Smoothing income in anticipation of future earnings

doi:10.1016/S0165-4101(97)00004-9

Journal of Accounting and Economics

Volume 23, Issue 2, July 1997, Pages 115-139

https://doi.org/10.1016/S0165-4101(97)00004-9 Get rights and content

Abstract

Recent theory argues that concern about job security creates an incentive for managers to smooth earnings in consideration of both current and future relative performance. We find support for this theory. Our evidence suggests that when current earnings are ‘poor’ and expected future earnings are ‘good’, managers ‘borrow’ earnings from the future for use in the current period. Conversely, when current earnings are ‘good’ and expected future earnings are ‘poor’ managers ‘save’ current earnings for possible use in the future. However, sensitivity analysis indicates that we cannot rule out selection bias as a potential alternative explanation for our findings.

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Smoothing income in anticipation of future earnings

Abstract

Journal of Accounting and Economics

Journal of Accounting and Economics

Journal of Accounting and Economics

Journal of Accounting and Economics

Journal of Financial Economics

Journal of Financial Economics

The effect of audit quality on earnings management

Regression diagnostics

Security analyst multi-year earnings forecasts and the capital market

The use of accruals in earnings management: a permanent earnings hypothesis

Detecting earnings management

The Accounting Review

A theory of income and dividend smoothing based on incumbency rents

Journal of Political Economy

Optimal incentive contracting in the presence of career concerns: theory and evidence

Journal of Political Economy

A market-based evaluation of discretionary-accrual models