Pension discount rate and investor sentiment

2019 ◽  
Vol 45 (6) ◽  
pp. 781-792
Author(s):  
Fang Sun ◽  
Xiangjing Wei
Keyword(s):  
Corporate Governance ◽  
Discount Rate ◽  
Boards Of Directors ◽  
Investor Sentiment ◽  
Pension Plan ◽  
Capital Budgeting ◽  
Pension Plans ◽  
Content Type ◽  
Empirical Results ◽  
Pension Liabilities

Purpose The purpose of this paper is to examine how investor sentiment, proxied by Michigan consumer confidence index, affects the choice of defined benefit pension plan discount rates. Design/methodology/approach The authors use multivariate analysis to test our hypotheses. The dependent variable is defined pension plan discount rate and the testing variables are investor sentiment and a dummy variable representing underfunded status. Findings The authors find a negative and significant relation between investor sentiment and pension plan discount rate. During high (low) sentiment periods, pension discount rate tends to be adjusted downward (upward) discretionarily. Further analysis indicates the relationship between pension discount rate and investor sentiment is more pronounced for firms with underfunded pension plans. The results can be explained by limited attention effects, capital budgeting strategy and earning smoothing. Practical implications The empirical results of this study have important implications for corporate governance and regulation. Specifically, the results suggest the need for increased attention from boards of directors, auditors and regulators to reported pension liabilities, especially during periods of high investor sentiment when pension plan sponsors are more likely to adjust down pension discount rate and accordingly to increase pension liabilities. Originality/value The paper contributes to the extant literature by identifying investor sentiment as a new incentive of pension discount rate manipulation. The empirical results of this study also have important implications for corporate governance and regulation.

scholarly journals Pension Funding and the Actuarial Assumption Concerning Investment Returns

2003 ◽  
Vol 33 (02) ◽  
pp. 289-312 ◽  
Author(s):  
M. Iqbal Owadally
Keyword(s):  
Discount Rate ◽  
Asset Allocation ◽  
Pension Plan ◽  
Pension Plans ◽  
Defined Benefit ◽  
Return On Assets ◽  
Investment Return ◽  
Investment Returns ◽  
Pension Liabilities

An assumption concerning the long-term rate of return on assets is made by actuaries when they value defined-benefit pension plans. There is a distinction between this assumption and the discount rate used to value pension liabilities, as the value placed on liabilities does not depend on asset allocation in the pension fund. The more conservative the investment return assumption is, the larger planned initial contributions are, and the faster benefits are funded. A conservative investment return assumption, however, also leads to long-term surpluses in the plan, as is shown for two practical actuarial funding methods. Long-term deficits result from an optimistic assumption. Neither outcome is desirable as, in the long term, pension plan assets should be accumulated to meet the pension liabilities valued at a suitable discount rate. A third method is devised that avoids such persistent surpluses and deficits regardless of conservatism or optimism in the assumed investment return.

Corporate governance efficiency and internet financial reporting quality

2014 ◽  
Vol 13 (1) ◽  
pp. 43-64 ◽  
Author(s):  
Laurent Botti ◽  
Sabri Boubaker ◽  
Amal Hamrouni ◽  
Bernardin Solonandrasana
Keyword(s):  
Corporate Governance ◽  
Financial Reporting ◽  
Web Sites ◽  
Boards Of Directors ◽  
Reporting Quality ◽  
Efficiency Frontier ◽  
Content Type ◽  
Listed Firms ◽  
Empirical Results ◽  
Top Executives

