Does Change of Defined Benefit Plan Affect Accrual-Based Earnings Management?

This paper examines how modifications to defined benefit pension plans affect accrual-based earnings management (AEM). Firms are classified into four groups based on their pension plan changes: termination, hard freeze, soft/partial freeze, and no change. We hypothesize and find that firms engage in greater AEM following pension plan modifications, compensating for the reduced ability to manage earnings through pension-related mechanisms. This effect is stronger among firms that terminate their defined benefit plans, compared with those implementing hard or soft freezes.