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Extraordinary items and income smoothing: a positive accounting approach

Extraordinary items and income smoothing: a positive accounting approach
Extraordinary items and income smoothing: a positive accounting approach
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.
0306-686X
791-811
Beattie, Vivien
b3b63305-91b1-4277-a99c-533db959e7c2
Brown, Stephen
fcb992ca-e075-463f-83ee-cb7fbdd0207f
Ewers, David
f4fe0609-a500-46b2-83df-b43e746350aa
John, Brian
cb9129a5-bbe7-4983-81ba-cd0e5aa9504d
Manson, Stuart
55b09fc5-5a23-4d18-b081-333e26f1ca01
Thomas, Dylan
f78d82b3-2240-46a3-8754-39b8854ee5e6
Turner, Michael
2de1b39c-165b-4842-a29b-02e7d130a5f5
Beattie, Vivien
b3b63305-91b1-4277-a99c-533db959e7c2
Brown, Stephen
fcb992ca-e075-463f-83ee-cb7fbdd0207f
Ewers, David
f4fe0609-a500-46b2-83df-b43e746350aa
John, Brian
cb9129a5-bbe7-4983-81ba-cd0e5aa9504d
Manson, Stuart
55b09fc5-5a23-4d18-b081-333e26f1ca01
Thomas, Dylan
f78d82b3-2240-46a3-8754-39b8854ee5e6
Turner, Michael
2de1b39c-165b-4842-a29b-02e7d130a5f5

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).

Record type: Article

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.

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Published date: 1994

Identifiers

Local EPrints ID: 36535
URI: https://eprints.soton.ac.uk/id/eprint/36535
ISSN: 0306-686X
PURE UUID: 131ebcad-268f-4400-99a0-4df7efafb0dc

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Date deposited: 19 Dec 2006
Last modified: 18 Aug 2017 16:32

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Contributors

Author: Vivien Beattie
Author: Stephen Brown
Author: David Ewers
Author: Brian John
Author: Stuart Manson
Author: Dylan Thomas
Author: Michael Turner

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