Earnings smoothing: Does it exacerbate or constrain stock price crash risk?

Chen, Changling; Kim, Jeong‐Bon; Yao, Li

doi:10.1016/j.jcorpfin.2016.11.004

Cited by 188 publications

(159 citation statements)

References 62 publications

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“…In line with this argument, Chen et al (2017), Khurana et al (2017) and Yu et al (2017) find that managers use earnings smoothing as a mean to hide or withhold bad news from shareholders. As a consequence, firms are exposed to a greater stock price crash risk, especially when the accumulated bad news burst.…”

Section: Earnings Smoothing and Outsiders' Interventionmentioning

confidence: 87%

Earnings Smoothing as Information Signaling or Garbling: A Review of Literature

Shabani

Sofian²

2018

AJFA

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Earnings smoothing, which refers to the action of managers managing earnings to reduce fluctuations of reported earnings, is a special type of earnings management because while earnings smoothing may be used to distort shareholders and creditors' view of corporate actual performance, it may also serve as a tool to communicate corporate private information of future earnings to the aforementioned stakeholders. Hence, it comes to no surprise when prior literatures reveal that the studies on the role of earnings smoothing are divided into two streams: as information signaling and information garbling. This paper aims to review prior literatures, specifically on the role of earnings smoothing either as information signaling or garbling based on four themes: firm value, financing need, compensation contract and outsiders' intervention. This paper reviews journal articles gathered from Web of Science database. Based on the shortcomings of prior literatures, this paper highlights avenue for future research.

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Section: Earnings Smoothing and Outsiders' Interventionmentioning

confidence: 87%

Earnings Smoothing as Information Signaling or Garbling: A Review of Literature

Shabani

Sofian²

2018

AJFA

View full text Add to dashboard Cite

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“…Such motives have the potential to reduce firm's value. Using US firms, Chen et al, (2017) provide evidence of positive relationship between income smoothing and stock price crashes, suggesting that income smoothing causes a negative impact on firm's value.…”

Section: Introductionmentioning

confidence: 93%

“…The concept of bad news hoarding has been the widely accepted argument to explain stock price crashes (Chen et al, 2017;Habib et al, 2017;Hutton et al, 2009). It is based on the assumption that managers have incentives to withold or keep bad news from market knowledge for an extended period.…”

Section: Introductionmentioning

confidence: 99%

“…Deliberate concealment of firm's economic realities can be accomplished through income smoothing (Chen et al, 2017;Kothari et al, 2009). Income smoothing practices produce stable and persistent earnings, making investors believe on firm's prospects.…”

Section: Introductionmentioning

confidence: 99%

“…This study aims to examine the moderating effect of manager age, income smoothing, and default risk on stock price crashes. Positive correlation between income smoothing and stock price crashes reported in Chen et al, (2017) indicates that US investors were able to see beyond earning numbers and not affected by the company's efforts to display smooth earnings to hide poor performance. This is not necessarily true with indonesian investors.…”

Section: Introductionmentioning

confidence: 99%

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Income Smoothing, Default Risk and Stock Price Crashes: The Moderating Effect of Manager Age

Butar¹

2020

Journal of Accounting and Business Dynamics

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The purpose of this study is to investigate the moderating role of manager age on the association between income smoothing and stock price crashes and the association between default risk and stock price crashes. The data was collected from the samples of 182 companies firms listed on the Indonesia stock exchange from 2013 to 2017 (910 firm-year observation). Using the multivariate analysis as the data analysis method, this study revealed that manager age and default risk were negatively associated with stock price crashes. On the other hand, the income smoothing was not significantly associated with stock price crashes. With regard to moderating effect of manager age, the results showed that manager age effect the association between default risk and stock price crashes with a positive direction. Meanwhile, no significant effect of manager age on the association between income smoothing and stock price crashes is found in this study. Perataan laba, Risiko Default, dan Crashes Harga Saham: Efek Moderasi Umur Manajer ABSTRAKPenelitian ini menguji apakah umur manajer dapat memoderasi hubungan perataan laba dan crashes harga saham serta hubungan risiko default dan stock price crashes. Data dikumpulakan dari perusahaan sampel yang berjumlah 182 perusahaan yang terdaftar di Bursa Efek Indonesia antara tahun 2013 s.d. 2017 (910 observasi). Dengan menggunakan metode regresi berganda sebagai teknik analisis data, penelitian ini menemukan bahwa umur manajer dan risiko default berhubungan negatif dengan crashes harga saham sesuai dengan prediksi. Sementara itu, hasil analisis juga menunjukkan bahwa perataan laba tidak berhubungan dengan crashes harga saham. Untuk variabel interaksi, hasil analisis menunjukkan umur manajar dapat memoderasi hubungan antara risiko default dan crashes harga saham dengan arah positif. Efek yang signifikan dari umur manager terhadap hubungan antara perataan laba dan crashes harga saham tidak ditemukan dalam penelitian ini.

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Market share, investor horizon, and stock crash risk

Ngo,

Susnjara,

2023

J Corp Accounting Finance

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On a 1990–2016 sample of 78,594 firm‐year observations, we document strong evidence of lower stock crash risk for more prominent firms (those with greater market share). This evidence is consistent across various proxies for stock crash risk, raw versus instrumented market share, and ordinary least squares versus logistic regressions. We also find that the market share's suppressing effect on stock crash risk is weakened by the relative prevalence of long‐term investors. This moderating effect of investor horizon suggests the quasi‐monopolistic insulation from market pressures as the explanation for the reduction in stock crash risk among more dominant firms.

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Earnings smoothing: Does it exacerbate or constrain stock price crash risk?

Cited by 188 publications

References 62 publications

Earnings Smoothing as Information Signaling or Garbling: A Review of Literature

Earnings Smoothing as Information Signaling or Garbling: A Review of Literature

Income Smoothing, Default Risk and Stock Price Crashes: The Moderating Effect of Manager Age

Market share, investor horizon, and stock crash risk

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