Asymmetric Timeliness in Pension Asset Accounting
43 Pages Posted: 11 Sep 2008
Date Written: September 9, 2008
We investigate whether revisions in the expected rate of return on pension plan assets are more sensitive to the difference between realized returns and expected returns when realized returns fall short of expectations than when they exceed expectations. We find that the correlation between expectation errors and revisions in the expected rate of return on plan assets is significantly more positive when realized returns in year t are below the expected rate of return in year t-1 than when realized returns are above the expected rate of return in year t-1. Further exploration indicates that this asymmetric-revision sensitivity is accentuated when firm leverage and the volatility of realized returns are high and when CEO stock ownership is low. These conditions are consistent with an increased demand for asymmetrically timely earnings.
JEL Classification: M41, M44, G23
Suggested Citation: Suggested Citation