Three studies on pension accounting

On Tuesday 11 March 2025 David Ogudugu will hold a trial lecture on a prescribed topic and defend his thesis for the PhD degree at NHH.

This dissertation consists of three studies on pension accounting that explore how changes in financial reporting transparency affect capital markets and firms' accounting choices.

The first study (co-authored with Tzu-Ting Chiu) examines stock price reactions to a change in accounting regulation that mandated balance sheet recognition of pension liabilities. Prior to this regulation, firms had the option to partly keep pension liabilities off-balance sheet. These liabilities were already disclosed in the footnotes, but shifting from footnote disclosure to recognition may have weakened firms’ financial positions and increased balance sheet volatility. Our results indicate that the stock market reacted negatively to the revised accounting standard only in instances where firms were more vulnerable to debt covenants or faced higher likelihoods of pension-induced volatility.

The second study examines whether firms strategically adjust pension discount rates to influence reported pension liability and expense by looking at how firms respond to a change in regulation that increased both pension expense and the influence of discount rates on pension expense. I find that firms adopted more appropriate discount rates after the regulation, but were less likely to do so when pension expense increases were greater. Additionally, firms took other measures to reduce pension liabilities and offset the negative impact of using more appropriate discount rates.

Essays in empirical corporate finance

On Thursday 27 February 2025 Johan Ludvig Schmidberger Karlsen will hold a trial lecture on a prescribed topic and defend his thesis for the PhD degree at NHH.

The last study looks at how actuarial choices affect debt markets by examining a local change in prescribed benchmarks for pension discount rates in Norway that led to a reduction in pension liabilities. I find some evidence that Norwegian firms with larger pension liabilities incur lower cost of debt following the regulatory change, especially for financially constrained firms. Interestingly, I find that stock market participants reacted positively to the announcement of the regulatory change, likely having anticipated these positive effects.