Work

Earnings Smoothing, Cash Flow Volatility, and CEO Cash Bonus

Year: 2013

Type: article

Abstract: Prior studies generally relate managers’ decisions to smooth earnings to their desire to maximize their overall compensation and to smooth their consumption. However, earnings smoothing could also be driven by the firm's expected benefits from reporting a smooth earnings stream. Our paper provides empirical support for the latter explanation of earnings smoothing. Specifically, we find that while CEO bonus on average increases with earnings smoothing, the increase is larger when the firm's cash flow volatility is higher. Further, CEO bonus is shielded from the negative effects of lower earnings arising from the need to report a smoother earnings stream.

Source: Financial Review

DOI: 10.1111/j.1540-6288.2012.00349.x

Authors: Somnath Das, Keejae Hong, Kyonghee Kim

Institutions: University of Illinois Chicago, University of North Carolina at Charlotte, University of Missouri

Language: English

Topic: Auditing, Earnings Management, Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: green

OpenAlex ID: W3122830724

FWCI: 7.76

Cites: 58

Cited by: 29

Related to: 10