scholarly journals Does Income Smoothing Improve Earnings Informativeness?

2006 ◽  
Vol 81 (1) ◽  
pp. 251-270 ◽  
Author(s):  
Jennifer W. Tucker ◽  
Paul A. Zarowin
Keyword(s):  
Private Information ◽  
Information Search ◽  
Stock Price ◽  
Cash Flows ◽  
Income Smoothing ◽  
Cross Sectional ◽  
New Approach ◽  
Future Earnings ◽  
Earnings Information ◽  
Size Growth

This paper uses a new approach to examine whether income smoothing garbles earnings information or improves the informativeness of past and current earnings about future earnings and cash flows. We measure income smoothing by the negative correlation of a firm's change in discretionary accruals with its change in premanaged earnings. Using the approach of Collins et al. (1994), we find that the change in the current stock price of higher-smoothing firms contains more information about their future earnings than does the change in the stock price of lower-smoothing firms. This result is robust to decomposing earnings into cash flows and accruals and to controlling for firm size, growth, future earnings variability, private information search activities, and cross-sectional correlations.

scholarly journals ASIMETRI INFORMASI MEMODERASI PENGARUH EARNING PERSISTENCE DAN INCOME SMOOTHING TERHADAP FUTURE EARNING RESPONSE COEFFICIENT

2021 ◽  
Vol 8 (1) ◽  
pp. 1
Author(s):  
Sistya Rachmawati
Keyword(s):  
Regression Analysis ◽  
Stock Price ◽  
Income Smoothing ◽  
Purposive Sampling ◽  
Future Earnings ◽  
Response Coefficient ◽  
Future Earning

<p>Tujuan penelitian ini adalah untuk memperoleh bukti empiris pengaruh earning persistence dan income smoothing terhadap future earning response coefficient (FERC) dengan asimetri informasi sebagai variabel moderasi. FERC merupakan informasi yang memungkinkan perusahaan memiliki pengetahuan tertentu mengenai future earnings pada saat perusahaan mengetahui current stock price, sehingga harga saham dapat merupakan sinyal terhadap future earnings. Metodologi penelitian yang digunakan adalah Moderated Regression Analysis (MRA), sampel penelitian adalah 86 perusahaan manufaktur yang terdaftar pada Bursa Efek Indoensia selama periode 2013 s/d 2017 dengan demikian terdapat 430 observasi, metode pengambilan sampel menggunakan purposive sampling. Penelitian menunjukan bahwa hanya variabel income smoothing yang memiliki pengaruh signifikan terhadap future earning respon koefisien, selanjutnya asimetri informasi mampu memperkuat pengaruh income smoothing terhadap future earning response koefisien. Sedangkan variabel kontrol yang memiliki pengaruh signifikan terhadap future earning respon koefisien hanya variabel invesment opportunity set dan audit committe. Kontribusi penelitian ini agar perusahaan dapat memperhatikan faktor-faktor yang dapat mempengaruhi FERC agar dapat memprediksi laba di masa yang akan datang.</p>

Insiders’ Foreknowledge of Earnings Results and Rule 10b5-1 Sales Trades

2020 ◽  
pp. 0148558X2096464
Author(s):  
Yen-Jung Lee
Keyword(s):  
Earnings Management ◽  
Strong Evidence ◽  
Private Information ◽  
Unintended Consequence ◽  
Future Earnings ◽  
Earnings Information ◽  
Trade Performance ◽  
Before And After ◽  
Earnings Performance ◽  
Good Trade

