Pension accrual management and research and development investment

Takafumi Sasaki

Accounting and Finance, 2017, vol. 57, issue 4, 1127-1147

Abstract: This study investigates whether discretion in reporting pension expenses mitigates research and development (R&D) manipulation. Using a sample of Japanese manufacturing firms during the fiscal years 2001–2011 where both pension costs and R&D expenditures have large impacts on the bottom†line earnings, I find that higher discount rates are associated with higher R&D investment among firms in which pension expenses could have large impacts on reported earnings. I also find that this relationship is found only among firms in high†tech industries. These results suggest that pension accrual management substitutes costly R&D manipulation that may hurt future competitive edge.

Date: 2017
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