The economic consequences of GASB financial statement disclosure

Abstract

We examine whether changes in how items are reported on GASB financial statements have real economic consequences for local governments. We generate identification using financial reporting differences that existed prior to adoption of GASB 68, a standard focused on the reporting of defined benefit pension obligations. These differences were eliminated by GASB 68, and were not discretionary. They arose based on whether the local government participated in either a shared or agency pension plan. Using a broad sample of municipalities and a difference-in-differences (DD) research design, we find that the new disclosure of a pension obligation leads to reduced expenses through changes to wages, benefits and employee headcount. We find the opposite result for pension assets, and stronger results for larger pension obligations. In addition, we find that the effects of disclosing pension obligations are stronger for those municipalities accessing debt markets, suggesting that credit markets may be contributing to the effects we document.