Determinants of the Pension Curtailment Decisions of UK Firms |
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| Authors: | Paul Klumpes Mark Whittington and Yong Li |
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| Institution: | The first author is from Imperial College Business School, London. The second author is from the University of Aberdeen Business School. The third author is from Stirling Management School, University of Stirling. Comments provided by participants at the 2003 British Accounting Association annual meeting, the FMG-UBS Pension Research Seminar at London School of Economics (2004), Tanaka Business School accounting workshop (2004), the 2004 American Accounting Association Annual Congress, and the 2007 American Risk and Insurance Association Meeting, are greatly appreciated. The authors also acknowledge the helpful advice of the journal editor and referees. |
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| Abstract: | Abstract: During the last ten years of regulatory change, many UK companies have curtailed their defined benefit pension scheme. We test three competing explanations of UK corporate pension curtailments: integration, separation and risk management. We predict and find an association between the use of managerial discretion over changes in UK firms' expected rate of return on pension assets (ERR) assumptions, and subsequent decisions to curtail future defined benefit pension obligations. These findings are consistent with a risk management-based explanation, even after controlling for other factors identified by prior literature as significant in explaining pension benefit reductions. We also find that curtailments and the risk management of ERR assumptions are associated with subsequent corporate restructuring decisions. The findings support the view that pension curtailment decisions are driven by the failure to adapt to new economic and regulatory pressures and that they are ultimately determined by strategic corporate risk management considerations. |
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| Keywords: | ERR assumptions pension curtailment decision |
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