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The purpose of this paper is to investigate whether income smoothing does indeed improve the informativeness of stock prices about firms' future earnings and cash flows. Also an approach to studying the effects of income smoothing is presented.

This study uses data from 1992‐2006 and runs regressions on each of the 560 industry‐year cross‐sections. The data compiled from the financial statements of firms were collected for each year available from the Tehran Stock Exchange database. Income smoothing is defined as the management of accruals to reduce time‐series variation in income, and uses a cross‐sectional version of the Jones model, modified by Kothari, Leone and Wasley. Smoothing is measured as the variation of net income relative to the variation in CFO, or the correlation between changes in accruals and changes in CFO. Informativeness is measured as the coefficient on future earnings (cash flows) in a regression of current stock return against current and future earnings (cash flows and accruals).

The findings suggest that income smoothing enhances the information content of the effect of stock price on future earnings, thus improving the ability of market participants to make informed decisions about the allocation of capital resources.

Although previous research on the subject of income smoothing in an emerging market has been documented, its effect on stock prices efficiency is largely unknown. Thus, this paper presents an approach to studying the effects of income smoothing and the knowledge that the ability to manage earnings could improve stock prices efficiency could be useful for academics and policymakers in this market.

Purpose: In this chapter, the author evaluates the association between bank loan loss provisions (LLP) and the pre-provisions earnings of UK banks during the first-wave of the COVID-19 pandemic. A positive co-movement between the two variables indicates income smoothing.

Methodology: Graphical analysis, correlation analysis and regression analysis are used to assess the relationship between income smoothing and bank provisions among UK systemic banks.

Findings: The findings show that LLP have an inverted V-shaped property during the first-wave of COVID-19 pandemic. LLP reached its highest level at the peak of the pandemic in Q2 2020 and declined in the subsequent quarters. The regression results show that LLP are positively related to pre-provisions earnings during the pandemic quarters and in the pre-pandemic quarters. The relationship is stronger in the pandemic quarters and indicates higher income smoothing in the pandemic quarters. The correlation results also show a strong positive correlation between bank provisions and pre-provisions earnings in the pandemic period. In the individual bank analysis, three of the four systemic banks exhibit higher income smoothing during the pandemic quarters.

Implication: UK systemic banks engaged in earnings management as a coping mechanism to mitigate the effect of the pandemic on their profits.

Need for the study/originality: This chapter is the first to provide a preliminary analysis of income smoothing among banks during the early stages of the COVID-19 pandemic.

This study examines the impact of competition and concentration on bank income smoothing in Central and Eastern European (CEE) countries.

The two-step system GMM method was used to analyse the impact of competition and concentration on bank income smoothing in 17 CEEs from 2004 to 2015.

Loan loss provisions (LLPs) are negatively related to bank competition and concentration. The authors find no evidence for income smoothing using LLPs in a high-competition or high-concentration environment.

A limitation of the study is that the analysis was restricted to commercial banks. The authors did not examine investment banks or microfinance banks in this study. Also, not having access to databases does not allow them to include recent years in the study.

CEE commercial banks will likely keep fewer provisions or engage in under-provisioning when they face intense competition, and this can expose them to credit risk, which may threaten their stability.

This study is the first to investigate the effect of concentration and competition on income smoothing among CEE banks.

The purpose of this paper is to examine the impact of short sale prospect on future income smoothing.

This study examines how short sale prospect impacts future income smoothing. This study follows prior research and uses two measures of income smoothing. One is the correlation between the change in prediscretionary income and the change in discretionary accruals. The other is the variability of earnings relative to the variability of cash flows.

This study finds that short sale prospect has a negative impact on future income smoothing. This finding is robust to use different measures of short sale prospect and income smoothing and to subsample tests. Additional analysis reveals that short sale prospect, by curbing income smoothing, reduces future stock price crash risk.

To the best of the authors’ knowledge, this study is the first to examine the impact of short selling on firms’ subsequent smoothing of reported income. This study contributes to the earnings quality literature by demonstrating the governance role of short selling on future earnings smoothness.

This paper aims to examine the association between income smoothing and the cost of debt in two different countries, namely, the UK and Nigeria.

The authors used a sample from listed firms in the UK and Nigeria during 2000–2019. The study hypotheses are examined by implementing quantitative methods, including panel regression analysis, cross-sectional regression analysis and parametric independent samples t-test.

The results reveal that Nigerian companies have a substantially higher cost of debt and are more active in using income-smoothing practices. However, the relationship between income smoothing and the cost of debt is not found to be statistically significant in both countries. Besides, the results of this study show that financial leverage, profitability, company size and asset turnover are significantly associated with the cost of debt.

The study contributes to the existing literature by providing new insights concerning the contrast between developed and developing countries in financial and reporting issues.

