Date of Award

Winter 2000

Document Type


Degree Name

Doctor of Business Administration (DBA)



First Advisor

Gene Johnson


The purpose of this research was to determine which variables help identify firms that have reduced or eliminated postretirement benefits other than pensions (OPEBs). Mittelstaedt et al. (1995) found that the adoption of SFAS No. 106 was one of the major determinants in OPEB reduction decisions. Those authors also found that financial weakness was a determinant in such reductions. This study attempts to determine the possible factors involved in such decisions, including both financial weakness and the OPEB liability, now that its disclosure is mandated by SFAS No. 106.

The theoretical backbone of this study was traced back to the work of Myers and Majluf (1984) and Myers (1984), who discovered that firms generally restrict dividends or take other steps to maintain financial slack. Stone (1987), Mittelstaedt (1989), and Thomas (1989) found financial weakness to be a determinant in pension plan reduction decisions.

Two-group discriminant analysis was used since the dependent variable was categorical while the independent variables were continuous. Sample firms fen into two groups: (1) No-change firms (firms that did not reduce or eliminate OPEBs), (2) Change firms (firms that did reduce or eliminate OPEBs). Financial weakness variables and OPEB liability variables were used in the model. Six hypotheses were tested.

The full sample consisted of 588 firms, but the very small proportion of change firms to no-change firms confounded the results. A reduced and more balanced sample was used in the final analysis. The final model had a classificatory accuracy of about 75 percent.

These results indicate that the relationship between financial weakness and OPEB plan reductions may have changed since the adoption of SFAS No. 106 and that this relationship is considerably weaker than that found in prior research. This study's findings also provide little evidence that there is a long-term negative effect associated with the OPEB liability.

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