We explore whether a firm’s pension plan characteristics affect its annual report readability and how regulatory changes in pension accounting (SFAS No. 158 and SFAS No. 132R-1) and financial constraints moderate the impact of pension plan characteristics. Using 27,180 US firm observations from 2001 to 2021, we find that projected benefit obligations and funded status volatility are negatively related to annual report readability, whereas funded status has the opposite effect. Additionally, these characteristics similarly affect the readability of Management’s Discussion and Analysis (MD&A readability) and Notes to consolidated financial statements (Notes readability). The effects of funded status volatility become stronger in the post-SFAS No.158 (2006) and post-SFAS No.132R-1 (2008) periods. Furthermore, financial constraints significantly strengthen the effects of funded status volatility on the readability of annual reports, MD&As, and Notes, whereas overfunded status and low information uncertainty have the opposite effect. Finally, the results remain robust when addressing endogeneity through instrumental variable regression and difference-in-differences analysis, controlling for the financial crisis, and employing alternative readability measures.
Chen et al. (Sun,) studied this question.