Earnings Manipulation and Managerial Investment Decisions: Evidence from Sponsored Pension Plans / Daniel Bergstresser, Mihir A. Desai, Joshua Rauh.

Format:

Book

Author/Creator:

Bergstresser, Daniel.

Contributor:

National Bureau of Economic Research.

Desai, Mihir A.

Rauh, Joshua.

Series:

Working Paper Series (National Bureau of Economic Research) no. w10543.

NBER working paper series no. w10543

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Earnings Manipulation and Managerial Investment Decisions

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2004.

Summary:

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.

Notes:

Print version record

June 2004.