Open AccessAccounting Income Smoothing And Stockholder Wealth
Author(s) -
Zhemin Wang,
Thomas H. Williams
Publication year - 2011
Publication title -
journal of applied business research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.149
H-Index - 22
eISSN - 2157-8834
pISSN - 0892-7626
DOI - 10.19030/jabr.v10i3.5929
Subject(s) - smoothing , shareholder , earnings , economics , cheating , earnings management , value (mathematics) , labour economics , econometrics , monetary economics , accounting , finance , psychology , mathematics , statistics , social psychology , corporate governance
Contrary to the widespread view that the accounting income smoothing phenomenon is a revelation of cheating and misleading on the part of the firms management, this study demonstrates that income smoothing enhances the informational value of reported earnings. Furthermore, this study documents consistent evidence indicating that smoothed income numbers are viewed favorably by the markets, and firms with smoother income series are perceived as being less risky. The findings suggest that income smoothing can be beneficial to both existing stockholders and prospective investors.