The Economic Consequences of GASB Financial Statement Disclosure

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 pension obligations for county governments. The standard, GASB 68, had no effect on pension economics nor the annual budget—it only affected 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 pre-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 likely 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

JEL Classification: M41, M48, H7