Firm Choice Of Discount Rate Used In Valuing Pension Obligations

Abstract

This paper examines how the minimum liability reporting requirement for defined benefit pension plans affects the choice of actuarial assumptions. There is a long history of accounting literature which suggests that firms select accounting practices in order to artificially improve the appearance of their operations.  Similarly, there is a history of research regarding the question of how firms select the actuarial assumptions used in accounting for their defined benefit pension plans.  This paper makes a unique contribution to this line of research in that it explicitly examines and focuses on the effect of the “minimum liability” requirement under Statement of Financial Accounting Standard No. 87.