| This study investigates possible incentives for managerial selection of the three reported pension rate estimates under SFAS no. 87: the discount rate, the expected rate of return on plan assets, and the expected rate of future compensation. Academic studies have typically assumed that managers' accounting choices stem from either opportunistic motivations or efficient contracting motivations, and developed testable hypotheses for one assumption or the other. This study seeks to combine the two paradigms by controlling for efficient contracting incentives then testing for opportunistic incentives with respect to pension rate determination. Since even small changes in pension rates can have material financial statement effects, it is important to understand what influences managers' choices of pension rates.; The results suggest that the difference between pension rates and objective efficiency measures can be explained, in part, by financial (e.g., cash constraints) and accounting-based (e.g., debt-covenant constraints) factors, and in part by the presence of external monitoring agents such as a large union concentration within the industry. The results further suggest that as managers get more familiar with SFAS no. 87, opportunistic incentives play more part in their determination of pension rates.; Three variables representing opportunism--a cash variable, a tax variable, a debt-covenant variable, and an earnings expectation variable--and a monitoring variables--the industry union concentration--are tested against a dependent variable for each pension rate adjusted for external measures representing efficient contracting concerns for three years: 1988-1990. In addition, a short questionnaire was sent to all sample firms in order to acquire firm-specific information unavailable from public sources of information. Replicating the models using only the responding firms (approximately 38% response rate) with the firm-specific information provided indicated less opportunism than the full models without the firm-specific information, but these results may be biased due to the self-selection inherent in the responding firms: responding firms, in other words, may be less opportunistic than non-responding firms, which may explain why these firms responded and the others did not. |
