Earnings Manipulation and Managerial Investment Decisions: Evidence from Sponsored Pension Plans

Daniel Bergstresser, Mihir A. Desai and Joshua Rauh

No 10543, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Managers appear to manipulate firm earnings when they characterize pension assets to capital markets and alter investment decisions to justify, and capitalize on, these manipulations. We construct a measure of the sensitivity of reported earnings to the assumed long-term rate of return on pension assets. Managers are more aggressive with assumed long-term rates of return when their assumptions have a greater impact on reported earnings. Managers also increase assumed rates of return as they prepare to acquire other firms and as they exercise stock options, further confirming the opportunistic nature of these increases. Decisions about assumed rates of return, in turn, influence asset allocation within pension plans. Instrumental variables results suggest that a 25 basis point increase in the assumed rate of return is associated with a 5% increase in equity allocation. Taken together, these results suggest that earnings manipulation arising from managerial motivations influences significant managerial investment decisions.

JEL-codes: M41 M52 (search for similar items in EconPapers)
Date: 2004-06
New Economics Papers: this item is included in nep-acc and nep-fin
Note: CF LS AP PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published as Bergstresser, Daniel, Mihir Desai and Joshua Rauh. "Earnings Manipulation, Pension Assumptions, And Managerial Investment Decisions," Quarterly Journal of Economics, 2006, v121(1,Feb), 157-195.

Downloads: (external link)
http://www.nber.org/papers/w10543.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:10543

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w10543

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().