Discretionary pension assumption choices, corporate governance, and earnings management: evidence from Taiwan

Jui-Chia Lin, Edward M. Werner

Research output: Contribution to journalArticlepeer-review


This study examines how financial statement management via pension plan assumption choices, a simple mechanism through which management can manipulate financial reports, is related to corporate governance effectiveness. Based on our sample of Taiwanese listed companies, which are characterized by a high degree of ownership concentration and an emerging economy, we find that the deviation between control rights and cash flow rights, the number of board seats held by the ultimate controller, and board independence are significantly related to more aggressive expected rate of return on pension assets assumption choices. We also find that when the ultimate controller also serves as the CEO, this conflict of interest is associated with aggressive pension assumptions related to the PBO. In addition, institutional shareholders appear to play an important monitoring role, which can mitigate opportunistic pension rate assumption choices. Our findings indicate that the opacity inherent in pension accounting guidance is likely exacerbated by poor corporate governance. It informs the current debate over measurement and reporting discretion for DB pension plans specifically as well as the more general debate over managing financial statements in the presence of accounting discretion.
Original languageAmerican English
Pages (from-to)135-165
Number of pages3
JournalAdvances in Quantitative Analysis of Finance and Accounting
StatePublished - 31 Dec 2021


  • Corporate Governance
  • Earnings Manipulation
  • Pension Accounting


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