The Effect of Income Smoothing and Earnings Quality on Financial performance of Firms
Subject Areas : Financial engineeringzeinab ariamand 1 , seyyed abbas ebrahimi 2
1 - Department of Financial Engineering, Rahbord Shomal Institute of Higher Education, Rasht, Iran.
2 - Department of Management, Rahman Institute of Higher Education, Ramsar, Iran.
Keywords: Financial Leverage, Return on assets, Equity, Profit smoothing, Profitability quality, Company size,
Abstract :
Profit smoothing can be seen as a deliberate reduction in profit fluctuations, so that the activities of the company appear to be normal. Managers are making profit smoothing to reduce this volatility. Some experts believe that investors are more willing to invest in smoothing companies and are willing to pay more for them. Researchers believe that some of the characteristics of the company influence the motivation of managers to smooth profits. This study attempts to explain the theoretical foundations of the research, the relationship between earnings smoothing and company characteristics such as earnings quality, P/E and ROE and ROTA. Check the securities. In order to investigate the relationship between earnings smoothing and firm characteristics, data related to the period 2010-2017 were collected and analyzed. Logistic regression was used to test the research hypotheses. The results show that companies with higher price to earnings (P/E) ratios have more incentive to report earnings. And companies with higher earnings quality are more motivated to report earnings smoothly. Finally, it was found that larger ROTAs had a greater incentive to report earnings.
_||_
Abedi, Ali, 2017, the differential effect of profit smoothing and non-smoothing companies on the relationship between debt ratios and company profitability, the second international conference on modern developments in management, economics and accounting, Tehran, Allameh Khoei Institute of Higher Education ) - Kush International Company.
Dechow, P. and Schrand, C. (2004)Earnings Quality. Charlottesville, VA, CFA Institute.Francis J, Lafond R,Olsson P,SchipP /Er K.(2002).The Market Pricing of Earnings Quality. From http: / /www.ssrn.com.
Dhaliwal Dan , Zhenli Olive. (2008).Earning quality and the market response to dividend surprise. from www.ssrn.com.
Ebrahimi, Seyyed Kazem; Ali Bahrami Nesab and Reza Mamashli, 2016, Investigating the effect of financial crisis on profit smoothing, Second International Conference on Accounting, Economics and Financial Management, Shahrekord, Payam Noor University, Shahrekord branch.
Eckel, N (1981). “The Income Statement Hypothesis Revisited” Abacus, 11, pp. 1-21.
Fiet , J.O. (1995). Reliance upon Information in the Venture Capital Industry.
Firouzeh, Daoud and Samia Goldipour, 2015, investigation of the relationship between management overconfidence and profit smoothing in companies listed on the Tehran Stock Exchange, Iran-Malaysia International Conference on Management and Dynamic Economy, Malaysia-Penang Island USM University, Iran Modern Education Development Center (METANA).
Habibi, Hamidreza; Rasool Naimpour and Mohammad Reza Behzadi, 2016, the relationship between profit smoothing on stock price, stock return, volume of transactions in Tehran Stock Exchange listed companies, Fourth National Conference on Management, Economics and Accounting, Tabriz, East Azerbaijan Industrial Management Organization, Tabriz University.
Haji Gholam Serizdi, Mehdi, 2018, investigating the relationship between profit smoothing and company value in the capital market, the second international conference on modern developments in management, economics and accounting, Tehran, Allameh Khoei Institute of Higher Education (RA) - International Company Kush
Huang Pinghsun, Zhang Yan , Deis R.Donald, Moffitt S. Jacquelyn. (2009). Do artificial income smoothing and real income smoothing contribute to firm value equivalently? Journal of Banking& Finance, 33.
Iatridis George. (2010). International Financial Reporting Standards and the quality of financial statement information.International Review of Financial Analysis,19 (2).
Kirschenheiter Michael and Melumad Nahum ,( 2004 ). Earnings' quality and smoothing. From www.ssrn.com.
Li, S., & Richie, N. (2016). Income smoothing and the cost of debt. China Journal of Accounting Research, 9(3), 175-190.
Moradi, Zahra and Melika Nabati, 2016, the effect of profit smoothing on the risk of falling stock prices, the first national conference on the role of accounting, economics and management, Tabriz, Shams Institute of Higher Education of Science and Technology.
.Muslimi, Seyyedsifullah; Ahmad Ghorqanlou and Saadi Samadi, 201