The Economic Consequences of GASB Financial Statement Disclosure

We examine whether Governmental Accounting Standards Board (GASB) financial statement disclosure influence local governments’ economic decision-making. To do so, we exploit a recent GASB standard that differentially changed the disclosure requirements for pension obligations for county governments. The standard, GASB 68, had no effect on pension economics nor on the annual budget — it only affected whether and how information was presented on GASB financial statements and did so differently depending on the type of pension plan sponsored by the county. Using a broad hand-collected dataset, we document that counties that did not previously disclose pension liabilities reduced public welfare expenditures, employment, and salary expenses relative to those that had disclosed such information prior to GASB 68. The effects we document are concentrated in larger counties and in those that are more active in debt markets, suggesting that either political or capital market pressures contribute to our findings.