Research from Georgia State University has provided new information about accounting research

According to recent research from the United States, "This paper examines the effect of rate regulation on the management of the property-liability insurer loss reserve. The political cost hypothesis predicts that managers make accounting choices to reduce wealth transfers resulting from the regulatory process."

"Managers may under-state reserves to justify lower rates to regulators. Alternatively, managers may have an incentive to report loss inflating discretionary reserves to reduce the cost of regulatory rate suppression. We find insurers over-state reserves in the presence of stringent rate regulation," wrote M.F. Grace and colleagues, Georgia State University.

The researchers concluded: "Investigating the impact along the conditional reserve error distribution, we discover that a majority of the response occurs from under-reserving firms under-reserving less because of stringent rate regulation."

Grace and colleagues published their study in the Journal of Accounting Research (Political Cost Incentives for Managing the Property-Liability Insurer Loss Reserve. Journal of Accounting Research, 2010;48(1):21-49).

For additional information, contact M.F. Grace, Georgia State University, Robinson Coll Business, Atlanta, GA 30303, USA.

Publisher contact information for the Journal of Accounting Research is: Wiley-Blackwell Publishing, Inc., Commerce Place, 350 Main St., Malden 02148, MA, USA.</p>