Reporting costs, stakeholder conflicts and disclosures of expected pension contributions

After the financial crisis of 2008, the FASB proposed that both financial and non-financial companies provide quantitative disclosure about their liquidity risk exposure in a comparable and consistent form within their financial statements, including a tabular disclosure of their cash flow obligations by expected maturities. The proposal, however, was tabled due to negative responses from various institutions. One of the biggest concerns raised by those institutions is that the required disclosure is forward-looking and belongs in Management Discussion and Analysis (MD&A). Therefore, evidence on companies' costs of providing forward-looking disclosures of liquidity-related information is important to standard-setters in evaluating the merits of rigorous forward-looking disclosures about liquidity risk exposure in the future. SFAS 132(R) requires that pension sponsors disclose their best estimates of pension contributions expected to be made in the subsequent year, which provides a context for studying a company's costs of providing forward-looking disclosures about liquidity risk exposure and its policy implications. Taking advantage of SFAS 132(R)'s disclosure requirement, my dissertation studies how stakeholder conflicts affect the accuracy of disclosures of expected pension contributions and the consequences of inaccurate (or biased) disclosures. Using a sample of 4,262 company-year observations of 796 U.S. pension plan sponsors for the period of 2003-2011, I find that companies make pension contributions that are materially different from their previous expectations over one third of the time. The results suggest that companies sometimes provide biased expectations of future pension contributions. I also find management underestimates future pension contributions and makes more positive unprojected pension contributions subsequently when they have unionized employees, when more employees participate in pension plans, when they pay dividends more frequently, and when there are more analysts issuing cash flow forecasts. Additionally, I find companies with more short-term debt underestimate future pension contributions to a lesser degree. Finally, I find that analysts issuing cash flow forecasts for companies with more inaccurate disclosures tend to have more negative forecast errors. But I do not find evidence that inaccurate disclosures of future pension contributions affect analyst dividend forecast errors or the market reacts to inaccurate disclosures.