Earnings Management Under SFAS No. 115: Evidence from The Insurance Industry

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Charles E. Jordan
Stanley J. Clark
W. Robert Smith


SFAS 115, earnings management, insurance industry


Critics of SFAS No. 115 argue that allowing unrealized holding gains and losses on available for sale securities to bypass income and flow directly to owners equity creates opportunities for gains trading and earnings management. That is, to achieve a desired earnings level, management may selectively sell securities with the realized gains and losses affecting income. This study provides empirical evidence that earnings management under SFAS No. 115 is occurring in the insurance industry.


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