This study examines whether debt contracting and political costs influence companies' decisions regarding the timing of the initial adoption of Statement of Financial Accounting Standards No. 87, Employers' Accounting for Pensions. The results are consistent with the debt contracting hypotheses: early adopters tended to have higher leverage and a higher income effect from the adoption and a lower interest coverage ratio and a larger increase in this ratio from the adoption. Our findings, however, do not support the political cost hypothesis.
Get full access to this article
View all access options for this article.
References
1.
Accounting Principles Board.1966. APB No. 8: Accounting for the Cost of Pension Plans. New York: American Institute of Certified Public Accountants.
2.
AyresF. L.. 1986. “Characteristics of Firms Electing Early Adoption of SFAS 52.”Journal of Accounting and Economics8 (June): 143–158.
3.
BowenR. M.NoreenE. W.LaceyJ. M.. 1981. “Determinants of the Corporate Decision to Capitalize Interests.”Journal of Accounting and Economics3 (August): 151–179.
4.
DaleyL. A.VigelandR. L.. 1983. “The Effects of Debt Covenants and Political Costs on the Choice of Accounting Methods: The Case of Accounting for R&D Costs.”Journal of Accounting and Economics5 (December): 195–211.
5.
DukeJ. C.HuntH. G.III1990. “An Empirical Examination of Debt Covenant Restrictions and Accounting-Related Debt Proxies.”Journal of Accounting and Economics12 (January): 45–63.
6.
El-GazzarS.LilienS.PastenaV.. 1986. “Accounting for Leases by Lessees.”Journal of Accounting and Economics8 (October): 217–237.
7.
Financial Accounting Standards Board.1985a. Statement of Financial Accounting Standards No. 87, Employers' Accounting for Pensions.Stamford, Conn.: FASB.
8.
Financial Accounting Standards Board1985b. Statement of Financial Accounting Standards No. 88, Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits.Stamford, Conn.: FASB.
9.
FogelsonJ. H.. 1978. “The Impact of Changes in Accounting Principles on Restrictive Covenants in Credit Agreements and Indentures.”Business Lawyer73 (January): 769–787.
10.
FrancisJ. R.. 1987. “Lobbying Against Proposed Accounting Standards: The Case of Employers' Pension Accounting.”Journal of Accounting and Public Policy6 (Spring): 35–57.
11.
HagermanL. R.ZmijewskiM. E.. 1979. “Some Economic Determinants of Accounting Policy Choice.”Journal of Accounting and Economics1 (August): 141–161.
12.
HealyP. M.. 1985. “The Effect of Bonus Schemes on Accounting Decisions.”Journal of Accounting and Economics7 (April): 85–107.
13.
HolthausenR. W.LeftwichR. W.. 1983. “The Economic Consequences of Accounting Choice: Implications of Costly Contracting and Monitoring.”Journal of Accounting and Economics5 (August): 77–117.
14.
JudgeG. G.GriffithsW. E.HillR. C.LutkepohlH.LeeT.-C.. 1985. The Theory and Practice of Econometrics, 2nd ed.New York: Wiley.
15.
KalayA.. 1982. “Stockholder-bondholders Conflicts and Dividend Constraints.”Journal of Financial Economics10 (July): 211–233.
16.
LilienS.PastenaV.. 1982. “Determinants of Intramethod Choice in the Oil and Gas Industry.”Journal of Accounting and Economics4 (December): 145–170.
17.
NoreenEric. 1988. “An Empirical Comparison of Probit and OLS Regression Hypothesis Tests.”Journal of Accounting Research26 (Spring): 119–133.
18.
NortonC. L.. 1988. “Pension Accounting: Effects of Early Adoption.”The CPA Journal58 (March): 46–51.
19.
PressE. G.WeintropJ. B.. 1990. “Accounting-Based Constraints in Public and Private Debt Agreements: Their Association with Leverage and Impact on Accounting Choice.”Journal of Accounting and Economics12 (January): 65–95.
20.
SmithC. W.WarnerJ. B.. 1979. “On Financial Contracting: an Analysis of Bond Covenants.”Journal of Financial Economics7 (June): 117–161.
21.
StoneM.IngramR. W.. 1988. “The Effect of Statement No. 87 on the Financial Reports of Early Adopters.”Accounting Horizons2 (September): 48–67.
22.
ThomasJ. K.. 1988. “Corporate Taxes and Defined Benefit Pension Plans.”Journal of Accounting and Economics10 (July): 199–237.
23.
WattsR. L.ZimmermanJ. L.. 1978. “Towards a Positive Theory of the Determination of Accounting Standards.”The Accounting Review53 (January): 112–134.
WongJ.. 1988. “Economic Incentives for the Voluntary Disclosure of Current Cost Financial Statements.”Journal of Accounting and Economics10 (April): 151–167.
26.
ZmijewskiM. E.HagermanR. L.. 1981. “An Income Strategy Approach to the Positive Theory of Accounting Standard Setting/Choice.”Journal of Accounting and Economics3 (August): 129–149.
