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An Empirical Study of Window Dressing Behavior in Taiwan Life Insurance Industry
Wang, Yen Wen
Chang Bill S.
Wang, Yen Wen
Financial asset classification
|Issue Date:||2013-07-11 16:58:51 (UTC+8)|
After the implementation of Statement of Financial Accounting Standard NO.34 (SFAS NO.34) in Taiwan in 2006, the companies have to disclose the securities investment information in the statement of financial reportings. The securities investment could mainly be divided into three categories: available-for-sale, for trading, and held to maturity. The insurance industry holds a large amount of securities investment, and is especially more affected by the SFAS NO.34 significantly than other industries. We develop several proxies to measure the characteristics of insurance companies which are more inclined to do earning management and gains trading through classification of securities investment. We find the insurance companies with higher return on assets (ROA) and return on equity (ROE) will tend to do more gains trading and classify more securities investment to for-trading category. We also find the leverage ratio plays an important role when insurance companies engage in gains trading, and the leverage ratio is negatively correlated with gains trading. On the other hand, the current ratio is also an important factor for insurance companies to engage in gains trading and classify the securities investment. Our research offers a different method to explore the window dressing behavior of insurance industry and further offer some suggestions for the accounting setter to take into account for the accounting standard setting in the future.
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