GASB 68 AND ITS IMPACT ON THE COST OF STATES’ DEBT

Abstract

Government Accounting Standards Board (GASB) Statement number 68 (GASB 68) significantly changes how states and local government organizations report the financial position of their defined-benefit pension plans. In this paper, we investigate the effects of GASB 68 on the cost of debt. Using bond yield-spread as a proxy for cost of debt, we find that the cost of debt increased after GASB 68, and the increase is more pronounced for states with larger pension deficits. Our findings suggest that bond investors consider recognized and disclosed pension information differently in their pricing decisions. Our results have important implications for analysts and accounting standard setters.