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Income smoothing: measuring, relevance and incentives

Grant number: 17/14504-1
Support type:Scholarships abroad - Research
Effective date (Start): January 01, 2018
Effective date (End): June 30, 2018
Field of knowledge:Applied Social Sciences - Administration - Accounting
Principal Investigator:Marcelo Botelho da Costa Moraes
Grantee:Marcelo Botelho da Costa Moraes
Host: Rodrigo dos Santos Verdi
Home Institution: Faculdade de Economia, Administração e Contabilidade de Ribeirão Preto (FEARP). Universidade de São Paulo (USP). Ribeirão Preto , SP, Brazil
Local de pesquisa : Massachusetts Institute of Technology (MIT), United States  

Abstract

In the economic environment, resource scarcity and high competitiveness, information asymmetry is one of the main problems in decision making. In order to reduce this informational asymmetry, accounting has a fundamental role, but the contribution of the financial statements is associated with the quality of the accounting information, especially the quality of the reported profits. There are incentives for managers to manage earnings, especially in the form of discretionary accruals. Among the earnings management the income smoothing, also known as earnings smoothing stands out. Smoothing practices are associated with the objectives of reducing the volatility of profits, however, there is no consensus on the effects of these practices, if they generate an increase or a reduction in the quality of accounting information. To better analyze this problem, this research project presents some research hypotheses that aim to better understand the measurement, in the form of the improvement of identification of income smoothing metrics, its relation with the quality of the accounting information and the incentives associated with the firms, looking for a higher or lower level of smoothing. This proposal seeks the application of regression models with panel data of North American firms, in an environment with high number of firms and variability of incentives, and Brazilian firms, with recent changes in accounting standards and few incentives for information quality.