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Pension accounting disclosures and stock market reactions

The Malaysian Accounting Standard Board ‘MASB’ issued FRS 119 ‘Employee Benefits’ which became effective for periods beginning on or after 1 January 2010. This standard is further superseded by MFRS 119 (i.e. as amended by IASB in June 2011) with effect from 1 January 2013. Hence, the present study provides evidence on the practice of pension accounting disclosures after the implementation of FRS 119 ‘Employee Benefits’ and their stock market reactions ‘cumulative market adjusted return’. The study reveals that seventy (70) companies have adopted Defined Benefit (DB) pension schemes based on the annual reports for the year 2009. Among these companies, seven (7) companies have pension assets disclosures while another 63 companies pension liabilities disclosures. The pension accounting disclosures related to actuarial gains and losses are only provided by 29 Malaysian companies. In addition, multivariate analysis provides interesting results that indicate pension liabilities disclosures are significant variables in relation to CMAR. These findings may suggest that DB pension schemes with high disclosures of pension liabilities are less likely contributing to high value of CMAR. In this context, the users of corporate financial statements could be expected (1) to value the amount of pension liabilities more than amount of pension assets among DB pension schemes adopters; and (2) higher amount of pension liabilities may result in lower CMAR among DB pension schemes adopters in Malaysia. On the other hand, pension assets disclosures which are positively and significantly associated to CMAR indicate that the higher of pension assets disclosed in by DB pension adopters in the financial statements, the higher of CMAR will be offered by Malaysian listed companies. These disclosures of pension asset could help the aging population in planning the retirement needs in the future. In addition, users of financial statements may be worth to be attentive and wacthful in relation to the amount of pension assets which are disclosed in the annual reports in order to make decision on buying and selling of company securities.