The purpose of this paper is to assess the practice of income smoothing in the Gulf Cooperation Council (GCC) emerging markets; Saudi Arabia, Kuwait, United Arab Emirates, Oman and Qatar. Then, to examine the impact of income smoothing on the earnings quality to decide whether income smoothing can serve as either a tool to enhance earnings quality or a tool for opportunistic behavior. Audit quality and corporate governance as additional factors are considered in this study.

The study methodology measures income smoothing behavior based on the coefficient of variation method. Earnings quality is measured as an outcome of the explained variations in stock returns by earnings based on the efficient market hypothesis. Audit quality is measured based on brand as higher quality assigned to auditor from any of the Big 4, while the corporate governance is addressed based on the extent of governmental ownership. The initial study sample comprises 55 companies over a ten year period, from 1999 to 2008; the final sample represents approximately 64 percent of the industrial sector that have public data during the study.

The results suggest that income smoothing behavior in the GCC markets has many variations in practice. Income smoothing, on average, improves earnings quality in three countries out of four, but not significantly for the whole sample based on earnings level. The earnings changes model demonstrated a positive and significant impact of income smoothing on earnings quality. Audit quality and earnings quality have a positive relationship within the region, and companies dominated by the government perform well in accordance with the earnings-return model.

The study is limited to the industrial sector of the GCC.

The study opens the door to future applications to other sectors within the GCC, same sectors and other sectors for Middle East countries and other emerging markets.

The study may foster a better understanding of accounting practices in the GCC and Middle East. The study reveals variations in different aspects among GCC countries, this matter should be considered in separate studies across different areas.

The study makes an original contribution to being the first to explore this topic in the GCC. Additionally, this study shows that the GCC markets have different characteristics in the practice and impact of income smoothing on earnings’ quality. Further, audit quality and corporate governance was investigated for each country and for the region, in addition to the interaction between these factors with the income smoothing and earnings quality.

This study aims to examine the impact of income smoothing on the value of firms in a regulated security market, moderated by market risk. This is based on the prevalence of accounting scandals resulting in the collapse of firms which has been attributed to the opportunistic behaviors of managers.

The ex post facto research design was employed, and as such, data were gathered from secondary sources. The quantitative approach was also used in the study. Furthermore, the system generalized method of moments (Blundell–Bond) panel estimation technique was used for analyzing the data. Income smoothing was measured using the accrual based methods, while firm value was measured using share price.

The study found that income smoothing has a negative significant impact on firm value. The study also revealed that market risk is a significant variable that defines the relationship between income smoothing and firm value.

Testing the moderating effect of market risk on the relationship between income smoothing and firm value is unique to this study, particularly from a regulated security market and emerging economy.

This study examines the rarely investigated association between institutional ownership and income smoothing. The results support the predicted positive association between institutional ownership and the likelihood of firms smoothing earnings towards their earnings trend in general. However, this association is not systematic across all firms. The positive association is most evident among profit firms with pre‐managed earnings above their earnings trend. No significant association is found for profit firms with pre‐managed earnings below their earnings trend and loss firms in general. This study also finds that, in Australia, while institutional ownership has a non‐linear association with income increasing earnings management (Koh, 2003), such association manifests itself within the income smoothing framework. The results of this study highlight the complexities in the association between institutional ownership and earnings management strategies, and future research can benefit by explicitly examining the trade‐offs between alternative earnings management incentives and the factors that affect the relative strength of these incentive trade‐offs.

This paper examines the determinants of bank income smoothing using loan loss provisions in the United Kingdom or Great Britain from 1999 to 2017.

The study used ordinary least square (OLS) regression and applying the HAC robust standard error correction test.

The findings showed that UK banks use loan loss provision for income smoothing purposes. Income smoothing is greater in times of high economic policy uncertainty. The extent of bank income smoothing is reduced by foreign bank presence, UK GAAP adoption, IFRS9 adoption, and high levels of voice and accountability. Also, there is reduced income smoothing using loan loss provisions during a financial crisis and in periods of economic prosperity.

The implication is that economic conditions, institutional governance and accounting disclosure rules can influence the extent of bank income smoothing in the United Kingdom. The findings of the study contribute to several studies that explore the determinants of bank income smoothing.

No study has extensively examined the determinants of bank income smoothing in Great Britain or the United Kingdom. The present study fills this gap in the literature.

Accounts manipulation has been the subject of research, discussion and even controversy in several countries including the USA, Canada, the U.K., Australia, Finland and France. The objective of this paper is to provide a comprehensive review of the literature and propose a conceptual framework for accounts manipulation. This framework is based on the possibility of wealth transfer between the different stake‐holders, and in practice, the target of the manipulation appears generally to be the earnings per share and the debt/equity ratio. The paper also describes the different actors involved and their potential gains and losses. We review the literature on the various techniques of accounts manipulation: earnings management, income smoothing, big bath accounting, creative accounting, and window‐dressing. The various definitions of all these, the main motivations behind their application and the research methodologies used are all examined. This study reveals that all the above techniques have common elements, but there are also important differences between them.