TY  - JOUR
AU  - Bergstresser,Daniel
AU  - Desai,Mihir A.
AU  - Rauh,Joshua
TI  - Earnings Manipulation and Managerial Investment Decisions: Evidence from Sponsored Pension Plans
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10543
PY  - 2004
Y2  - June 2004
UR  - http://www.nber.org/papers/w10543
L1  - http://www.nber.org/papers/w10543.pdf
N1  - Author contact info:
Daniel Bergstresser
Brandeis University
International Business School 
415 South St
Waltham, MA 02453
E-Mail: dberg@brandeis.edu

Mihir A. Desai
Graduate School of Business Administration
Harvard University
Soldiers Field
Boston, MA 02163
Tel: 617/495-6693
Fax: 617/496-6592
E-Mail: mdesai@hbs.edu

Joshua Rauh
Stanford Graduate School of Business
Stanford University
Knight Management Center
655 Knight Way
Stanford, CA 94305-7298
Tel: 650-723-9898
Fax: 650-725-6152
E-Mail: Rauh_Joshua@gsb.stanford.edu
M2  - featured in NBER digest on 2004-12-01
AB  - 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.
ER  -