Purpose – This paper aims to shed some light on the role of boards of directors in improving internet financial reporting (IFR) quality. Design/methodology/approach – The empirical study uses a data envelopment analysis (DEA) approach on a sample of 32 French firms belonging to the CAC40 index as of December 2007. Findings – The empirical results show that 28 percent of the sample firms are located on the efficiency frontier for all IFR components. These firms' boards of directors and their committees seem to act as effective monitors of top executives, which improves the quality of the firm's disclosure policy through, inter alia, an increase in the level of IFR. Under efficient board control, firms develop user-friendly and readily accessible web sites disclosing the information required by various stakeholders. Additional empirical results show that 46.9 percent of the sample firms lie outside the efficiency frontier for all IFR measures, suggesting inefficiencies in the composition, structure, and/or functioning of their boards of directors. The inefficient monitoring and oversight of top executives by the board allowed for lower levels of IFR quality for nearly half of the CAC40 firms in 2007. Research limitations/implications – The study uses only CAC40 companies, which are relatively large and financially healthier than the average French firms, exhibiting diffuse ownership structures, with heavy foreign shareholding, and investing more in communications. This may limit the generalizability of the results to other French listed firms. Originality/value – The paper extends the literature on corporate governance and voluntary corporate disclosure by investigating the association between board characteristics and IFR quality. It examines the relative performance of the board directors in improving IFR policy.

scholarly journals Measuring Pension Liabilities: An Examination Of The Funding Levels Of Defined Benefit Pension Plans

2011 ◽  
Vol 11 (2) ◽  
pp. 73 ◽  
Author(s):  
Alan I. Blankley ◽  
Rober Y. W. Tang
Keyword(s):  
Interest Rate ◽  
Discount Rate ◽  
Pension Plan ◽  
Fortune 500 ◽  
Pension Plans ◽  
Economic Conditions ◽  
Defined Benefit ◽  
Discount Rates ◽  
Chi Square ◽  
Pension Liabilities

We examine pension funding measures and interest rate disclosures for 223 firms from the Fortune 500. Three different liability measures are used to develop funding ratios, which indicate sample firms funding condition. We then examine firms discount rate estimates and compare these estimates with their funding levels. Using chi-square tests to examine dependence between rates and funding, we determine whether over (under) funding is simply an artifact of the choice of discount rates or the result of authentic economic conditions surrounding the pension plan.

scholarly journals Pension Funding and the Actuarial Assumption Concerning Investment Returns

2003 ◽  
Vol 33 (2) ◽  
pp. 289-312 ◽  
Author(s):  
M. Iqbal Owadally
Keyword(s):  
Discount Rate ◽  
Asset Allocation ◽  
Pension Plan ◽  
Pension Plans ◽  
Defined Benefit ◽  
Return On Assets ◽  
Investment Return ◽  
Investment Returns ◽  
Pension Liabilities

An assumption concerning the long-term rate of return on assets is made by actuaries when they value defined-benefit pension plans. There is a distinction between this assumption and the discount rate used to value pension liabilities, as the value placed on liabilities does not depend on asset allocation in the pension fund. The more conservative the investment return assumption is, the larger planned initial contributions are, and the faster benefits are funded. A conservative investment return assumption, however, also leads to long-term surpluses in the plan, as is shown for two practical actuarial funding methods. Long-term deficits result from an optimistic assumption. Neither outcome is desirable as, in the long term, pension plan assets should be accumulated to meet the pension liabilities valued at a suitable discount rate. A third method is devised that avoids such persistent surpluses and deficits regardless of conservatism or optimism in the assumed investment return.

Boards and governance of state-owned enterprises

2014 ◽  
Vol 14 (2) ◽  
pp. 238-251 ◽  
Author(s):  
Samuel Nana Yaw Simpson
Keyword(s):  
Corporate Governance ◽  
Public Sector ◽  
Boards Of Directors ◽  
Evaluation Criteria ◽  
Executive Directors ◽  
Middle Income ◽  
Content Type ◽  
And Performance ◽  
Legal Frameworks ◽  
State Enterprises

Purpose – This study aims to examine the structure, attributes, and performance of boards of directors of state-owned enterprises (SOEs) within the broader context of public sector governance. This is informed by the less attention given to the concept among public sector organizations despite efforts to make state enterprises more effective and efficient, especially in developing and middle income countries. Design/methodology/approach – Data was collected through questionnaires self-administered in 2010 to all 25 SOEs in Accra, Ghana, out of the 29 nationwide. Some key officials were interviewed and documentary evidence analyzed to achieve triangulation of data and results. Findings – Results show that state-owned enterprises have boards and comply with the minimal governance issues outlined the legal frameworks establishing them. However, they exhibit significant weaknesses in the areas of board performance evaluation, criteria for board appointment, the balance of executive directors and non-executive directors, and other board characteristics, indicating a departure from general practices. Practical implications – Findings suggest the need for a tailored corporate governance framework or code for state-owned enterprises in developing countries. Originality/value – Compared to the literature, this study provides insight on boards from the perspective of state enterprises in ensuring good corporate governance, particularly in the context of a middle income country (Ghana).

