The impact of IAS 19 R on shareholder wealth and firms’ actuarial choices : evidence from the Oslo Stock Exchange
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- Master Thesis 
The purpose of this study is to examine the effects of the amendments to the IFRS accounting standard, IAS 19 (Employee Benefits), on firms listed on the Oslo Stock Exchange. More specifically, the effect on defined-benefit pension plan sponsors that used the “corridor method” to defer the recognition of actuarial gains and losses prior to the revision. IAS 19 R, which has been in effect since the financial year 2013, requires firms to recognize actuarial gains and losses in other comprehensive income on a continuous basis, and accumulated corridor values had to be recognized during the effective year. This had a negative effect on shareholders’ equity for defined-benefit plan sponsors on average, and I investigate both market reactions to the announcements leading up to the revision and the changes in firms’ actuarial choices for defined-benefit plans leading up to the effective year. I find that firms that used the corridor method during the issuance of the near-final draft of IAS 19 R experienced lower abnormal returns than other firms on average during this announcement, but that this effect was mostly driven by leverage. The negative impact of leverage on abnormal returns was, however, stronger for firms with negative corridor values during the release of the exposure draft and the near-final draft. I also find that highly leveraged firms used more liberal actuarial assumptions when estimating the pension liability in the years leading up to the revision, but that this effect diminished during the effective year. Lastly, I found that firms that had negative corridors in 2012 changed their actuarial assumptions more aggressively than other defined-benefit sponsors in 2013, thereby reducing the accumulated corridor value that had to be recognized. The effect of leverage on actuarial choices is somewhat consistent with previous research on pensions and earnings management, but the findings in this study present new insights regarding IAS 19 in Norway specifically. Overall, the findings suggest that the IAS 19 revision has improved the quality of pension accounting.