Executive Compensation and Cash Contributions to Defined Benefit Pension Plans

Forthcoming in the Journal of Business Finance and Accounting

52 Pages Posted: 23 Jul 2018 Last revised: 2 Aug 2018

See all articles by Qiang Cheng

Qiang Cheng

Singapore Management University

Laura Swenson

University of Wisconsin - Milwaukee

Multiple version iconThere are 2 versions of this paper

Date Written: June 12, 2018

Abstract

Cash contributions to defined benefit pension (DB) plans reduce cash flows from operations without directly affecting the current year’s net income. We utilize this unique setting to investigate how managerial incentives to report higher cash flows from operations, executive compensation in particular, affect contributions. Using a comprehensive dataset of DB plan contributions, we find that firms with higher chief executive officer (CEO) compensation contribute less to DB plans, consistent with managers benefiting from lower pension contributions. Results are stronger when CEO compensation is directly linked to cash flows from operations or when CEO compensation is more sensitive to cash flows from operations. We also find enhanced disclosure and more transparent reporting under the recent pension accounting regime mitigates the negative association between executive compensation and cash contributions.

Keywords: defined benefit pension plan, executive compensation, pension accounting, pension contribution

JEL Classification: M41, M48, J32, J33

Suggested Citation

Cheng, Qiang and Swenson, Laura, Executive Compensation and Cash Contributions to Defined Benefit Pension Plans (June 12, 2018). Forthcoming in the Journal of Business Finance and Accounting, Available at SSRN: https://ssrn.com/abstract=3205985

Qiang Cheng

Singapore Management University ( email )

60 Stamford Road
Singapore, 178900
Singapore

Laura Swenson (Contact Author)

University of Wisconsin - Milwaukee ( email )

Bolton Hall 802
3210 N. Maryland Ave.
Milwaukee, WI 53211
United States

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