Earnings, Mergers and Acquisitions Under Pension Disclosure Standards

Title

EARNINGS, MERGERS AND ACQUISITIONS UNDER PENSION DISCLOSURE STANDARDS

Authors

Jun Cai
(Department of Economics and Finance, City University of Hong Kong, Hong Kong, China)
Yiyi Qin
(Department of Economics and Finance, City University of Hong Kong, Hong Kong, China)
Anxing Wang
(School of Finance, Shanghai University of Finance and Economics, Shanghai, China)

Abstract

We examine whether managers alter earnings management behavior, in the case of mergersand acquisitions, following the introduction of new pension disclosure standards under SFAS
132R, effective December 15, 2003. We find managers do set lower rate of return (ERR)
assumptions on pension assets under the new pension accounting standards. However,
managers also become more sensitive to opportunities to boost reported earnings by inflating
ERR. Managers more actively exploit such opportunities when pension assets are large relative
to earnings measures, i.e., when potential gains from earnings management are large.

Keywords

defined benefit pension plans, earnings management, mergers and acquisitions, pension assumptions, disclosure standards

Classification-JEL

G34, J32, M41

Pages

137-179

https://doi.org/10.47654/v22y2018i1p137-179