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Pension discount rate, executive stock-based compensation and investor sentiment

Fang Sun (Department of Accounting and Information Systems, Queens College, CUNY, New York, New York, USA)
Xiangjing Wei (Dahlkemper School of Business, Gannon University, Erie, Pennsylvania, USA)

Managerial Finance

ISSN: 0307-4358

Article publication date: 1 December 2022




In this paper, the impact of stock-based compensation and further the joint effects of stock-based compensation and investor sentiment on pension discount rate choice is examined.


The hypotheses is tested using fixed effects models and instrumental variable analysis where pension discount rate is the dependent variable, and stock-based compensation and investor sentiment are our variables of interest.


It was found that pension discount rate is negatively associated with managers' stock-based compensation. Further analysis indicates that managers with larger stock-based compensation tend to adjust down their pension discount rates in higher (smaller) degree, responding to high (low) investor sentiment.

Practical implications

The findings provide important insights into how managers use pension discount rates to engage in earnings management. Understanding these relationships has implications for interpreting pension numbers reported in the financial statements and designing pension accounting rules that minimize the possibility that managers take advantage of the complexity associated with pension accounting to influence the reported earnings and executive compensation. Moreover, the findings suggest the need for increased attention from boards of directors, auditors and regulators to reported pension liabilities and service costs, especially for firms paying higher proportion of stock-based compensation to managers and during periods of high investor sentiment.


The findings contribute to the extant literature by identifying the joint impacts of stock-based compensation and investor sentiment as incentives for pension discount rate manipulation. The empirical results of this study also have important implications for corporate governance and regulation.



Sun, F. and Wei, X. (2022), "Pension discount rate, executive stock-based compensation and investor sentiment", Managerial Finance, Vol. ahead-of-print No. ahead-of-print.



Emerald Publishing Limited

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