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Does Recognition versus Disclosure of Pension Liabilities Affect Credit Ratings? Evidence from Japan

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  • Masaki KUSANO

Abstract

Whether credit market participants process disclosure and recognition of pension information differently has not been fully explored. To fill this gap, this study investigates whether the change in a pension accounting standard related to the recognition rule influences firms’ credit risk in Japan. Statement No. 26, Accounting Standard for Retirement Benefits, stipulates that firms recognize previously disclosed pension information on the balance sheet. Employing the implementation of Statement No. 26, I explore how differences between disclosed and recognized pension liabilities affect credit ratings. I find that off-balance sheet pension liabilities are associated with credit ratings prior to Statement No. 26. I also find similar relations between disclosure versus recognition of pension liabilities and credit ratings. Particularly, when pension information is highly reliable, off-balance sheet pension liabilities provide risk-relevant information, and the risk relevance of disclosed and recognized pension liabilities is statistically similar. My overall results reveal that, to the extent that accounting information is reliable, credit rating agencies fully incorporate off-balance sheet pension information into credit ratings, suggesting that mandating pension recognition does not affect firms’ credit ratings.

Suggested Citation

  • Masaki KUSANO, 2020. "Does Recognition versus Disclosure of Pension Liabilities Affect Credit Ratings? Evidence from Japan," Discussion papers e-20-005, Graduate School of Economics , Kyoto University.
    • Handle: RePEc:kue:epaper:e-20-005
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    More about this item

    Keywords

    Recognition versus Disclosure; Pension Accounting; Credit Ratings; Reliability of Accounting Information;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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