A Theory of Income and Dividend Smoothing Based on Incumbency Rents
Abstract"Income smoothing" is the process of manipulating the time profile of earnings or earnings reports to make the reported income stream less variable. This paper builds a theory of income smoothing based on the managers' concern about keeping their position or avoiding interference, and on the idea that current performance receives more weight than past performance when one is assessing the future. When investment is added to the model, so that income reports and dividends can be set independently, we find that both dividends and income reports may be smoothed and that dividends may convey information not present in the income report.
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Bibliographic InfoPaper provided by Harvard University Department of Economics in its series Scholarly Articles with number 3160494.
Date of creation: 1995
Date of revision:
Publication status: Published in Journal of Political Economy
Other versions of this item:
- Fudenberg, Drew & Tirole, Jean, 1995. "A Theory of Income and Dividend Smoothing Based on Incumbency Rents," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 103(1), pages 75-93, February.
- Fudenberg, Drew & Tirole, Jean, 1994. "A Theory of Income and Dividend Smoothing Based on Incumbency Rents," IDEI Working Papers, Institut d'Ã‰conomie Industrielle (IDEI), Toulouse 34, Institut d'Ã‰conomie Industrielle (IDEI), Toulouse.
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