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The purpose of this paper is to investigate whether income smoothing helps to reduce volatility in reported earnings and which firms are more inclined to be engaged in income smoothing.

The authors used negative correlation between pre-managed earnings of a firm and its discretionary accruals (DAs) as proxy for income smoothing and the firms having more negative correlation coefficient are expected to have lower volatility in their reported earnings. The authors used Kothari et al.’s (2005) version of modified-Jones model to estimate DAs and used least squares estimations to investigate the research questions using six-year (2007-2012) sample of non-financial firms listed over Karachi Stock Exchange, Pakistan.

The authors found that firms experiencing more volatility in economic activities and smaller firms are more aggressively involved in income smoothing. Moreover, a predominant majority (72.2 per cent) of firms in the sample are involved in income smoothing through accruals manipulation. Also, the authors found that firms which are more aggressively involved in income smoothing have lesser volatility in reported earnings. Lastly, the level of DAs per se does not have any impact on income smoothing.

The proxy used for income smoothing, though the authors consider it to be better, is not the only one used in literature and the sample is limited to Pakistan.

This study adds to earnings management literature by providing evidence on extensive accrual manipulation for income smoothing in Pakistan.

This paper seeks to examine the risk relevance of fair value income measures under IAS 39 and IAS 40.

The study sample comprises Jordanian insurance companies. Data were collected from two main sources: Jordanian insurance companies' annual reports, and the official website of the Amman Stock Exchange. The study begins by investigating the volatility of four income measures, calculated by including and excluding holding gains or losses of financial instruments and property investments. Then it examines the association between its four income volatility measures and one stock market‐based risk factor, in order to provide evidence on the risk‐related information content of each income volatility measure.

Income based on fair values reflects income volatility more than historical cost‐based income. It is also found that income is (not) more volatile with the recognition of unrealized fair value gains/losses on financial instruments (investment property). Results of assessing the relative explanatory power of income volatility measures suggest that not all fair value income volatility measures can be a good proxy of the total risk. On the contrary, none of our income volatility measures provides significant incremental risk‐relevant information for total risk.

Most prior studies have focused on the value relevance of fair value accounting in Western developed countries, and mainly in the banking sector. This study makes a significant contribution to existing knowledge via exploring the applications of fair value accounting by insurance companies and investigating the implications of mark‐to‐market on risk, instead of share price, in an emerging country – Jordan. The findings of this study are useful to researchers and capital‐market participants interested in explaining accounting and market risk measures.

This paper aims to examine how the volatility of foreign direct investment (FDI) inflows affects the volatility of corporate income tax revenue.

The study has used an unbalanced panel data set of 129 countries over the period 1981–2016 and the two-step system generalized methods of moment approach to perform the empirical analysis.

The main findings are that FDI volatility enhances the volatility of corporate income tax revenue in less advanced economies, but reduces it in relatively advanced countries. The positive corporate income tax revenue volatility effect of FDI inflows is far higher in non-tax haven countries than in tax haven countries. Additionally, FDI volatility exerts a higher positive effect on corporate income tax revenue volatility as countries experience greater dependence on natural resources. Finally, the positive effect of FDI volatility on corporate income tax revenue volatility is further amplified by higher FDI volatility.

One important limitation of the present analysis is the use of aggregate FDI inflows because of the lack of data over a long period on greenfield FDI inflows and cross-border mergers and acquisitions FDI inflows. Therefore, an avenue for future research could be to explore separately the effect of the volatility greenfield FDI inflows and the volatility of cross-border mergers and acquisitions FDI inflows on the volatility of corporate income tax revenue, when long-time series data (covering many countries) would be available.

These outcomes particularly shed light on the role of FDI volatility on the volatility of corporate income tax revenue, particularly in countries that are highly dependent on natural resources. Foreign capital flows, notably FDI flows, play an essential role for countries’ economic development through, inter alia, technology transfer, jobs creation and economic growth. Policymakers should aim to attract FDI, while also reducing their volatility, by designing and implementing policies and measures (such as those in favor of business environment improvement, property rights enforcement and political stability) that would assure foreign investors of the continuous high returns of their investments.

To the best of the author’s knowledge, this is the first time this topic is being addressed empirically in the literature.

