A Market Based Analysis of Income Smoothing

Michelson, Stuart; Jordan-Wagner, James; Wootton, Charles W.

doi:10.1111/j.1468-5957.1995.tb00900.x

Cited by 111 publications

(91 citation statements)

References 12 publications

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“…Based on this logic, many relevant works have been published in the last 20 years, such as those of Albrecht & Richardson (1990), Ashari et al (1994), Booth et al (1996), Michelson et al (1995;2001), Bin et al (2000) and Bao & Bao (2004). These authors all have calculated smoothing as an index of the fraction between the coef¿ cients of variation (CV):…”

Section: Metrics To Detect Income Smoothingmentioning

confidence: 99%

“…The method used here to determine the absence or presence of income smoothing is based on the coef¿ cient of variation model proposed by Eckel (1981) and used later by Booth et al (1996), Michelson et al (1995;2001), Bin et al (2000) and Bao & Bao (2004). These works show that if net income is related to sales by a linear function, variable unit costs remain constant over time, ¿ xed costs do not decrease and gross revenue cannot be smoothed out, then the coef¿ cient of variation of sales is smaller than the variation coef¿ cient of net income.…”

Section: Metrics To Detect Income Smoothingmentioning

confidence: 99%

See 1 more Smart Citation

Estrutura de Propriedade e Controle, Governança Corporativa e o Alisamento de Resultados no Brasil <br>DOI:10.5007/2175-8069.2010v7n13p11

Torres

Bruni

Castro

et al. 2010

R. Contemp. Contab.

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Section: Metrics To Detect Income Smoothingmentioning

confidence: 99%

Section: Metrics To Detect Income Smoothingmentioning

confidence: 99%

Estrutura de Propriedade e Controle, Governança Corporativa e o Alisamento de Resultados no Brasil <br>DOI:10.5007/2175-8069.2010v7n13p11

Torres

Bruni

Castro

et al. 2010

R. Contemp. Contab.

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“…Several studies by Trueman and Titman (1988), Wang and Williams (1994), Huberts and Fuller (1995), Michelson et al (1995), and Bitner and Dolan (1996) examine the market reaction to the income smoothing practices. One study, Sheikholeslami (1994) specifically examines Japanese income smoothing practices.…”

Section: Income Smoothingmentioning

confidence: 99%

Do Income Smoothing Practices Explain the Lower Earnings-Price Ratio of Japanese Firms Compared to Those of the U.S. Firms?

Kusuma

2005

GADJAH MADA INT. J. BUS.

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This study examines the variation in earnings-price ratios across Japanese and U.S. firms. The earnings-price ratio is one of the indicators often used by investors to determine their trading strategy. Previous literature document that Japanese firms have consistently lower earnings-price ratios than U.S. firms even though the earnings of Japanese firms have been adjusted to the U.S. GAAP. The objective of this study is to show that Japanese firms engage in income smoothing practices that stabilize earnings, thereby increasing Japanese investors’ willingness to pay higher prices for Japanese stocks. Comparing the income smoothing index and proportion of firms identified as smoothers shows that the intensity of Japanese firms practicing income-smoothing is greater than that of U.S. firms. The results also show that income-smoothing index is significant in explaining the cross-sectional variation of earnings-price ratios for Japanese firms but it is not significant for U.S. firms. Two potential explanations for the results of U.S. firms are as follows. First, income smoothing is not practiced widely across firms in the U.S. Therefore, the variation of income smoothing does not explain the variation in the cross-sectional earnings-price ratios. Second, even if U.S. firms practice income smoothing, the investors are aware of it and do not take earnings figures literally.Another results show that controlling for income smoothing does not eliminate the differences in the earnings-price ratios of the Japanese and U.S. firms. It is appropriate to conclude that although income smoothing plays a role in explaining the variations of earnings-price ratios across Japanese firms, it is not the only factor that contributes to the differences in the earnings-price ratios of Japanese and U.S. firms. Other factors may play a role which are either country-specific (such as inflationary expectations, tax regimes) or firm-specific (such as quality of earnings, real returns) as suggested by Brown (1989). The overall results are consistent across samples.

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“…More in recent times, [13] re-examined their study of [11] to perceive if the accounting performance measures are associated to income smoothing, but this time using abnormal returns. The results of this approach are based on the accumulation of abnormal returns by means of arithmetic series.…”

Section: Why Smooth the Incomementioning

confidence: 99%

“…In dissimilarity, artificial smoothing is attained through accounting practices. [11] Performed a long-run empirical analysis between smoothing and stock profitability, using U.S. companies' stock information as their sample. They categorized the companies as smoothers and non-smoothers on the ground of the sales variation coefficient vs. the earnings variation coefficient.…”

Section: Why Smooth the Incomementioning

confidence: 99%

Income Smoothing and Islam: an Evidence from Malaysian Shariah Compliant Companies

Saringat¹,

Haron²,

Tahir³

2013

IJSSH

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Abstract-As repeatedly emphasized by the Prophet S.A.W, weight and measures are two of the important elements in business transactions. Pedestal on that premises, we concur to discover the existence of income smoothing in Malaysian's Shariah compliant companies which are perceived as companies that go along with ethical Islamic precept in both business transactions and financial reporting. Even though in Islamic financial theory does not repudiate smoothing of profit, this study will examine types of smoothing behaviour that are undertaken by the executives. There are two types of income smoothing; real smoothing and artificial smoothing. Real smoothing comprises making production and speculation decisions that decrease income inconsistency. In dissimilarity, artificial smoothing is attained through accounting practices. We tested our objectives on 712 Shariah compliant companies in Malaysian capital market over the period of 2007 -2011. By using test of artificial income as a measurement, we found that 53.6% of the companies are artificial smoothers.

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A Market Based Analysis of Income Smoothing

Cited by 111 publications

References 12 publications

Estrutura de Propriedade e Controle, Governança Corporativa e o Alisamento de Resultados no Brasil <br>DOI:10.5007/2175-8069.2010v7n13p11

Estrutura de Propriedade e Controle, Governança Corporativa e o Alisamento de Resultados no Brasil <br>DOI:10.5007/2175-8069.2010v7n13p11

Do Income Smoothing Practices Explain the Lower Earnings-Price Ratio of Japanese Firms Compared to Those of the U.S. Firms?

Income Smoothing and Islam: an Evidence from Malaysian Shariah Compliant Companies

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