Extraordinary items and income smoothing:a positive accounting approach

Beattie, Vivien and Brown, Stephen and Ewers, David and John, Brian and Manson, Stuart and Thomas, Dylan and Turner, Michael (1994) Extraordinary items and income smoothing:a positive accounting approach. Journal of Business Finance and Accounting, 21 (6). pp. 791-811. ISSN 0306-686X

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This is an empirical study of single-period income smoothing which uses an incentives-based model to explain classificatory choices. An index is constructed to measure the smoothing effect of these choices. Weighted least squares regression results indicate that classificatory choices consistent with smoothing are more likely to be observed in firms with high earnings variability, high dividend payout, substantial managerial holdings of share options and diffuse share ownership. The existence of material scope for smoothing strengthens these findings. The model as a whole is statistically significant and, although the proportion of variability in smoothing explained is modest, it compares very favourably with other accounting choice studies. The relationship between smoothing and alternative earnings management strategies, including big bath accounting, is explored.

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Journal Article
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Journal of Business Finance and Accounting
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17 Sep 2013 08:11
Last Modified:
22 Nov 2022 00:12