The accounting for defined benefit pension plans in family firms.

This paper investigates the accounting for defined benefit pension plans in U.S. family firms. Relying on agency theory and the literature on defined benefit pension plans, we test whether the allocation of pension plan assets, the expected rate of return on pension plan assets and the contributions to defined benefit pension plans in family firms are significantly different from those in non‐family firms. Relying on a sample of U.S. firms over the period 2004–2018, we first document that family firms take more risk when allocating their pension plan assets relative to non‐family firms where they allocate a larger (smaller) percentage of pension plan assets in equity (debt) securities. We also show that family firms are more aggressive in setting the expected rate of return on pension plan assets than non‐family firms. However, family firms' contributions to defined benefit pension plans are comparable to those of non‐family firms. Our findings hold after controlling for the endogeneity in family firms. These findings are important since they provide first hand empirical evidence on the accounting for defined benefit pension plans in family firms. They further shed light over pension plans that serve as a key tool to attract and retain executive talents and make up a significant portion of firms balance' sheets. [ABSTRACT FROM AUTHOR]