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The elusive relation between pension discount rates and deficits

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  • Seth Armitage
  • Ronan Gallagher
  • Jiaman Xu

Abstract

The relation between defined‐benefit (DB) pension discount rates and funding status is more complex than it might first appear. Existing evidence suffers from estimation biases that make precise inference unreliable. We document the biases and quantify their impact on inference in relation to corporate window‐dressing of DB funding status. Our empirical evidence from the United Kingdom suggests that pension sponsors use discretion in the choice of pension discount rate not only to reduce reported deficits but also to reduce reported surpluses.

Suggested Citation

  • Seth Armitage & Ronan Gallagher & Jiaman Xu, 2023. "The elusive relation between pension discount rates and deficits," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 50(7-8), pages 1101-1127, July.
    • Handle: RePEc:bla:jbfnac:v:50:y:2023:i:7-8:p:1101-1127
    DOI: 10.1111/jbfa.12658
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