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Investment portfolio management to meet or beat earnings expectations

Author

Listed:
  • Zhongwen Fan

    (City University of Hong Kong)

  • Jia Guo

    (The Hong Kong Polytechnic University)

  • Jeffrey Ng

    (The University of Hong Kong)

  • Xiao Zhang

    (The University of Hong Kong
    Shanghai University of Finance and Economics)

Abstract

Insurers can boost their earnings by accruing interest income from their corporate bond investments. We document that insurers have higher corporate bond investments as well as less equity and cash holdings, when their parents meet or just beat analysts’ quarterly earnings forecasts, compared to when their parents miss or comfortably beat the forecasts. The investment in corporate bonds to boost earnings is more pronounced when bond offerings provide more opportunities for accruing interest income, when the parent’s corporate governance is weaker, when the parent’s managers have more equity incentives, when insurers face more competition, when other earnings management techniques are used, or when the insurance segment is more important to the parent. Finally, insurers suspected of helping their parents meet or beat earnings benchmarks experience worse investment performance in subsequent years, presumably because, by investing more in corporate bonds, the insurers forgo investment opportunities with higher longer-term returns.

Suggested Citation

  • Zhongwen Fan & Jia Guo & Jeffrey Ng & Xiao Zhang, 2025. "Investment portfolio management to meet or beat earnings expectations," Review of Accounting Studies, Springer, vol. 30(2), pages 2134-2183, June.
    • Handle: RePEc:spr:reaccs:v:30:y:2025:i:2:d:10.1007_s11142-024-09867-z
    DOI: 10.1007/s11142-024-09867-z
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    More about this item

    Keywords

    Corporate bonds; Earnings benchmarks; Insurers; Portfolio choices; Real earnings management;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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