The value relevance of superannuation disclosures for Australian companies 2002 and 2003

The focus of interest in this research is the value relevance of superannuation disclosures for corporate employers sponsoring Defined Benefit Plans on behalf of employees. For the period of this study, the two years 2002 and 2003, the relevant reporting requirements came within the accounting standard for employee benefits, AASB 1028. Prior Australian research on superannuation disclosures has already established that such disclosures were value relevant, at least based on an industrial sample in 1995, and more recently on a full sample for the period 2000 to 2003. The primary purpose of this study is to examine the hypothesis that this relationship between shareholder value and superannuation disclosures is asymmetrical i.e. significantly different depending on whether the company-sponsored fund represents a liability (deficit) or an asset (surplus) of the sponsor firm. The reason for investigating this conjecture was that, in light of the changed conditions in the Australian market for many firms, the net asset position of a number of superannuation plans deteriorated, providing the evidence to investigate this hypothesis for the first time. The research methodology used in this study investigates value relevance using the balance sheet valuation model developed by Landsman (1986) and since used in several studies. The findings of the study provide new evidence in support of this hypothesis, consistent with the view that the market will devalue the firm heavily when the fund is in deficit, but will appreciate the value of the firm significantly less heavily when the fund is in surplus. The study finds support for the observed market behaviour in prior research relevant to the impact of bad news and the consequent market reaction. The findings are particularly relevant at a time of change in the accounting regulations for superannuation disclosures for corporate sponsors with the move to adoption of International Financial Reporting Standards from January 2005