Performance measures quality and value relevance in flow-through organisational structures: the case of Canadian income trusts
AbstractIncome trusts are rapidly emerging as a key force in Canadian capital markets and their unit market capitalisation exceeded 300 billion Canadian dollars by early 2008. One of the peculiarities of income trusts is that GAAP-derived measures, such as earnings, are replaced by non-GAAP measures, such as distributable income, as performance benchmarks. Hence, the need to pay investors a stable distribution motivates income trust managers to engage in distribution-based earnings management. Two research questions are addressed. Firstly, do income trusts use discretionary accruals to smooth EBITDA and, presumably, cash distributions to unit-holders? Secondly, do investors see through EBITDA smoothing? Our findings document that the EBITDA target deviation influences an income trust's accruals behaviour. Consistent with prior studies in dividend-focused environments, our results also suggest that investors may value positively discretionary accruals if they allow income trusts to maintain their cash distributions.
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Bibliographic InfoArticle provided by Inderscience Enterprises Ltd in its journal Int. J. of Accounting, Auditing and Performance Evaluation.
Volume (Year): 4 (2007)
Issue (Month): 6 ()
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Web page: http://www.inderscience.com/browse/index.php?journalID=41
cash distributions; earnings management; income smoothing; income trusts; non-GAAP measures; performance measures; quality; value relevance; organisational structure; Canada; capital markets; discretionary accruals.;
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