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Ownership Differences and Firms' Income Smoothing Behavior

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  • Steven J. Carlson
  • Chenchuramaiah T. Bathala

Abstract

This paper examines the association between differences in ownership structure and income smoothing behavior in firms. The underlying constructs affecting this association include agency relationships, managerial incentives, information asymmetry, and firm profitability. A logistic regression model is used to test the association between income smoothing and variables related to inside ownership, institutional holdings, leverage, managerial compensation, profitability, and firm size. The evidence suggests that ownership differences, managers' incentive structures, and firm profitability are important in explaining income smoothing behavior in firms. By separating inside ownership and levels of debt into different levels, we are able to show the existence of a non‐monotonic relationship between ownership differences and firms' income smoothing behavior.

Suggested Citation

  • Steven J. Carlson & Chenchuramaiah T. Bathala, 1997. "Ownership Differences and Firms' Income Smoothing Behavior," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(2), pages 179-196, March.
    • Handle: RePEc:bla:jbfnac:v:24:y:1997:i:2:p:179-196
    DOI: 10.1111/1468-5957.00101
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    Cited by:

    1. Guilong Cai & Wenfei Li & Zhenyang Tang, 2020. "Religion and the Method of Earnings Management: Evidence from China," Journal of Business Ethics, Springer, vol. 161(1), pages 71-90, January.
    2. Prior, Diego & Surroca Aguilar, Jorge & Tribo Gine, José Antonio, 2007. "Earnings management and corporate social responsibility," DEE - Working Papers. Business Economics. WB wb062306, Universidad Carlos III de Madrid. Departamento de Economía de la Empresa.
    3. Wilkins, Trevor, 2002. "Discussion of "Earnings management of seasoned equity offerings in Korea"," The International Journal of Accounting, Elsevier, vol. 37(1), pages 85-88.
    4. Jeong‐Bon Kim & Jeff J. Wang & Eliza Xia Zhang, 2021. "Does real earnings smoothing reduce investors’ perceived risk?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(9-10), pages 1560-1595, October.
    5. Juha Mäki & Antonio Somoza-Lopez & Stefan Sundgren, 2016. "Ownership Structure and Accounting Method Choice: A Study of European Real Estate Companies," Accounting in Europe, Taylor & Francis Journals, vol. 13(1), pages 1-19, April.
    6. Chen, Ching-Lung & Weng, Pei-Yu & Fan, Hung-Shu, 2023. "Exploring the role of excess control rights on real earnings management in family-controlled firms," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 50(C).

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