Research Abstracts Latest Published Work by Merage School Faculty Members August 2017–2018
Accounting Professor Elizabeth Chuk
Title: “The Economic Consequences of Accounting Standards: Evidence from Risk-taking in Pension Plans” Co-author: Divya Anantharaman Accepted at: The Accounting Review Experts have long conjectured that pension accounting rules, by which pension expense depends on a managerial estimate that is directly tied to the riskiness of plan assets (i.e., the expected rate of return or “ERR” on plan assets), encourage risk-taking with pension investments. The recent passage of IAS 19 Employee Benefits (Revised) (hereafter, “IAS 19R”) eliminates the ERR and replaces it with a managerial estimate unrelated to plan asset riskiness (the discount rate). We demonstrate that a sample of Canadian firms affected by IAS 19R reduces risk-taking in pension investments post-IAS 19R, compared to a control sample of US firms unaffected by IAS 19R. Therefore, removing firms’ ability to recognize immediately in net income the expected higher returns from risk-taking (via a higher ERR) reduces their propensity for that risk-taking providing some of the first empirical evidence on the economic consequences of eliminating the ERR-based pension accounting model.
20 THE PAUL MERAGE SCHOOL OF BUSINESS
Professor Ben Lourie
Title: “The Revolving-Door of Sell-Side Analysts” Accepted at: The Accounting Review Equity analysts are often hired by firms they cover. I document the extent to which this revolving door phenomenon impairs analysts’ independence. I do this by examining the presence of biased research reports issued during the year before analysts are employed by a firm they cover. I find that during their final year, revolving door analysts bias their EPS forecasts, their target prices, and their recommendations in a direction that suggests they are attempting to gain favor from their prospective employers. Specifically, relative to other analysts, revolving door analysts issue more optimistic reports on the firms that hire them, and they issue more pessimistic reports on firms that do not hire them. These results suggest the presence of strategic bias, although more innocuous interpretations cannot be completely ruled out.
