Extraordinary items and income smoothing: a positive accounting approach


Beattie, Vivien, Brown, Stephen, Ewers, David, John, Brian, Manson, Stuart, Thomas, Dylan and Turner, Michael (1994) Extraordinary items and income smoothing: a positive accounting approach. Journal of Business Finance & Accounting, 21, (6), 791-811. (doi:10.1111/j.1468-5957.1994.tb00349.x).

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Description/Abstract

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.

Item Type: Article
ISSNs: 0306-686X (print)
Related URLs:
Subjects: H Social Sciences > HF Commerce > HF5601 Accounting
Divisions: University Structure - Pre August 2011 > School of Management
ePrint ID: 36535
Date Deposited: 19 Dec 2006
Last Modified: 27 Mar 2014 18:23
URI: http://eprints.soton.ac.uk/id/eprint/36535

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