SFAS 133 and income smoothing via discretionary accruals: The role of hedge effectiveness and market volatility

Tessema, Abiot; Deumes, Rogier

doi:10.1111/jifm.12070

Cited by 11 publications

(11 citation statements)

References 36 publications

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“…This Smoothness variable (SMOOTH) represents that managers exercise accounting discretion to earnings smoothing which is in accordance with previous studies (Tessema & Deumes, 2018;Tucker & Zarowin, 2006). The smoothing measure used is the correlation between changes in managed results and changes in unmanaged results.…”

Section: Model 2: Hedge Accounting and Earnings Smoothingmentioning

confidence: 76%

“…The authors found evidence that managers take hedge positions regardless of abnormal accrual decisions, but in the fourth quarter, mainly, they replace them for abnormal accruals and derivative hedge to control period volatility. Tessema and Deumes (2018) analyzed the impact of SFAS 133 on earnings smoothing through discretionary accruals and the ineffectiveness of hedge accounting.…”

Section: Earnings Smoothing and Hedge Accountingmentioning

confidence: 99%

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Hedge Accounting Determinants and Consequences: New Evidence from Brazilian Companies.

Paula¹

2020

Preprint

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We investigated the determinants and the consequences of hedge accounting as an accounting choice in the Brazilian capital market. We analyzed a sample of 187 nonfinancial firms which used derivatives or non-derivatives to risk management from 2010 to 2017. We contributed with two new proxies for the assessment of hedge accounting practice. The first hypothesis is to analyze whether companies that use hedge accounting have a higher maximization of firm value. The second hypothesis is whether companies' earnings were smoothing less than practices this policy and the last one is if hedge accounting is being used to avoid violated debt covenants. These findings suggest that companies in the cluster with the highest level of hedge accounting designation in the periods had a positive and significant relationship with the higher firm value, corroborating the prior literature. We can identify that companies that designated a lower amount of derivatives to hedge accounting indicated a higher trend of income smoothing. These findings corroborate the main purpose of hedge accounting that is a reliable representation of risk management in the financial statements. We did not find evidence that proximity to violate covenants as a determinant for adoption or the higher level of adoption derivatives for hedge accounting.

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Section: Model 2: Hedge Accounting and Earnings Smoothingmentioning

confidence: 76%

Section: Earnings Smoothing and Hedge Accountingmentioning

confidence: 99%

Hedge Accounting Determinants and Consequences: New Evidence from Brazilian Companies.

Paula¹

2020

Preprint

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“…Estimation errors resulting from efforts to report smooth earnings are widely known as income smoothing. As a special type of earnings management, income smoothing is carried out through manipulation of accrual accounting as well (Tessema & Deumes, 2017). In addition to accelerating or shifting the recognition of costs, income smoothing can also be accomplished through allowance for uncollectible debts.…”

Section: Literature Reviewmentioning

confidence: 99%

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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“…Unfortunately, level of earnings management was very low in the post-IFRS period. Tessema & Deumes (2018) stated that general companies made income smoothing through discretionary accrual decisions. In his research, Tessema also found evidence that the higher market volatility will increase the volume of earnings so that it will motivate the manager to do greater income smoothing.…”

mentioning

confidence: 99%

The Role Analysis of Accrual Management on Loss-Loan Provision Factor and Fair Value Accounting to Earnings Volatility

2020

RJFA

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This aim of research is to prove that the loan-loss provision and fair value accounting influence the earnings volatility and the accrual management role in moderating the effect of fair value accounting to earnings volatility. Data were obtained from the annual report of the Directory of Indonesia Capital Market and the Stock Exchange of Indonesia Website. There are 81 samples as a result of a banking company's observation listed on the Stock Exchange in 2014-2016. The analysis of multiple moderated regression was used in this research. Finally, it showed that the loss-loan provision does not affect on earnings volatility, whereas the fair value accounting influenced earnings volatility positively. On the other hand, accrual management strengthens the influence of fair value accounting on earnings volatility

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SFAS 133 and income smoothing via discretionary accruals: The role of hedge effectiveness and market volatility

Cited by 11 publications

References 36 publications

Hedge Accounting Determinants and Consequences: New Evidence from Brazilian Companies.

Hedge Accounting Determinants and Consequences: New Evidence from Brazilian Companies.

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

The Role Analysis of Accrual Management on Loss-Loan Provision Factor and Fair Value Accounting to Earnings Volatility

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