Income Smoothing and Idiosyncratic Volatility

Markarian, Garen; Noguer, Belén Gill de Albornoz

doi:10.2139/ssrn.1270826

Cited by 13 publications

(19 citation statements)

References 122 publications

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“…A recent study by Markarian and Gill-de-Albornoz (2012) attempts to fill this gap. They find that a strong negative relation exists between discretionary income smoothing and idiosyncratic volatility.…”

Section: Managing Risk Perceptionsmentioning

confidence: 99%

How far can we trust earnings numbers? What research tells us about earnings management

Walker

2013

Accounting and Business Research

165

128

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The article reviews the recent academic research literature on earnings management (EM) with a view to identifying research themes and results of interest to users and preparers of financial statements, accounting standard setters, and others with responsibility for ensuring that companies provide financial information to shareholders that can be relied upon. Hopefully students of accounting with an interest in exploring the EM literature will find that the article provides a useful framework. The literature on this topic is vast, and it is not possible to cover every article in detail. I provide an impressionistic survey that highlights examples of specific research themes and methods that regularly appear in the literature. Most of the examples are chosen from the literature published since 2000, although I do also highlight a few methodological contributions that appeared earlier. It is inevitable that the selection of articles reflects to some extent my personal interests and biases (intentional or otherwise). Thus, I wish to acknowledge that I owe a very substantial intellectual debt to the insights and contributions of the many uncited authors of a literature that spans over 40 years in over 20 accounting and finance journals. 1

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Section: Managing Risk Perceptionsmentioning

confidence: 99%

How far can we trust earnings numbers? What research tells us about earnings management

Walker

2013

Accounting and Business Research

165

128

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“…Empirical tests found that idiosyncratic risk has positive correlation with analyst forecast dispersion degree [17]. The signal sent by income smoothing can reduce the uncertainty of future earnings [15], and make it easier to forecast future income stream, which means that income smoothing has negative correlation with analyst forecast dispersion degree, i.e., idiosyncratic risk should have negative correlation with income smoothing [18]. Therefore, the second hypothesis can be proposed: Hypothesis 2: Income smoothing will reduce idiosyncratic risk.…”

Section: Income Smoothing and Idiosyncratic Riskmentioning

confidence: 99%

“…If the earnings of a company fluctuate greatly, it will be harder to forecast future earnings and analyst forecast dispersion degree will be high. Empirical tests show that analyst forecast dispersion degree has positive correlation with idiosyncratic risk [17], while analyst forecast dispersion degree has negative correlation with income smoothing [18]. For this reason, great earnings fluctuation may bring higher idiosyncratic risk.…”

Section: Income Smoothing Idiosyncratic Risk and Ceo Turnovermentioning

confidence: 99%

“…This article uses the one period lagged and two period lagged income smoothing as instrumental variable to perform two stages least square regression. This article will also give the result of three stages least square regression used by Markarian [18] to make the regression result more convincing. Table 1 presents the descriptive statistical values of various variables used in this article.…”

Section: Empirical Approachmentioning

confidence: 99%

“…They also empirically tested idiosyncratic risk and analyst forecast dispersion degree (analyst forecast dispersion degree refers to the degree of difference among analyst forecasted future earnings) and found that idiosyncratic risk has positive correlation with analyst forecast dispersion degree. Markarian et al [18] believed that analyst forecast dispersion degree has negative correlation with income smoothing so that idiosyncratic risk should have negative correlation with income smoothing. Through empirical tests, it is found that income smoothing has adverse influence upon idiosyncratic risk.…”

Section: Introductionmentioning

confidence: 99%

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Income Smoothing, Idiosyncratic Risk & CEO Turnover

Xingguo

2016

JMF

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The article discussed the feasibility from the idiosyncratic risk point of view that CEO enhances the stability of its position by income smoothing. Taking the data of A-share companies listed in Shanghai Stock Exchange and Shenzhen Stock Exchange between 2005 and 2011, the article examined the direct influence of income smoothing upon change of CEO and its indirect influence upon change of CEO by influencing idiosyncratic risks. The article found that the increase of the income smoothing degree would significantly decrease the probability of change of CEO, while the increase of idiosyncratic risks would significantly increase the probability of change of CEO. In addition, the influence of income smoothing upon change of CEO, to a great extent, is realized by influencing idiosyncratic risks. The evidences used in the article show that one of CEO's major motives to perform income smoothing is to safeguard its position.

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