| This study addresses three main issues (1) whether or not managers manipulate pension expense to continue a steady stream of earnings, (2) whether or not managers manipulate pension expense to avoid reporting a loss, and (3) whether or not managers manipulate pension expense to meet analysts' earnings forecasts. Growing public concern over the integrity of financial statement reporting partially motivates this study.; The present study provides some evidence that managers are, in fact, using pension expense in a predictable economic manner in regard to prior year earnings, zero earnings, and analysts' earnings forecasts. The research provides evidence these three earnings based benchmarks create capital market incentives for firms in opposite directions depending on their economic status as measured by whether or not firms will miss or beat their benchmarks based on premanaged earnings. So that, firms hypothetically missing their benchmark are predicted and shown to manipulate pension expense downward to increase actual earnings; whereas, firms hypothetically beating their benchmark are predicted and shown to manipulate pension expense upward to decrease actual earnings. |