Zakat on retirement and pension plans

2015 ◽  
Vol 8 (3) ◽  
pp. 274-290 ◽  
Author(s):  
Shafiqur Rahman
Keyword(s):  
Research Work ◽  
Pension Plan ◽  
Pension Plans ◽  
Mandatory Retirement ◽  
Pension Benefit ◽  
Investment Risk ◽  
Retirement Plans ◽  
Market Place ◽  
Content Type ◽  
Comprehensive Survey

Purpose – This paper aims to compare and contrast alternative pension plans in the market place and their status as zakatable wealth or property. These plans differ in terms of who is responsible for providing funds for pension benefit to the retirees upon retirement and who is responsible for bearing investment risk. Whether a pension plan is subject to zakat immediately or upon receipt at retirement depends on immediate accessibility to and ownership of the funds in the account. It makes no difference whether employer and/or the employee is (are) responsible for funding the plan and who bears the investment risk. Design/methodology/approach – Descriptive and analytical methods were used. Findings – There is consensus among Muslim jurists and shariah scholars that mandatory retirement plans offered as a part of compensation and benefit package for a job are subject to zakat when money is received upon retirement and non-mandatory plans offered as replacement for or supplement to employer-sponsored plans with voluntary employee participation are subject to zakat in each year of employment. Originality/value – There is no prior research work in the extant literature examining zakatability of alternative retirement plans offered in the US marketplace. This paper fills this void and provides a comprehensive survey and analysis of all available retirement plans and their treatment with respect to zakat.

Women representation on boards: a South African perspective

2016 ◽  
Vol 24 (2) ◽  
pp. 211-225 ◽  
Author(s):  
Gizelle Willows ◽  
Megan van der Linde
Keyword(s):  
Corporate Governance ◽  
Financial Performance ◽  
Board Of Directors ◽  
Boards Of Directors ◽  
Critical Mass ◽  
Gender Diversity ◽  
Current Status ◽  
Company Performance ◽  
Content Type ◽  
The Board Of Directors

Purpose By looking at both theoretical and empirical findings, this study aims to investigate whether gender diversity results in improved corporate governance and financial performance for companies. Design/methodology/approach An analysis of the board composition of the Johannesburg Securities Exchange Top 40 companies as at 30 June 2013 and a comparison of the financial performance of the company were conducted. Findings Female directors were found to make up, on average, 18.78 per cent of the board of directors, with the majority of these women being in non-executive positions. Women representation appears to influence company performance positively when using accounting-based measures of performance (such as return on assets and return on equity), but negatively when using market-based measures (such as Tobin’s Q). The critical mass concept is also assessed and is found to have a positive effect. Originality/value These findings are of relevance to the boards of directors adhering to corporate governance requirements by challenging the role of women on the board of directors, as well as that of investors and those in practice, to understand the current status of women representation.

scholarly journals Corporate governance and managerial opportunism: The case of us pension plans

2009 ◽  
Vol 6 (3) ◽  
pp. 523-530
Author(s):  
Sharad Asthana
Keyword(s):  
Corporate Governance ◽  
Pension Plan ◽  
Pension Plans ◽  
Retirement Benefits ◽  
Managerial Opportunism ◽  
External Monitoring ◽  
The Us ◽  
Us Government ◽  
Future Income ◽  
Empirical Tests

Insuring post-retirement benefits to retirees is a joint responsibility of the employees, employers, and the US government. Managers have been shown to manipulate pension plan reports with the intention of maximizing their own gains to the detriment of current and future retirees. External monitoring by regulators and auditors is effective in curbing this opportunistic behavior. This paper extends these findings to examine if effective internal monitoring in the form of strong corporate governance is instrumental in controlling manipulations of pension reports by managers. Empirical tests support the finding that effective corporate governance is inversely associated with the extent of managerial manipulations in pension plan reporting. This result should be of interest to employees, retirees, and the US Government that are trying to insure the future income of senior citizens.

