Dissertation/Thesis Abstract

Income smoothing, information uncertainty, stock returns, and cost of equity
by Chen, Linda H., Ph.D., The University of Arizona, 2009, 66; 3352630
Abstract (Summary)

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.

Indexing (document details)
Advisor: Dhaliwal, Dan S.
Commitee: Bens, Daniel A., Li, Zhen, Trombley, Mark A.
School: The University of Arizona
Department: Accounting
School Location: United States -- Arizona
Source: DAI-A 70/04, Dissertation Abstracts International
Subjects: Accounting, Finance
Keywords: Earnings announcement returns, Implied cost of equity, Income smoothing, Information uncertainty
Publication Number: 3352630
ISBN: 978-1-109-10530-8
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