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How does market value earnings smoothing under uncertainty?

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  • Minhua Yang
  • Hui Zhu

Abstract

Evidence on whether smoothing earnings creates value remains inconclusive. This article examines the role of market uncertainty in the relationship between corporate earnings smoothing and stock returns. We find that firms with smoother earnings are viewed favourably by stockholders. However, taking into consideration the uncertainty factor, we find that market uncertainty has negative impact on the stock returns when managers smooth earnings. The results are robust to alternative measures of earnings smoothing and to subsample analyses. The results also provide supportive evidence on the importance of market uncertainty in information processing.

Suggested Citation

  • Minhua Yang & Hui Zhu, 2014. "How does market value earnings smoothing under uncertainty?," Applied Financial Economics, Taylor & Francis Journals, vol. 24(20), pages 1335-1345, October.
    • Handle: RePEc:taf:apfiec:v:24:y:2014:i:20:p:1335-1345
    DOI: 10.1080/09603107.2014.925060
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    References listed on IDEAS

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    Cited by:

    1. Annette Hofmann & Nicos A. Scordis, 2018. "Challenges in Applying Risk Management Concepts in Practice: A Perspective," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 21(2), pages 309-333, September.

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