This article investigates the source of 10b5-1 plan insiders’ superior trade performance. Specifically, this article examines whether insiders trade on their private information about the firm’s future earnings performance through 10b5-1 sell trades and the features of 10b5-1 plan trades that are exploited to achieve superior trade performance. I find strong evidence that insiders use 10b5-1 plans to sell stock before disappointing earnings results. However, there is no evidence of earnings management around 10b5-1 sales, consistent with insiders’ good trade timing deriving from their foreknowledge about unfavorable earnings news rather than their ability to influence the timing and recognition of earnings performance. Restricting the sample to insiders who trade both before and after the implementation of Rule 10b5-1, I find that these insiders traded aggressively on earnings information even in the pre-10b5-1 era, but then shifted aggressive trading into 10b5-1 plans after the availability of planned trading, implying an unintended consequence of Rule 10b5-1. Finally, I document that strategic 10b5-1 trades tend to be infrequent, irregularly timed, close to the plan initiation date, and executed during traditional earnings blackout periods, revealing problematic features within 10b5-1 plans.

scholarly journals DOES INCOME SMOOTHING IMPROVE INFORMATIVENESS OF STOCK PRICES?

2017 ◽  
Vol 15 (2) ◽  
pp. 225-239
Author(s):  
Shinta Ningtiyas Nazar
Keyword(s):  
Empirical Evidence ◽  
Stock Prices ◽  
Stock Price ◽  
Stock Exchange ◽  
Income Smoothing ◽  
Earnings Persistence ◽  
Future Earnings ◽  
Earnings Response ◽  
Negative Effect ◽  
Using Data

The purpose of this research is to get empirical evidence from effect Income smoothing  to Informativeness of Stock Prices  in Indonesian Stock Exchange (IDX). Population from this research is take from companies that have been listing Index LQ 45 in IDX form 2003 until 2015. Income Smoothing is masured by Jones’s Model which have been modified by Kothari et. all (2005).  Informativeness of stock price using Zarowin and Tucker Model (2006) Future Earnings Response Coeficient, and  the relations to earnings persistence, which is can been seen from  relation from current earnings dan future earnings.   The research is using data from year 2003 until 2015 period, and  year 2014 used as terminal year.  That found  income smoothing have a negative effect to informativeness of stock  price and also found  the managers’ income smoothing action always decreases earnings from 2013 to 2015. Current earnings have related to future earnings.

scholarly journals Managerial Ability and Income Smoothing

2019 ◽  
Vol 95 (4) ◽  
pp. 1-22 ◽  
Author(s):  
Bok Baik ◽  
Sunhwa Choi ◽  
David B. Farber
Keyword(s):  
Stock Prices ◽  
Stock Price ◽  
Cash Flows ◽  
Income Smoothing ◽  
High Ability ◽  
Managerial Ability ◽  
Price Informativeness ◽  
Future Performance ◽  
Stock Price Informativeness ◽  
Future Cash Flows

ABSTRACT In this study, we investigate whether managerial ability is related to income smoothing and, if so, whether smoothing associated with managerial ability improves the informativeness of earnings and stock prices about future performance. Using a large sample of firms, we find that managerial ability is positively related to smoothing. More importantly, we show that high-ability managers incorporate more forward-looking information about cash flows into current earnings through smoothing, thereby enhancing earnings informativeness. We also find that smoothing associated with high-ability managers improves stock price informativeness about future cash flows. Our study should be of interest to researchers, practitioners, and others concerned with understanding the determinants and usefulness of smoothing.

A Test of Income Smoothing Using Pseudo Fiscal Years

2021 ◽  
Author(s):  
Dirk E. Black ◽  
Spencer R. Pierce ◽  
Wayne B. Thomas
Keyword(s):  
Analyst Forecasts ◽  
Managerial Incentives ◽  
Cash Flows ◽  
Income Smoothing ◽  
Fourth Quarter ◽  
Integral Approach ◽  
Fiscal Year ◽  
Estimation Errors ◽  
Cross Sectional ◽  
Earnings Volatility

The purpose of our study is to further understand managerial incentives that affect the volatility of reported earnings. Prior research suggests that the volatility of fourth-quarter earnings may be affected by the integral approach to accounting (i.e., “settling up” of accrual estimation errors in the first three quarters of the fiscal year) or earnings management to meet certain reporting objectives (e.g., analyst forecasts). We suggest that another factor affecting fourth-quarter earnings is managers’ intentional smoothing of fiscal-year earnings. For each firm, we create pseudo-year earnings using four consecutive quarters other than the four quarters of the reported fiscal year. We then compare the earnings volatility of pseudo years to the earnings volatility of the firm’s own reported fiscal year. We find evidence consistent with fourth-quarter accruals reflecting managerial incentives to smooth fiscal-year earnings. This conclusion is validated by several cross-sectional tests, the pattern in quarterly cash flows and accruals, and several robustness tests. Overall, we contribute to the literature exploring alternative explanations for the differential volatility of fiscal-year and fourth-quarter earnings. This paper was accepted by Brian Bushee, accounting.

