An empirical study of the relation between income smoothing and information content of earnings
Date Issued
2006
Date
2006
Author(s)
Wu, Yi-Ching
DOI
zh-TW
Abstract
The purpose of this study is to explore whether income smoothing affects the information content of earnings and the informativeness of past and current earnings about future earnings and cash flows. The method mentioned in Tucker and Zarowin (2006) is mainly taken in this study to approach the research. Income smoothing is measured by the negative correlation of a firm’s change in discretionary accruals with its change in pre-discretionary earnings, and the primary model is based on the approach used by Collins et al. (1994).
The empirical result obtained in this study has showed that income smoothing decreases the coefficient on current earnings. This implies that smoothed income is not considered to be an appropriate measure of firm performance. Hence, income smoothing has a negative impact on the information content of earnings. However, income smoothing does not affect the information about future earnings and cash flows impounded in the current stock returns. This result is robust to controlling for firm size, growth, future earnings volatility, risk, private information search activities and audit quality.
Subjects
損益平穩化
income smoothing
information content of earnings
Type
other
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