Determinants of Actuarial Valuation Method Changes for Pension Funding and Reporting: Evidence from the UK

Paul J.M. Klumpes and Mark Whittington

Journal of Business Finance & Accounting, 2003, vol. 30, issue 1‐2, 175-204

Abstract: This study examines various factors that potentially explain cross‐sectional variations in UK corporate managerial discretion to switch towards a market‐based actuarial pension valuation method for pension funding and reporting purposes. Evidence is based on accounting, actuarial and share market data for an industry‐matched pair sample of 90 UK firms. Consistent with our hypotheses we find that companies have a greater propensity to switch actuarial methods if they use lower discount rates, lower flow funding ratios and sponsor larger pension plans in the pre‐switch valuation year. These findings are consistent with the traditional perspective, which implies that UK corporate switching decisions are explained by characteristics of their defined benefit pension funds. The results run contrary to the findings of earlier US based studies that find that such choices can be explained from an alternative corporate financial perspective.

Date: 2003
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