The Effects of Pro Forma Earnings Disclosures on Analysts' and Nonprofessional Investors' Equity Valuation Judgments

2004 ◽  
Vol 79 (3) ◽  
pp. 667-686 ◽  
Author(s):  
James R. Frederickson ◽  
Jeffrey S. Miller
Keyword(s):  
Stock Price ◽  
Cash Flows ◽  
Earnings Announcement ◽  
Nonprofessional Investors ◽  
Earnings Information ◽  
Pro Forma Earnings ◽  
Performance Metric ◽  
Earnings Disclosures ◽  
A Company ◽  
Pro Forma

This paper presents an experiment that examines the effect of pro forma earnings disclosures on the judgments of analysts (i.e., more sophisticated investors) and nonprofessional (i.e., less sophisticated) investors. In the experiment, participants developed stock price assessments after reviewing background financial information and a current earnings announcement for a company. The earnings announcement was manipulated to report only GAAP earnings in one condition and both pro forma and GAAP earnings in the other condition. Consistent with empirical evidence, the pro forma earnings in our experiment exceeded GAAP earnings. The results indicate that nonprofessional investors who received an earnings announcement that contained both pro forma and GAAP disclosures assessed a higher stock price than did nonprofessionals who received an announcement containing only GAAP disclosures. Financial analysts' stock price judgments were not affected by the pro forma disclosures. Followup analyses suggest that analysts and nonprofessional investors used different valuation models and information processing. Analysts used well-defined valuation models, based on either earnings-multiples or cash flows, while the nonprofessional investors were more likely to use simpler, heuristic-based valuation models. The pro forma disclosure did not cause nonprofessional investors to assess a higher earnings number for determining a stock price, but rather caused nonprofessionals to perceive the earnings announcement as more favorable, which in turn caused them to convert earnings or some other performance metric into a higher stock price. This effect appears to be due to unintentional cognitive effects, rather than nonprofessionals relying on pro forma earnings information because they perceived it to be informative.

scholarly journals EARNING PERSISTENCE ON FIRM TAX DIFFERENCES AND FAMILY OWNERSHIP

2020 ◽  
Vol 12 (1) ◽  
pp. 103-115
Author(s):  
Synthia Madya Kusumawati ◽  
Hyashinta Dyah P
Keyword(s):  
Significant Role ◽  
Listed Companies ◽  
Family Ownership ◽  
Earnings Persistence ◽  
Difference Family ◽  
Cross Sectional ◽  
Future Earnings ◽  
Earnings Information ◽  
Opposite View ◽  
The Difference

Abstract- Prior research find evidence consistent with the hypothesis that future earnings influenced by difference between accounting and fiscal earnings (book tax differences). Many investors forming expectations of future earnings information derived from the difference between fiscal and commercial earnings, there were some investors would satisfied to see small differences between fiscal and commercial earnings, otherwise have the opposite view. This study aim to investigate how book-tax difference and family ownership play a role in the persistence of earnings. The authors using a sample 692 firm years of Indonesian listed companies within 2011-2016, they estimate cross-sectional regressions of the proxy for book-tax differences and family ownership on earning persistence. The study found that current pre-tax earnings can predict future earnings and also firm years with large book-tax difference have less earnings persistence than firm years with small book tax difference.  Further, this study found no evidence that family ownership have significant role in persistence of earnings.    Keywords: Earning Persistence, Future earnings, Pre-tax earnings, Book tax difference, Family Ownership.

