2010-02-01
Income Smoothing and Earnings Informativeness
Publication
Publication
A matter of institutional characteristics or accounting standards?
Executive Summary This study investigates the level of income smoothing and its impact on the informativeness of earnings. The main contribution of this research is that as well IFRS as investor protection are considered to examine the association between income smoothing and earnings informativeness. Income smoothing is measured as the variation in net income relative to the variation in operating cash flows. A returns-earnings regression based on Zarowin (2002) is used to measure earnings informativeness. A sample of listed companies from United Kingdom (strong investor protection), France and the Netherlands (weak investor protection) is chosen. The results suggest that companies in United Kingdom show less smooth earnings compared to companies in France and the Netherlands. In addition I find that firms smooth income to a higher degree in the period after IFRS. Moreover income smoothing improves earnings informativeness during the pre IFRS period for all sample companies, and to a higher degree in the United Kingdom, although not significant. Subsequently to IFRS adoption the results suggest that income smoothing decreases earnings informativeness in all countries.
| Additional Metadata | |
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| Erasmus MC: University Medical Center Rotterdam | |
| hdl.handle.net/1765/20019 | |
| Organisation | Erasmus School of Economics |
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Tudor, A. (2010). Income Smoothing and Earnings Informativeness. Retrieved from http://hdl.handle.net/1765/20019 |
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