Does Income Smoothing Improve Earnings Informativeness?

Tucker, Jenny Wu; Zarowin, Paul

doi:10.2139/ssrn.744708

Cited by 83 publications

(75 citation statements)

References 41 publications

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“…In addition, it decreases information asymmetry, with greater transparency and greater quality of accounting information. Tucker and Zarowin (2006) raise the question of whether income smoothing improves the quality of financial reporting. The authors use Compustat data between 1993 and 2000 and set forth two hypotheses.…”

Section: Analysis Of Economic Benefits Of Ifrs Mandatory Adoption Formentioning

confidence: 99%

“…According to the empirical literature (Diamond and Verrecchia, 1991;Tucker and Zarowin, 2006;Barth, Landsman and Lang, 2008;Ivashima, 2009;Beneish, Miller and Yohn, 2010), mandatory adoption of IFRS contributes precisely to mitigating this principal-agent problem. Indeed, the application of IFRS lowers the possibility of manipulation of accounting information, and increases the degree of harmonization, transparency, and good disclosure, making public otherwise private information.…”

Section: Research In Applied Economicsmentioning

confidence: 99%

“…Quality of the result set as the response factor of future results as used by Tucker and Zarowin (2006).…”

Section: Qualitymentioning

confidence: 99%

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Who Really Benefits from Mandatory Adoption of IFRS? A Closer Look at Preparers and Users of Financial Information

Sayumwe

Francœur

2017

RAE

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Since 1 January 2005, the European Union (EU) has mandated implementation of International Financial Reporting Standards (IFRS) for preparation of consolidated financial statements for EU-listed firms. This paper analyzes the economic impact of mandatory adoption of IFRS on firms, investors, and creditors. Relying on the positive accounting theory, we study the economic impact of the new conceptual framework of financial information from IASB (2010), especially in paragraph OB2, where investors and creditors are designated as the main users of financial information, and QC 38, which assesses whether the benefits of financial information justify the costs associated with its production and use. Our sample is composed of 2,926 European firms that adopted IFRS in 2005. Results show that firm's cost of capital declines when comparing data before and after IFRS adoption. For creditors, our results suggest that credit rating improves after IFRS adoption. However, we do not notice any significant difference in the quality of accounting earnings for investors.We also test if these results hold in the presence of asymmetric information, financial dependence and family ownership structure. Our results confirm the above trend. We conclude that the market anticipates the content of accounting data, and that mandatory adoption of IFRS has no impact on investors.

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Section: Analysis Of Economic Benefits Of Ifrs Mandatory Adoption Formentioning

confidence: 99%

Section: Research In Applied Economicsmentioning

confidence: 99%

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Who Really Benefits from Mandatory Adoption of IFRS? A Closer Look at Preparers and Users of Financial Information

Sayumwe

Francœur

2017

RAE

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“…These studies suggest that an extreme magnitude of accruals decreases earnings persistence and, ultimately, forecast accuracy. To this extent, Tucker and Zarowin [2006] find that firms which actively manage the smoothness of earnings (firms with a stronger negative correlation between discretionary accruals and earnings) provide earnings with more information about future earnings.…”

Section: Earnings Quality and The Influence On Profitability Forecastsmentioning

confidence: 98%

Improving Profitability Forecasts with Information on Earnings Quality

Demmer

2015

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractPrior literature documents the usefulness of the DuPont disaggregation for predicting firms' future profitability, operating income, and stock market returns. In addition, research also emphasizes the importance of earnings quality information. However, there is a lack of research examining how earnings quality affects forecasts of profitability. This paper explores whether different earnings quality factors moderate the accuracy of profitability forecasts. This study contributes to the existing literature along three dimensions. First, contrary to financial statement analysis studies, I find that changes in profit margin provide incremental information for predicting changes in future return on assets. After controlling for earnings quality factors, the incremental usefulness of this accounting signal increases significantly. Second, this paper contributes to the earnings quality literature by providing an approach as how to include this information into forecasts of profitability. In doing so, I incorporate the main drivers of earnings quality (i.e. fundamental performance and the accounting system) into profitability forecasts. Last, the paper adds to the literature on how capital market participants perceive accounting information. I document that both analysts and investors appear to efficiently incorporate earnings quality information in their investment decisions. JEL classification: M41

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“…Therefore, analyst following may be an omitted correlated variable for our research design. We include an indicator variable of heavy analyst following, above the median of analyst following, where analyst following is measured by the average number of analyst forecasts included in the monthly consensus compiled by IBES during the fiscal year following Tucker and Zarowin (2006). Untabulated results show that the coefficients of heavy analyst following are negative and statistically significant at 1 percent level in all regressions of the equation (1): pooled, bad, and good news samples.…”

Section: Size Effectsmentioning

confidence: 99%

The Association between Earnings News and The Timing of Annual Earnings Announcements

Kim¹,

Son²

2014

Glob Bus Financ Rev

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A B S T R A C TThis study examines whether managers exercise discretion in the timing of annual earnings announcements depending on the magnitude of unexpected earnings. We find a non-linear association between the timing of the earnings announcement and the amount of unexpected earnings. Specifically, managers tend to delay annual earnings announcements as the news becomes worse (better) in negative (positive) unexpected earnings. We also find that market returns on the magnitude of earnings surprises (Earnings Response Coefficient) are greater with the timely announcement of earnings only when firms miss their expected earnings.

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Does Income Smoothing Improve Earnings Informativeness?

Cited by 83 publications

References 41 publications

Who Really Benefits from Mandatory Adoption of IFRS? A Closer Look at Preparers and Users of Financial Information

Who Really Benefits from Mandatory Adoption of IFRS? A Closer Look at Preparers and Users of Financial Information

Improving Profitability Forecasts with Information on Earnings Quality

The Association between Earnings News and The Timing of Annual Earnings Announcements

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