scholarly journals Pengaruh Ukuran Perusahaan, DER, ROA, dan Pajak Penghasilan terhadap Praktik Income Smoothing

2020 ◽  
Vol 30 (8) ◽  
pp. 1941
Author(s):  
Putu Rian Mahendra ◽  
I Ketut Jati
Keyword(s):  
Income Tax ◽  
Stock Exchange ◽  
Income Smoothing ◽  
Company Size ◽  
Cash Holding ◽  
Manufacturing Companies ◽  
Earnings Information ◽  
Size Growth ◽  
Negative Effect ◽  
Equity Ratio

Income smoothing is one of the ways the company management manipulates earnings information. This research uses panel data from manufacturing companies listed in Indonesian Stock Exchange (BEI) in the period from 2013 to 2017 to analyze the effect between cash holding, firm size, growth, dividend payout ratio, and leverage to income smoothing. This results of this study are that companies size has a significant negative effect, debt to equity ratio doesn’t have a significant effect to income smoothing, return on asset and income tax have a positive and significant effect to income smoothing. Keywords: Income Smoothing; Company Size; Debt To Equity Ratio; Return On Asset; Income.

scholarly journals PENGARUH INFORMASI LABA DAN ARUS KAS TERHADAP HARGA SAHAM PERUSAHAAN MANUFAKTUR YANG TERDAFTAR DI BURSA EFEK INDONESIA

2021 ◽  
Vol 4 (2) ◽  
pp. 195
Author(s):  
Muhammad Haekal Yunus ◽  
Abdullah Abdullah
Keyword(s):  
Cash Flow ◽  
Stock Prices ◽  
Stock Price ◽  
Manufacturing Industry ◽  
Stock Exchange ◽  
Predictive Ability ◽  
Cash Flows ◽  
Manufacturing Companies ◽  
Earnings Information ◽  
Level Of Significance

AbstrakPenelitian ini bermaksud untuk mengetahui pengaruh informasi laba dan arus kas terhadap harga saham perusahaan manufaktur. Metode analisis data yang dipakai untuk menguji hipotesis pada penelitian ini adalah Regresi Linear Berganda serta Teknik Sampel Datanya adalah purposife sampling. Hasil penelitian membuktikan bahwa informasi laba serta arus kas berpengaruh positif kepada harga saham. dengan cara parsial informasi laba berpengaruh secara signifikan kepada harga saham pada tingkat of significance kurang dari 5% , sebaliknya arus kas tidak mempengaruhi  harga saham pada tingkat of significance lebih dari 5%, secara simultan terbukti berpengaruh secara signifikan kepada harga saham industri manufaktur di Bursa Efek Indonesia pada tingkat kurang dari 5%. Informasi laba dipakai oleh penanam modal buat memperkirakan harga saham industri pada industri manufatur yang listing di Bursa Efek Indonesia pada rentang waktu 2015–2019. Adapun arus kas menunjukkan pengaruh yang lemah. Kemampuan prediksi dari variabel laba dan arus kas kepada harga saham sebesar  21,8%.Kata kunci: Laba, Arus Kas, Harga Saham AbstractThis study aims to determine the effect of earnings and cash flow information on stock prices of manufacturing companies. The data analysis method used to test the hypothesis in this study was Multiple Linear Regression and the data sample technique was purposive sampling. The research results prove that earnings information and cash flow have a positive effect on stock prices. by means of partial earnings information has a significant effect on stock prices at a level of significance of less than 5%, on the other hand cash flows do not affect stock prices at a level of significance of more than 5%, simultaneously it is proven to have a significant effect on stock prices of the manufacturing industry on the Stock Exchange. Indonesia at a rate of less than 5%. Investors use earnings information to estimate industrial stock prices in manufacturing industries listed on the Indonesia Stock Exchange in the 2015–2019 timeframe. Meanwhile, cash flow shows a weak influence. The predictive ability of the earnings and cash flow variables to the stock price is 21.8%.Keywords: Profit, Cash Flow, Stock Price

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