91����

The U.S. life insurance industry has a unique accounting rule: when a bond is sold, the proceeds must be amortized over its remaining maturity. Managers who wish to “gains trade” (strategically sell investments to manage earnings) must engage in extraordinary sales activity to overcome this limitation. Using quantile regression, we find that firms in the highest quantiles of realized capital gains and losses tend to have larger operating losses—a pattern consistent with gains trading. This behavior is driven by private life insurers who report to stakeholders under statutory accounting principles, where this accounting rule applies. To the best of our knowledge, we are the first to examine gains trading under this rule; we contribute to the literature by providing evidence of gains trading when accounting standards dilute the effectiveness of such behaviors.