Event Details

Date: November 10, 2020
Time: 12:30 pm to 1:30 pm
Location: Online Via Zoom
Share
View all Fox Events

Title: Accounting for Asset Sales: The Effect on Earnings Smoothing

Abstract:
We examine whether accounting rules regarding the recognition of capital gains are associated with earnings smoothing behavior. In the insurance industry, life insurers are subject to accounting rules that limit their ability to immediately recognize realized capital gains on their bond investments, while property and casualty (P&C) insurers are not. We define earnings smoothing as a negative relationship between realized capital gains and earnings, and investigate whether this relationship differs between the two sectors. We find that P&C insurers smooth earnings to a greater extent than life insurers. We disaggregate realized gains by investment type and find that life insurers predominantly use stock holdings to smooth earnings, while P&C insurers use bonds. This finding is consistent with accounting standards disincentivizing earnings smoothing for life insurers. Our study has important implications for regulators considering changes to accounting standards for realized and unrealized capital gains.
About This Series: The Robert A. Hedges Research Seminar Series is hosted by the Department of Risk, Insurance, and Healthcare Management in the Fox School of Business. The seminar series comprises invited lectures from academics experts around the world who present research in insurance, risk management, and actuarial science.

About This Series: The Robert A. Hedges Research Seminar Series is hosted by the Department of Risk, Insurance, and Healthcare Management in the Fox School of Business. The seminar series comprises invited lectures from academics experts around the world who present research in insurance, risk management, and actuarial science

Register now!