INCOME SMOOTHING THROUGH R&D MANAGEMENT AND EARNINGS INFORMATIVENESS

2021 ◽  
Author(s):  
Bok Baik ◽  
Katherine A Gunny ◽  
Boo Chun Jung ◽  
Duri Park
Keyword(s):  
Analyst Forecasts ◽  
Income Smoothing ◽  
Earnings Informativeness ◽  
Earnings Smoothing

We examine whether income smoothing via R&D management is associated with more informative earnings. While the literature finds earnings smoothing through accruals improves earnings informativeness, it is unclear whether smoothing through R&D management is used to inform investors because R&D management is relatively more difficult to detect and curb. We find that R&D management, which represents a subset of real activities management, is associated with more informative earnings but the association is weaker, relative to smoothing through accruals. We also document that R&D-based smoothing is associated with more accurate and less disperse analyst forecasts of earnings but the association is weaker, relative to smoothing through accruals. Overall, we provide novel evidence suggesting that managers use R&D management to smooth temporary shocks to earnings and inform investors.

Foreign Equity Ownership and Income Smoothing

2020 ◽  
Vol 19 (2) ◽  
pp. 141-162
Author(s):  
Boochun Jung ◽  
Dongyoung Lee ◽  
Ilhang Shin ◽  
C.Y. Desmond Yuen
Keyword(s):  
Income Smoothing ◽  
Foreign Investor ◽  
Foreign Investors ◽  
Earnings Informativeness ◽  
Earnings Smoothing ◽  
Equity Ownership ◽  
Jel Classifications ◽  
Local Firms

ABSTRACT We examine whether foreign investors influence a local firm's income smoothing, using a sample of Korean firms from 2000 to 2013. We hypothesize that given innate informational difficulties of overseas investments, foreign investors demand less noisy and more sustainable earnings, and to satisfy this demand, managers have strong incentives to smooth earnings. We find that foreign investors' ownership is positively related to the level of earnings smoothing. We also find that earnings smoothing improves earnings informativeness in the presence of high foreign investor ownership, consistent with the notion that foreign investors play an important role in local firms' information environments. JEL Classifications: M41; M43; J53.

scholarly journals Earnings Management through Tax Reserves and Auditor-Provided Tax Services

2017 ◽  
Vol 6 (4) ◽  
pp. 217
Author(s):  
Chunlai Ye
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Income Smoothing ◽  
Earnings Forecast ◽  
Large Firms ◽  
Fin 48 ◽  
Management Incentives ◽  
Consensus Forecasts ◽  
Earnings Smoothing ◽  
Tax Reserves

This study investigates whether firms continue to use tax reserves to achieve financial reporting objectives in the post-FIN 48 period and the effect of auditor-provided tax services on earnings management through tax reserves. Three types of earnings management incentives are considered in this study: meeting or beating the consensus forecasts, income smoothing, and taking an “earnings bath.” The analyses yield evidence that only non-large firms manipulate tax reserves to meet/beat earnings forecast in the post-FIN 48 period; however, tax reserves are still utilized by both large and non-large firms to smooth earnings. Moreover, evidence is provided that the auditor who provides more tax services facilitates large firms’ earnings smoothing in the post-FIN 48 period, implying independence impairment. But this behavior does not exist within non-large firms, arguably because the auditor does not compromise independence for less important clients.

scholarly journals Apakah profitabiltas, risiko keuangan dan ukuran perusahaan meningkatkan praktik perataan laba perusahaan?

2019 ◽  
Vol 7 (2) ◽  
Author(s):  
Erliana Banjarnahor ◽  
Khirstina Curry
Keyword(s):  
Earnings Management ◽  
Financial Risk ◽  
Sampling Method ◽  
Secondary Data ◽  
Binary Logistic Regression ◽  
Financial Statements ◽  
Positive Influence ◽  
Income Smoothing ◽  
Public Company ◽  
Earnings Smoothing

Earnings Management is the selection accounting policies by management to achieve certain goals. The usual way of management to influence the numbers on the financial statements is to make earnings management one of them with income smoothing. The purpose of this research is to test empirically the influence of profitability, financial risk, and company size to the practice of income smoothing. Population in this research is all public company year 2012-2016, while for sample of research use purposive sampling method, with secondary data. Methods of data analysis using binary logistic regression. The result obtained is profitability does not affect the income smoothing action. Financial risk does not affect earnings smoothing. Firm size affects earnings smoothing action. Positive influence means that if the size of the company the higher the company doing income 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.

Global Financial Crisis, Institutional Ownership, and the Earnings Informativeness of Income Smoothing

2017 ◽  
Vol 35 (1) ◽  
pp. 53-78 ◽  
Author(s):  
Ching-Lung Chen ◽  
Pei-Yu Weng ◽  
Yu-Chih Lin
Keyword(s):  
Panel Data ◽  
Financial Crisis ◽  
Institutional Investors ◽  
Global Financial Crisis ◽  
Institutional Ownership ◽  
Income Smoothing ◽  
Earnings Informativeness ◽  
The Global Financial Crisis ◽  
Unbalanced Panel Data

This study uses unbalanced panel data to construct the empirical regressions, and examines the role of the global financial crisis and institutional ownership on the earnings informativeness of firm with income smoothing. The result reveals that the earnings informativeness of income smoothing decreased after the occurrence of the crisis. High institutional ownership also reduces the informativeness of earnings for firms with income smoothing and supports the institutional investors’ opportunism hypothesis. Yet, this result is prominent when the institutional ownership is held by the qualified foreign rather than local institutional investors. This study implements several diagnostic checks and demonstrates that the results are robust to various specifications.

scholarly journals Bank earnings smoothing, audit quality and procyclicality in Africa

2017 ◽  
Vol 16 (2) ◽  
pp. 142-161 ◽  
Author(s):  
Peterson K. Ozili
Keyword(s):  
Business Cycle ◽  
Capital Market ◽  
Audit Quality ◽  
Income Smoothing ◽  
Least Square ◽  
Loan Loss ◽  
Content Type ◽  
Big 4 ◽  
Earnings Smoothing ◽  
The Business Cycle

Purpose The purpose of this paper is to empirically examine whether the way African banks use loan loss provisions (LLP) to smooth earnings is influenced by capital market motivations and the type of auditor, after controlling for non-discretionary determinants of provisions and fluctuations in the business cycle. Design/methodology/approach To test the income smoothing hypothesis, the model was estimated using panel least square with White’s robust standard error correction, as well as, with and without period fixed effect. Findings The findings support the income smoothing hypothesis and indicate that African banks use LLP to smooth earnings; listed African banks use LLP to smooth earnings to a greater extent compared to non-listed African banks, possibly, for capital market reasons; income smoothing via LLP is not reduced among African banks with Big 4 auditors; and after controlling for macroeconomic fluctuation, there is evidence that bank provisioning is procyclical with fluctuations in the business cycle. Research limitations/implications The findings have three implications. One, listed African banks smooth income because they are more visible to investors; investors do not view stock price fluctuations as a good signal. Securities market regulators in African countries should enforce strict disclosure rules that reduce earnings smoothing practices to improve the transparency of bank earnings in the region. Two, the presence of a Big 4 auditor did not improve the informativeness of LLP estimates among African banks. Three, the evidence for procyclical provisioning suggest the need for dynamic LLP system in Africa. Originality/value This paper is the first cross-country African study to investigate whether provisions-based income smoothing decreases with the presence of a Big 4 auditor. The findings indicate that this is not the case among African banks.

Sign in / Sign up

Export Citation Format

Share Document