Accounting conservatism and income smoothing practices in EU food and drink industry

Abstract

PurposeThe purpose of this paper is to identify the application of the fundamental principle of accounting conservatism within the EU food and drink industry. Furthermore, the authors would also investigate in-depth the above relationship in two different subsamples (income smoothers and non-income smoothers).Design/methodology/approachAll EU-listed companies of the food and drink industry were identified covering the year 2019. Eckel's model was used to classify listed companies as smoothing or non-smoothing, and Basu's model was adopted to test the degree of conditional conservatism.FindingsThe results indicate that conservatism is strongly present in food and drink industry and also in its subindustries. We also showed that non-smoothing firms had higher levels of conditional conservatism in terms of more opportunity to recognize future economic losses because the market could use the stock return data to anticipate future losses contained in the information regarding profits.Research limitations/implicationsOne limitation of this work is the small size of the investigated companies. The authors demonstrate that the likely increased use of conservatism produces better credibility in the EU markets. Practical implications indicate a higher degree of monitoring of the accounting practices adopted by firms. Regulators have to set accounting policies to enhance the quality of the informational environment, investors and shareholders might exercise control over executives' decisions, and lenders might impose contractual clauses requiring the timely disclosure of “bad news.”Originality/valueThis industry is “belted” from any external speculations. This research made it possible also to observe theoretical relationships between the financial information provided by the EU food and drink industry that contributes to the market distinction between smoothers and non-smoothers.

Investigate accounting practices by binte biluhuta sellers

“…Baedhawy (2012) and Chaney & Church (2017) state that fortune in the word Rabb implies that God is none other than the place and center of fortune itself, and thus fortune is tied to the context of spirituality. The findings in the form of income accounting practices that are conditional on non-material values in the form of patience and gratitude for the sustenance given by the Creator are another form of income accounting concept that prioritizes rational calculations (Dinh, 2022;Foà, 2023;Guan, 2021;Gyamfi, 2022;Lomas, 2022;Paolone, 2021;Sankoji, 2020;Smith, 2023;Sologon, 2021). In modern accounting, the main goal of business is to maximize revenue (Lamberton, 2015).…”

“…A number of research has been carried out regarding income accounting practices, both on a small and large scale (Dinh, 2022;Foà, 2023;Guan, 2021;Gyamfi, 2022;Lomas, 2022;Paolone, 2021;Sankoji, 2020;Smith, 2023;Sologon, 2021). However, unfortunately, this study is limited to revealing income accounting at the material level without involving local wisdom values.…”

How Does Gender Diversity Moderate the Relationship between Income Smoothing and Stock Liquidity? Evidence from Egypt

“…IS refers to the independent variable of the current study. Following prior studies (e.g., Akbari et al, 2019;Tee, 2020;Paolone, et al, 2022), the study relies on the Eckel ratio (1981). This ratio (1981) includes the coefficient of variation for the change in income divided by the coefficient of variation for the change in sales as follows:…”