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Effects of Earnings Smoothing Incentives on Unexpected Returns, Compared to Unexpected Earnings Response Coefficient
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Abstract: (12372 Views) |
| Investors, creditors and financial analysts are interested in having information on income smoothing in companies they are willing to invest in. Various local and international studies reveal that the investors in investment decisions prefer smooth and less fluctuating income. Managers attempt to report profit and its growth rate as smooth. Most researches show that financial statements and profit declaration has information content. This study is conducted for two aims, one investigating the impact of unexpected earnings on reaction of shareholders and another is impact of unexpected earnings on investors return. In present study earnings is taken as one of the most important variable in investors’ decision-making process, and seeks to see whether earnings have information content or not? If the earnings are the unexpected earnings arising from earnings smoothing incentives, by its declaration, does it lead to market response and achieving abnormal returns? The population of this paper consists of all companies listed on TSE. By filtering (systematic elimination) approach, 99 companies are selected during 2008 to 2012 as the research sample. For data analysis, regression panel data analysis is applied. The results of the study show that earnings can have information content and declaration of unexpected earnings that is done by earnings smoothing incentives by management causes that investors can interpret and understand the meaning of earnings information well. Thus, investors’ reliability to acquire declared earnings is increased and the increase of reliability of the investors leads to the increase of the impact of unexpected earnings on abnormal returns and stock price. |
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| Keywords: Earnings response coefficient, Income smoothing, Abnormal returns, Unexpected earnings, Company size. |
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Full-Text [PDF 852 kb]
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Type of Study: Research |
Subject:
Special
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