Abstract
IAS 19 revised (IAS 19(R)) abolished the corridor approach and replaced the expected rate of return (ERR) on pension plan assets with the discount rate. While the abolition of the corridor method did not have a significant impact on UK firms, which were historically using a different method to recognize actuarial gains or losses, the elimination of the ERR was anticipated to have a major impact. We examine whether the elimination of the ERR had real economic consequences for UK firms around the publication and implementation dates of IAS 19(R). Our findings suggest that UK firms shifted pension investments away from equities following the publication and implementation of IAS 19(R). In addition, we find evidence that firms with higher pension deficits and firms that used higher ERRs reduced equity investments to a greater extent following the publication of IAS 19(R); interestingly, firms with larger differences between the expected and actual rates of return on pension plan assets reduced equity investments to a greater extent only following the implementation of IAS 19(R). These findings may be of interest to regulators in the context of standard‐setting, investment professionals, and other stakeholders.
Published Version
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