This paper examines the effects of firms' financial and pension profiles on their funding strategies and actuarial choices. The paper uses reports filed by individual pension plans with the Department of Labor under the requirements of the Employee Retirement Income Security Act of 1974 for the analysis. Evidence reported in the paper shows that as firms become overfunded, they make conservative actuarial choices to avoid visibility costs, and that as firms become underfunded, they make liberal actuarial choices to avoid visibility costs. As the annual contributions increase relative to the permissible contribution ranges, firms make conservative actuarial choices to minimize penalties and maximize tax benefits. As the annual contributions decrease relative to the permissible contribution ranges, firms make liberal actuarial choices to minimize penalties and maximize tax benefits. The larger the profitability, cash flow from operations, and tax liability, and the smaller the debt of a firm, the higher the likelihood that the firm's managers will make conservative actuarial choices to maximize contributions. Conversely, the smaller the profitability, cash flow from operations, and tax liability, and the larger the debt of a firm, the higher the likelihood that the firm's managers will make liberal actuarial choices to minimize contributions. This evidence, which is consistent with the hypothesis of funding management, can aid the Internal Revenue Service (IRS) in regulating the defined‐benefit pension plans more effectively and help plan beneficiaries to manage their retirement portfolios more efficiently. The debiasing method developed in the paper can provide investors and creditors with the tools to identify the discretionary components of pension liabilities and thereby value firms more efficiently.

Although recent academic studies on nonprofits have documented aggressive accounting behavior, these studies have primarily examined the sector in isolation and have not reached definitive conclusions regarding the relative aggressiveness of the nonprofit and for-profit sectors. Using actuarial assumptions for defined benefit (DB) pension plans as a proxy for discretionary accounting choices, we examine whether nonprofit managers respond through their actuarial choices to incentives to manage DB pension assumptions, and whether differences exist in the aggressiveness of these assumptions for nonprofits and for-profits. We find evidence consistent with nonprofits managing pension assumptions when incentives and less monitoring exist. Comparing our nonprofits to a sample of for-profits, we find evidence consistent with nonprofits utilizing more aggressive pension assumptions and making stronger responses to incentives to manage these assumptions. Our findings are consistent with the premise that nonprofits are more aggressive than for-profits when using actuarial estimates that deflate pension obligations and inflate performance.

In this paper we examine the effect of filing form 10-K on EDGAR on the incidence of small and large trades. We find that the change to EDGAR filings results in significant increases in the volume of small, but not large trades, during the five-day window (−1, 3) around the filing date. While our data does not allow us to directly examine the trading profits and transactions costs of investors, we are able to examine whether the trading patterns reflect information available in the 10-K differently in the pre- and post-EDGAR period. Using stock return as a proxy for the information content of the 10-K, our results show that post-EDGAR small trades are more likely to reflect that information, i.e., more likely than in the pre-EDGAR period to be buys (sells) when returns in the five-day window after the trade are positive (negative). We also find that while the product of the net buys (sells) and the price change over the five-day window after the trade for small trades in the post-EDGAR period is still less than that for large trades, the difference between the two groups decreased significantly. Consequently, while we cannot directly examine the profitability of these transactions, the evidence presented is consistent with EDGAR improving the trading outcomes of small vis-a`-vis large investors.