Income Smoothing, Information Uncertainty, Stock Returns, and Cost of Equity

Persistent Link:
http://hdl.handle.net/10150/195458
Title:
Income Smoothing, Information Uncertainty, Stock Returns, and Cost of Equity
Author:
Chen, Linda H.
Issue Date:
2009
Publisher:
The University of Arizona.
Rights:
Copyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author.
Abstract:
This dissertation examines the effect of income smoothing on information uncertainty, stock returns, and cost of equity. Following existing literature, I construct two income smoothing measures - capturing income smoothing through both total accruals and discretionary accruals. I show that income smoothing tends to reduce firms' information uncertainty, as measured by stock return volatility, analyst forecast dispersion, and analyst forecast error. Further, I provide evidence that market prices income smoothing and rewards income smoothing firms with a premium. Controlling for unexpected earnings shocks and other firm characteristics, income smoothing firms have significantly higher abnormal returns around earnings announcement. Finally, I show that income smoothing, particularly through discretionary accruals, reduces firms' implied cost of equity.
Type:
text; Electronic Dissertation
Keywords:
Earnings announcement returns; Implied cost of equity; Income smoothing; Information uncertainty
Degree Name:
Ph.D.
Degree Level:
doctoral
Degree Program:
Accounting; Graduate College
Degree Grantor:
University of Arizona
Committee Chair:
Dhaliwal, Dan S.

Full metadata record

DC FieldValue Language
dc.language.isoENen_US
dc.titleIncome Smoothing, Information Uncertainty, Stock Returns, and Cost of Equityen_US
dc.creatorChen, Linda H.en_US
dc.contributor.authorChen, Linda H.en_US
dc.date.issued2009en_US
dc.publisherThe University of Arizona.en_US
dc.rightsCopyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author.en_US
dc.description.abstractThis dissertation examines the effect of income smoothing on information uncertainty, stock returns, and cost of equity. Following existing literature, I construct two income smoothing measures - capturing income smoothing through both total accruals and discretionary accruals. I show that income smoothing tends to reduce firms' information uncertainty, as measured by stock return volatility, analyst forecast dispersion, and analyst forecast error. Further, I provide evidence that market prices income smoothing and rewards income smoothing firms with a premium. Controlling for unexpected earnings shocks and other firm characteristics, income smoothing firms have significantly higher abnormal returns around earnings announcement. Finally, I show that income smoothing, particularly through discretionary accruals, reduces firms' implied cost of equity.en_US
dc.typetexten_US
dc.typeElectronic Dissertationen_US
dc.subjectEarnings announcement returnsen_US
dc.subjectImplied cost of equityen_US
dc.subjectIncome smoothingen_US
dc.subjectInformation uncertaintyen_US
thesis.degree.namePh.D.en_US
thesis.degree.leveldoctoralen_US
thesis.degree.disciplineAccountingen_US
thesis.degree.disciplineGraduate Collegeen_US
thesis.degree.grantorUniversity of Arizonaen_US
dc.contributor.chairDhaliwal, Dan S.en_US
dc.contributor.committeememberTrombley, Mark A.en_US
dc.contributor.committeememberBens, Daniel A.en_US
dc.contributor.committeememberLi, Zhenen_US
dc.identifier.proquest10276en_US
dc.identifier.oclc659750889en_US
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