Work

Corporate net income smoothing: A variance decomposition approach

Year: 2024

Type: article

Abstract: This study introduces a comprehensive framework for depicting the channels managers use to mitigate the impact of sales shocks on a firm’s net income. Utilizing a sample of 2,254,805 European companies from 2003 to 2018 and employing a variance decomposition approach, this research provides insights into the proportion of sales shock absorbed through different net income smoothing channels at the firm level. This is achieved by controlling for the sign (positive vs. negative) and type (persistent vs. transitory) of sales shocks. Additionally, our findings offer significant insights into dividend smoothing. Implications of our research for theory and practice are explored.

Source: Finance research letters

DOI: 10.1016/j.frl.2024.106041

Authors: Antonio Renzi, Pietro Taragoni, Gianluca Vagnani

Institution: Sapienza University of Rome

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: hybrid

Estimated APC paid: $3,350