The economic consequences of GASB financial statement disclosure

https://doi.org/10.1016/j.jacceco.2022.101555Get rights and content
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Highlights

  • We use GASB 68 to examine whether disclosure requirements under governmental accounting standards influence economic decision making.

  • GASB 68 mandated the disclosure of pension obligations, resulting in new disclosures for half the counties in our sample.

  • We find that counties disclosing their pension liabilities for the first time reduce public welfare and labor expenses.

  • Our findings are supported by robust statistical analyses and extensive field research.

  • Our conclusions challenge the widespread belief that governmental decision-making is driven solely by budgetary issues.

Abstract

We examine whether Governmental Accounting Standards Board (GASB) financial statement disclosure alters local governments' economic decision-making. To do so, we exploit a recent GASB standard that eliminated differences in the disclosure requirements for county governments' pension obligations. The standard, GASB 68, had no effect on pension economics or the annual budget—it affected only whether and how information was presented on GASB financial statements. Using a broad hand-collected dataset, we document that counties that did not disclose information about their pension obligations before GASB 68 reduced public welfare expenditures, employment, and salary expenses relative to those that had disclosed such information. We conduct extensive field research and employ several cross-sectional analyses to conclude that the effects we document are in part driven by increased awareness of the financial costs of pension obligations by newly disclosing counties.

Keywords

GASB 68
Disclosure
Real effects
Public pension
Managerial learning
Pension accounting

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