Do corporations manage earnings to meet/exceed analyst forecasts? Evidence from pension plan assumption changes

Heng An, Yul W. Lee and Ting Zhang ()
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Heng An: University of North Carolina Greensboro
Yul W. Lee: University of Rhode Island
Ting Zhang: University of Dayton

Review of Accounting Studies, 2014, vol. 19, issue 2, No 6, 698-735

Abstract: Abstract A significantly larger number of firms increase the expected rate of return on pension plan assets (ERR) to make their reported earnings meet/exceed analyst forecasts than would be expected by chance. In the short run, the stock market reacts positively to these firms’ earnings announcements, suggesting that investors fail to recognize that earnings benchmarks are achieved through ERR manipulation. In the long run, however, firms that employ this earnings management strategy significantly underperform control firms in both stock returns and operating performance.

Keywords: Earnings management; Analyst earnings forecasts; Defined benefit pension plan; Expected rate of return on pension plan assets (search for similar items in EconPapers)
JEL-codes: G14 G32 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1007/s11142-013-9261-8

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