This dissertation examines the effect of income smoothing on information uncertainty, stock returns, and cost of equity. Following existing literature, I construct two income smoothing measures - capturing income smoothing through both total accruals and discretionary accruals. I show that income smoothing tends to reduce firms' information uncertainty, as measured by stock return volatility, analyst forecast dispersion, and analyst forecast error. Further, I provide evidence that market prices income smoothing and rewards income smoothing firms with a premium. Controlling for unexpected earnings shocks and other firm characteristics, income smoothing firms have significantly higher abnormal returns around earnings announcement. Finally, I show that income smoothing, particularly through discretionary accruals, reduces firms' implied cost of equity.
| Identifer | oai:union.ndltd.org:arizona.edu/oai:arizona.openrepository.com:10150/195458 |
| Date | January 2009 |
| Creators | Chen, Linda H. |
| Contributors | Dhaliwal, Dan S., Trombley, Mark A., Bens, Daniel A., Li, Zhen |
| Publisher | The University of Arizona. |
| Source Sets | University of Arizona |
| Language | English |
| Detected Language | English |
| Type | text, Electronic Dissertation |
| Rights | Copyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author. |
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