Enhancing Pension Disclosure Transparency: A Gratuity-based Framework for DAX Listed Firms

Description

DOI: https://doi.org/10.5281/zenodo.20508418

Ulla-Martina Bauer (Department of Management, Cardiff Metropolitan University, United Kingdom)

This study examines the influence of key financial and pension-related factors on IFRS disclosure practices. Despite prior studies examining the complex relationships among company characteristics, disclosure levels, and pension variables, significant gaps still exist in empirical research in countries where IFRS is applied. To close this gap, the determinants of the disclosure of critical actuarial estimates (CAE) for companies listed on the DAX are examined. Data was collected for 30 companies listed on the DAX and includes 335 observations on determinants of CAE disclosure and 350 observations on changes in interest rates used to calculate pension provisions and expected returns on assets. These observations cover the period from 2005 to 2018. The aim was to enable precise research into the factors influencing disclosure and the sensitivity of discount rates and expected asset returns across different economies. It was found that larger companies and those with different regulatory statuses show greater sensitivity to pension interest rates and expected returns. This is consistent with the gratuity theory. It also emerged
that a weaker financial position weakens the impact of sensitivity. The results show a strong, consistent positive correlation between profitability and gratuity-related disclosures, with the model exhibiting high explanatory power (R² = 0.630.72). More successful companies are better positioned and more inclined to make accurate and reliable assumptions about pensions and gratuities. The results from the perspective of gratuity theory suggest this. The findings amplify the importance of transparent disclosure practices among listed companies. Drawing from
these findings, the study contributes to the literature by developing a framework for gratuity-based transparency. The resulting framework integrates regulatory discipline, disclosure incentives, financial capacity and strategic actuarial alignment to explain disclosure practices in pensions. More profitable companies find it easier to make accurate and honest assumptions about pensions and severance pay. This is entirely in line with the theory of
incentives. It also highlights the importance of consistent and transparent disclosure practices among listed companies.