Abstract

http://ssrn.com/abstract=551681
 
 

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Earnings Manipulation, Pension Assumptions and Managerial Investment Decisions


Daniel Bergstresser


Harvard Business School

Joshua D. Rauh


Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Mihir A. Desai


Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)

May 2005


Abstract:     
Managers appear to manipulate firm earnings through their characterizations of pension assets to capital markets and alter investment decisions to justify, and capitalize on, these manipulations. Managers are more aggressive with assumed long-term rates of return when their assumptions have a greater impact on reported earnings. Firms use higher assumed rates of return when they prepare to acquire other firms, when they issue equity, when they are near critical earnings thresholds and when their managers exercise stock options. Changes in assumed returns, in turn, influence pension plan asset allocations. Instrumental variables analysis indicates that 25 basis point increases in assumed rates are associated with 5 percent increases in equity allocations.

Number of Pages in PDF File: 43

Keywords: Earnings, Manipulation, Pensions, Defined Benefit Plans, Asset Allocation, Mergers

JEL Classification: M41, M43, M52, G23, G30, G11

working papers series


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Date posted: May 29, 2004  

Suggested Citation

Bergstresser, Daniel and Rauh, Joshua D. and Desai, Mihir A., Earnings Manipulation, Pension Assumptions and Managerial Investment Decisions (May 2005). Available at SSRN: http://ssrn.com/abstract=551681 or http://dx.doi.org/10.2139/ssrn.551681

Contact Information

Daniel B. Bergstresser
Harvard Business School ( email )
Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States
Joshua D. Rauh
Stanford Graduate School of Business ( email )
518 Memorial Way
Stanford, CA 94305-5015
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Mihir A. Desai (Contact Author)
Harvard Business School - Finance Unit ( email )
Boston, MA 02163
United States
617-495-6693 (Phone)
617-496-6592 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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