooney J (2007) How the new pension accounting rules affect the Dow 30’s financial statements: potential implications for policy makers and equity research analysts. CPA J (March issue):17–25
Carroll TJ, Linsmeier TJ, Petroni KR (2003) The reliability of fair value versus historical cost information: evidence from close-end mutual funds. J Account Audit Finance 18(1):1–23
Chambers D, Linsmeier TJ, Shakespeare C, Sougiannis T (2007) An evaluation of SFAS No. 130 comprehensive income disclosures. Rev Account Stud 12:557–593. doi:10.1007/s11142-007-9043-2
Choi B, Collins D, Johnson W (1997) Valuation of reliability differences: the case of nonpension postretirement obligations. Account Rev 72(July):351–383
Davis-Friday P, Folami LB, Liu C, Mittelstaedt HF (1999) The value relevance of financial statement recognition versus disclosure: evidence from SFAS No. 106. Contemp Account Res (Summer):399–429
Dhaliwal D, Subramanyam KR, Trzevant R (1999) Is comprehensive income superior to net income as a measure of firm performance? J Account Econ 26:43–67. doi:10.1016/S0165-4101(98)00033-0
Easton PD, Harris TS (1991) Earnings as an explanatory variable of returns. J Account Res 29(1):19–36. doi:10.2307/2491026
Fairfield P, Whisenant JS (2001) Using fundamental analysis to assess earnings quality: evidence from the center for financial research and analysis. J Account Audit Finance 16(Fall):273–295
Ghosh A, Moon D (2005) Audit tenure and perceptions of audit quality. Account Rev 80(2):585–612. doi:10.2308/accr.2005.80.2.585
Gordon E, Joos P (2004) Unrecognized deferred taxes: evidence from the UK. Account Rev 79(1):97–124. doi:10.2308/accr.2004.79.1.97
Hand J, Landsman W, Monaham S (1997) What can SFAS No. 87 tell us about disclosure effectiveness? Working paper, The University of North Carolina at Chapel Hill
Hirst DE, Hopkins PE (1998) Comprehensive income reporting and analysts’ valuation adjustments. J Account Res 36(Supplement):47–75. doi:10.2307/2491306
Hirst DE, Hopkins PE, Wahlen JE (2004) Fair values, income measurement, and bank analysts’ risk and valuation judgments. Account Rev 79(April):453–472. doi:10.2308/accr.2004.79.2.453
Hurtt DN, Kreuze JG, Langsam SA (2007) Displaying the funding status of postretirement plans: the impact of SFAS 158 disclosure. CPA J (July issue):34–40
Landsman W (1986) An empirical investigation of pension fund property rights. Account Rev 61:662–691
Landsman W, Ohlson J (1990) Evaluation of market efficiency for supplementary accounting disclosures: the case of pension assets and liabilities. Contemp Account Res 7(fall):185–198
Libby R, Nelson M, Hunton J (2006) Recognition v. disclosure, auditor tolerance for misstatement, and the reliability of stock compensation and lease information. J Account Res 44(3):533–560. doi:10.1111/j.1475-679X.2006.00210.x
Petroni KR, Wahlen JM (1995) Fair values of equity and debt securities and share prices of property liability insurance. J Risk Insur 62(4):719–737. doi:10.2307/253592
Picconi M (2006) The perils of pensions: does pension accounting lead investors and analysts astray? Account Rev 81:925–955. doi:10.2308/accr.2006.81.4.925
Towers Perrin HR Services (2006) Adopting FAS 158-Practical implications and next steps for plan sponsors. http://www.towersperrin.com/tp/jsp/hrservices_home.jsp?selected=home. Accessed October 2006
Watson Wyatt Worldwide (2006) How will FASB’s accounting changes affect shareholders’ equity and credit ratings? www.watsonwyatt.com. Accessed December 2006