Contributions to Defined Benefit Pension Plans: Economic and Accounting Determinants

Pension contribution has a significant impact on firm valuation, employee benefit, and the financial situation of the Pension Benefit Guaranty Corporation (PBGC). Using a comprehensive dataset of defined benefit pension (DB) plan contributions, we investigate economic and accounting determinants of...

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Main Authors: CHENG, Qiang, MICHALSKI, Laura
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Language:English
Published: Institutional Knowledge at Singapore Management University 2010
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Online Access:https://ink.library.smu.edu.sg/soa_research/833
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spelling sg-smu-ink.soa_research-18322018-08-20T08:35:46Z Contributions to Defined Benefit Pension Plans: Economic and Accounting Determinants CHENG, Qiang MICHALSKI, Laura Pension contribution has a significant impact on firm valuation, employee benefit, and the financial situation of the Pension Benefit Guaranty Corporation (PBGC). Using a comprehensive dataset of defined benefit pension (DB) plan contributions, we investigate economic and accounting determinants of pension contributions. We argue that a firm’s pension contribution decision reflects the trade-off between the benefit – reducing the pension liability, and the cost – reducing cash flows from operations and cash available for other purposes. With respect to economic determinants, we find that firms contribute more when funding status is low and when profitability, cash flows from operations and the marginal tax rate are high, and that firms contribute less when the average retirement benefit and leverage are high. With respect to accounting determinants, we find that firms are less likely to contribute when their default risk is high and when their credit rating is near the investment/non-investment grade cut-off. We also find managers contribute less before insider sales, but only when the funding status is high. Additional analyses indicate that firms behave differently when DB plans are underfunded, during economic downturn periods, and under recent pension accounting regimes. 2010-01-01T08:00:00Z text https://ink.library.smu.edu.sg/soa_research/833 Research Collection School Of Accountancy eng Institutional Knowledge at Singapore Management University defined benefit plan pension accounting pension contribution managerial incentives Accounting Portfolio and Security Analysis
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic defined benefit plan
pension accounting
pension contribution
managerial incentives
Accounting
Portfolio and Security Analysis
spellingShingle defined benefit plan
pension accounting
pension contribution
managerial incentives
Accounting
Portfolio and Security Analysis
CHENG, Qiang
MICHALSKI, Laura
Contributions to Defined Benefit Pension Plans: Economic and Accounting Determinants
description Pension contribution has a significant impact on firm valuation, employee benefit, and the financial situation of the Pension Benefit Guaranty Corporation (PBGC). Using a comprehensive dataset of defined benefit pension (DB) plan contributions, we investigate economic and accounting determinants of pension contributions. We argue that a firm’s pension contribution decision reflects the trade-off between the benefit – reducing the pension liability, and the cost – reducing cash flows from operations and cash available for other purposes. With respect to economic determinants, we find that firms contribute more when funding status is low and when profitability, cash flows from operations and the marginal tax rate are high, and that firms contribute less when the average retirement benefit and leverage are high. With respect to accounting determinants, we find that firms are less likely to contribute when their default risk is high and when their credit rating is near the investment/non-investment grade cut-off. We also find managers contribute less before insider sales, but only when the funding status is high. Additional analyses indicate that firms behave differently when DB plans are underfunded, during economic downturn periods, and under recent pension accounting regimes.
format text
author CHENG, Qiang
MICHALSKI, Laura
author_facet CHENG, Qiang
MICHALSKI, Laura
author_sort CHENG, Qiang
title Contributions to Defined Benefit Pension Plans: Economic and Accounting Determinants
title_short Contributions to Defined Benefit Pension Plans: Economic and Accounting Determinants
title_full Contributions to Defined Benefit Pension Plans: Economic and Accounting Determinants
title_fullStr Contributions to Defined Benefit Pension Plans: Economic and Accounting Determinants
title_full_unstemmed Contributions to Defined Benefit Pension Plans: Economic and Accounting Determinants
title_sort contributions to defined benefit pension plans: economic and accounting determinants
publisher Institutional Knowledge at Singapore Management University
publishDate 2010
url https://ink.library.smu.edu.sg/soa_research/833
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