IDEAS home Printed from https://ideas.repec.org/a/mth/ajfa88/v10y2018i1p131142.html

Earnings Smoothing as Information Signaling or Garbling: A Review of Literature

Author

Listed:
  • Nor Afifah Shabani
  • Saudah Sofian

Abstract

Earnings smoothing, which refers to the action of managers managing earnings to reduce fluctuations of reported earnings, is a special type of earnings management because while earnings smoothing may be used to distort shareholders and creditors’ view of corporate actual performance, it may also serve as a tool to communicate corporate private information of future earnings to the aforementioned stakeholders. Hence, it comes to no surprise when prior literatures reveal that the studies on the role of earnings smoothing are divided into two streams- as information signaling and information garbling. This paper aims to review prior literatures, specifically on the role of earnings smoothing either as information signaling or garbling based on four themes- firm value, financing need, compensation contract and outsiders’ intervention. This paper reviews journal articles gathered from Web of Science database. Based on the shortcomings of prior literatures, this paper highlights avenue for future research.

Suggested Citation

  • Nor Afifah Shabani & Saudah Sofian, 2018. "Earnings Smoothing as Information Signaling or Garbling: A Review of Literature," Asian Journal of Finance & Accounting, Macrothink Institute, vol. 10(1), pages 131142-1311, December.
    • Handle: RePEc:mth:ajfa88:v:10:y:2018:i:1:p:131142
    as

    Download full text from publisher

    File URL: https://www.macrothink.org/journal/index.php/ajfa/article/download/12768/10213
    Download Restriction: no
    File URL: https://www.macrothink.org/journal/index.php/ajfa/article/view/12768
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Mandira Roy Sankar & K. R. Subramanyam, 2001. "Reporting Discretion and Private Information Communication through Earnings," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 39(2), pages 365-386, September.
    2. Abe Jong & Gerard Mertens & Marieke Poel & Ronald Dijk, 2014. "How does earnings management influence investor’s perceptions of firm value? Survey evidence from financial analysts," Review of Accounting Studies, Springer, vol. 19(2), pages 606-627, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Nor Afifah Shabani & Saudah Sofian, 2018. "Earnings Smoothing and Bankruptcy Risk in Liquidating Private Firms," Asian Journal of Finance & Accounting, Macrothink Institute, vol. 10(1), pages 162177-1621, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Anna Görlitz & Michael Dobler, 2023. "Financial accounting for deferred taxes: a systematic review of empirical evidence," Management Review Quarterly, Springer, vol. 73(1), pages 113-165, February.
    2. Sudip Datta & Mai Iskandar‐Datta & Vivek Singh, 2014. "Opaque financial reports and R2: Revisited," Review of Financial Economics, John Wiley & Sons, vol. 23(1), pages 10-17, January.
    3. Yang, Yanjia & Tan, Hun-Tong, 2024. "What you are versus what you do: The effect of noun-verb framing in earnings conference calls," Accounting, Organizations and Society, Elsevier, vol. 113(C).
    4. Hui Dong Kim & Mahsa Behnamrad & Jason Gwanhee Kim & Yong Gyu Lee, 2025. "Societal Trust and Income Smoothing," Australian Accounting Review, CPA Australia, vol. 35(1), pages 27-48, March.
    5. Chen, Zhongdong & Gao, Lei & Olsen, Brett, 2026. "The role of retail investors in the “numbers game”: Retail investor attention and earnings management," Journal of Behavioral and Experimental Finance, Elsevier, vol. 50(C).
    6. Chen, Changling & Kim, Jeong-Bon & Yao, Li, 2017. "Earnings smoothing: Does it exacerbate or constrain stock price crash risk?," Journal of Corporate Finance, Elsevier, vol. 42(C), pages 36-54.
    7. Douglas Shackelford & Joel Slemrod & James Sallee, 2011. "Financial reporting, tax, and real decisions: toward a unifying framework," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 18(4), pages 461-494, August.
    8. Chi-Wen Jevons Lee & Laura Yue Li & Heng Yue, 2006. "Performance, Growth and Earnings Management," Review of Accounting Studies, Springer, vol. 11(2), pages 305-334, September.
    9. Leon Li & Nen-Chen Richard Hwang & Gilbert V. Nartea, 2019. "Effects of Earnings Management Strategy on Earnings Predictability: A Quantile Regression Approach Based on Opportunistic Versus Efficient Earnings Management," Working Papers in Economics 19/09, University of Canterbury, Department of Economics and Finance.
    10. Yim, Andrew, 2013. "Mixture and Continuous 'Discontinuity' Hypotheses: An Earnings Management Model with Auditor-Required Adjustment," MPRA Paper 44702, University Library of Munich, Germany.
    11. Chia-Feng (Jeffrey) Yu, 2017. "Interactive Reporting Bias Surrounding CEO Turnover," European Accounting Review, Taylor & Francis Journals, vol. 26(2), pages 239-282, April.
    12. Antonio Prencipe & Danilo Boffa & Christian Corsi, 2025. "Sustainability‐Oriented Businesses and Earnings Management. What Is the True Relationship? Evidence From Italian Benefit Corporations," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 32(4), pages 4671-4689, July.
    13. Runmei Luo & Yong Ye & Jingxuan Li, 2025. "Shining moments: strategic timing of online earnings communication conference," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 15(2), pages 593-630, June.
    14. Akinobu Shuto & Takuya Iwasaki, 2014. "Stable Shareholdings, the Decision Horizon Problem and Earnings Smoothing," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 41(9-10), pages 1212-1242, November.
    15. Aiyang Yin & Liang Han & Yun Shen, 2025. "Unravelling the enigma: managerial bad news hoarding and financial analyst forecasts," Review of Quantitative Finance and Accounting, Springer, vol. 65(3), pages 1097-1134, October.
    16. Julia D’Souza & K. Ramesh & Min Shen, 2010. "Disclosure of GAAP line items in earnings announcements," Review of Accounting Studies, Springer, vol. 15(1), pages 179-219, March.
    17. Griffin, Paul A. & Hong, Hyun A. & Liu, Yun & Ryou, Ji Woo, 2021. "The dark side of CEO social capital: Evidence from real earnings management and future operating performance," Journal of Corporate Finance, Elsevier, vol. 68(C).
    18. Leon Li & Nen-Chen Richard Hwang & Gilbert V Nartea, 2021. "Earnings management and earnings predictability: A quantile regression approach," Australian Journal of Management, Australian School of Business, vol. 46(3), pages 389-408, August.
    19. Ruichang Lu & Weijia He & Xiaojun Zhang, 2023. "Using Available‐for‐sale Securities to Smooth Earnings: Evidence from China," Abacus, Accounting Foundation, University of Sydney, vol. 59(1), pages 163-196, March.
    20. Chii-Shyan Kuo & Xu Wang & Shih-Ti Yu, 2016. "Investor perception of managerial discretion in valuing stock options: an empirical examination," Review of Quantitative Finance and Accounting, Springer, vol. 47(3), pages 733-773, October.

    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mth:ajfa88:v:10:y:2018:i:1:p:131142. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Technical Support Office (email available below). General contact details of provider: http://www.macrothink.org/journal/index.php/ajfa .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.