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Corporate net income smoothing: A variance decomposition approach

Author

Listed:
  • Renzi, Antonio
  • Taragoni, Pietro
  • Vagnani, Gianluca

Abstract

This study introduces an enriched framework depicting the channels through which managers can mitigate sales shock impacts on firm net income and dividends. Employing variance decomposition, this study provides insights into the proportion of sales shocks absorbed through different firm-level net income smoothing channels. We control for the nature (positive vs. negative) and duration (persistent vs. transitory) of sales shocks. Our findings offer significant insights into income and dividend smoothing. Research implications for theory and practice are further explored.

Suggested Citation

  • Renzi, Antonio & Taragoni, Pietro & Vagnani, Gianluca, 2024. "Corporate net income smoothing: A variance decomposition approach," Finance Research Letters, Elsevier, vol. 69(PA).
    • Handle: RePEc:eee:finlet:v:69:y:2024:i:pa:s1544612324010717
    DOI: 10.1016/j.frl.2024.106041
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    More about this item

    Keywords

    Sales shocks; Net income smoothing channels; Net income and dividend smoothing; Variance decomposition approach; Risk transfer;
    All these keywords.

    JEL classification:

    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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