scholarly journals Downside systematic risk in Pakistani stock market: role of corporate governance, financial liberalization and investor sentiment

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Shahzad Hussain ◽  
Muhammad Akbar ◽  
Qaisar Ali Malik ◽  
Tanveer Ahmad ◽  
Nasir Abbas
Keyword(s):  
Corporate Governance ◽  
Stock Market ◽  
Financial Liberalization ◽  
Investor Sentiment ◽  
Systematic Risk ◽  
Downside Risk ◽  
Market Volatility ◽  
Content Type ◽  
The Impact

Purpose The purpose of this paper is to examine the impact of corporate governance, investor sentiment and financial liberalization on downside systematic risk and the interplay of socio-political turbulence on this relationship through static and dynamic panel estimation models. Design/methodology/approach The evidence is based on a sample of 230 publicly listed non-financial firms from Pakistan Stock Exchange (PSX) over the period 2008–2018. Furthermore, this study analyzes the data through Blundell and Bond (1998) technique in the full sample as well sub-samples (big and small firms). Findings The authors document that corporate governance mechanism reduces the downside risk, whereas investor sentiment and financial liberalization increase the investors’ exposure toward downside risk. Particularly, the results provide some new insights that the socio-political turbulence as a moderator weakens the impact of corporate governance and strengthens the effect of investor sentiment and financial liberalization on downside risk. Consistent with prior studies, the analysis of sub-samples reveals some statistical variations in large and small-size sampled firms. Theoretically, the findings mainly support agency theory, noise trader theory and the Keynesians hypothesis. Originality/value Stock market volatility has become a prime area of concern for investors, policymakers and regulators in emerging economies. Primarily, the existence of market volatility is attributed to weak governance, irrational behavior of market participants, the liberation of financial policies and sociopolitical turbulence. Therefore, the present study provides simultaneous empirical evidence to determine whether corporate governance, investor sentiment and financial liberalization hinder or spur downside risk in an emerging economy. Furthermore, the work relates to a small number of studies that examine the role of socio-political turbulence as a moderator on the relationship of corporate governance, investor sentiment and financial liberalization with downside systematic risk.

Board of directors’ effectiveness and monitoring costs

2019 ◽  
Vol 35 (4) ◽  
pp. 477-497
Author(s):  
Waddah Kamal Hassan Omer ◽  
Adel Ali Al-Qadasi
Keyword(s):  
Corporate Governance ◽  
Boards Of Directors ◽  
Internal Audit ◽  
Audit Fees ◽  
Least Square ◽  
Content Type ◽  
Executive Remuneration ◽  
Sensitivity Tests ◽  
Monitoring Costs ◽  
The Impact

Purpose Responding to the call for research into the behavior of family companies to provide better understanding of corporate governance, this paper aims to examine the impact of boards’ effectiveness on the investment in monitoring costs (i.e. audit fees, internal audit function budget and executive remuneration) and how this relationship is moderated by family control. Design/methodology/approach A sample of 2,176 firm-year observations of Malaysian listed companies is used. The ordinary least square regression is used to examine the associations. Additional sensitivity tests are performed. Findings The study finds that there is no relationship between boards’ effectiveness and the demand for monitoring costs for the full sample. However, the findings of sub-samples (family and non-family companies) indicate that a family company with an effective board is less likely to invest more in monitoring, suggesting that the complementary association between the board’s effectiveness and investment in monitoring is a more dominant relationship than the substitution relationship in non-family companies. These findings show that the boards of directors of Malaysian family companies perform a deficient monitoring role, where the presence of family controlling shareholders in management may reduce their independence and efficiency in performing their monitoring role. The findings remain robust after performing additional sensitivity tests. Originality/value This paper contributes to the literature on corporate governance in a unique setting (family companies), where conflict of interest is created between controlling insiders and minority shareholders (Type II agency problem). It provides insight for Malaysian policymakers in assessing the issue of expropriation in family companies and enhancing the policy related to its boards.

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