Abstract
This study aims to examine how pension accounting relates to inside debt and capital structure. We introduce basic concepts of pension plans and pension accounting (including the determinants of pension liabilities, assets, and pension expense reported in financial statement) in accordance with U.S. GAAP (FAS 158) and IFRS (IAS 19). We also provide a review of empirical research on the pension accounting associated with earnings management and firm value. Finally, following Alderson and Lee (J Econ Bus, 40:209–228, 1988), this chapter introduces a developed model in which individuals and corporations have an incentive to engage in pension plans to deals with corporate pension funding policy as part of the capital structure decision.
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Notes
- 1.
Source: U.S. Development of Labor Employee Benefits Security Administration, Private Pension Plan Bulletin, February 2008.
- 2.
Only pension plans with 100 or more participants are included in the statistics. The statistics include single employer plans, plans of controlled groups of corporations, and multiple-employer non-collectively bargained plans.
- 3.
The major differences between FAS 158 and IAS 19 are as follows. (1) FAS 158 amortizes PSC over the remaining service lives of employees, while IAS 19 recognizes past service cost as a component of pension expense in income immediately. (2) FAS 158 recognizes liability and asset gains and losses in “Accumulated other comprehensive income” and amortizes these amounts to income over remaining service lives. Under IAS 19, companies recognize both liability and asset gains and losses (referred to as re-measurements) in other comprehensive income. (Kieso et al. 2020)
Abbreviations
- DB:
-
Defined benefit
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Lee, CF., Lin, J.J. (2022). Pension Accounting, Inside Debt, and Capital Structure. In: Lee, CF., Lee, A.C. (eds) Encyclopedia of Finance. Springer, Cham. https://doi.org/10.1007/978-3-030-91231-4_89
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