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

Author

Listed:
  • Heng An

    (University of North Carolina Greensboro)

  • Yul W. Lee

    (University of Rhode Island)

  • Ting Zhang

    (University of Dayton)

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.

Suggested Citation

  • Heng An & Yul W. Lee & Ting Zhang, 2014. "Do corporations manage earnings to meet/exceed analyst forecasts? Evidence from pension plan assumption changes," Review of Accounting Studies, Springer, vol. 19(2), pages 698-735, June.
    • Handle: RePEc:spr:reaccs:v:19:y:2014:i:2:d:10.1007_s11142-013-9261-8
    DOI: 10.1007/s11142-013-9261-8
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    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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