Farm income in the agricultural sector is susceptible to natural and market risks. A large body of literature has studied the effects of cooperative membership on household welfare, technical efficiency, productivity and production behavior, yet little has been known about the impact of cooperative membership on farm income volatility. This paper aims to fill this research gap by investigating the relationship between cooperative membership and farm income volatility of Chinese pig farmers and drawing policy implications.

This paper examines the effect of cooperative membership on farm income volatility, using data from a two-round survey of pig farmers in China. The authors employ an endogenous switching regression model to address the selection bias issues associated with unobserved factors simultaneously affecting farmers' participation in agricultural cooperatives and income earning activities.

Using household panel from a two-round survey of 193 pig farmers in China, this analysis highlights two key findings: (1) agricultural cooperative membership has significant and positive effect on farm income stability and (2) the impact of cooperative membership on farm income stability varies with production scale.

This research makes two contributions to the literature. First, this study contributes to the scant literature exploring the relationship between agricultural cooperatives and farm income stability. Second, to the best of the authors' knowledge, this is the first study that explores such relationship in a livestock sector. The pig sector in China and around the developing world has been increasingly challenged by multifaceted risks (e.g. price fluctuations, epidemic diseases, environmental regulations), and understanding the role of agricultural cooperatives in farm income stability of pig farmers is of great practical and policy significance.

The purpose of this paper is to examine the factors affecting the relative variability in farm and off‐farm income for Canadian farm operators.

Variability of farm and off‐farm income is analyzed using a dataset of 17,000 farm operators from 2001 to 2006. Relative ranking of the coefficients of variation (CV) for farm and off‐farm income are compared across farm types and are regressed against factors conditioning the variations.

Greater reliance on farm income results in lower (greater) relative variability in farm (off‐farm) income. Larger commercial operations experience larger farm income volatility because they are less risk averse or they can manage more risk. Diversification and off‐farm employment appear to be risk management strategies for commercial operations.

Government payments have a small, positive effect on farm and off‐farm income variability, indicating this support leads farmers to take on more risky activities and/or reduce the use of self‐insurance activities. Results could also be due to the lag between the time of the income reduction and the time in which the aid is received. Further research is necessary to decipher the effects of government support on farm decisions.

The results on relative variation in the farm and off‐farm income across farm type raises questions about whether government programs should target specific operations.

While income variation remains a focus of public policy, factors affecting its variability are not well‐understood. Studies have examined the level of farm income and the decision to participate in off‐farm employment but none has examined the variance in both income sources.

The purpose of this paper is to empirically examine the impact of financial integration on macroeconomic volatility for developing and emerging economies of Asia.

The effects of financial integration and dynamics of macroeconomic volatility over time and across different groups of Asian economies vis-à-vis advanced economies are investigated using four different variables such as consumption, output, income and the ratio of consumption to income. Further, an empirical link between the degree of international financial integration and macroeconomic volatility for Asian economies is econometrically investigated using generalized method of moments (GMM) system one-step estimator.

Macroeconomic volatilities of per capita output and consumption growth tend to be lower for advanced economies compared to Asian economies. The computed cross-sectional median of the volatility of consumption, output, income and the ratio of consumption volatility to income suggested that the volatility of advanced economies is lower compared to all the regions of Asia. GMM results suggested that the financial openness, trade openness and broad money are negatively and significantly associated with macroeconomic volatility whereas inflation is positively and significantly associated with macroeconomic volatility but the magnitude of trade openness is found to be negligible.

The present study has not included the effects of other country-specific variables (such as fiscal policy volatility) and other external factors to understand macroeconomic volatility.

High integration of economies promote economic growth, reduce macroeconomic volatility and reduce vulnerability to external shocks. This implies that policy makers should thrive to reform and create institutional infrastructure to deepen the integration.

The paper is an important empirical contribution toward examining the effects of financial integration on dynamics of macroeconomic volatility for a large number of Asian developing and emerging economics over time and across different groups using recent data and latest analytical framework and techniques.

This paper seeks to revisit the highly debated trade‐growth hypothesis by considering the effects of trade and output volatility on the relationship between trade and economic growth.

The relationship is modeled by testing for the existence of output and trade (export and imports separately) using the conditional variances of the variables and then specifying an autoregressive conditional heteroskedastic (ARCH) process in a vector error correction model.

Using Singapore as a case study, the paper finds the two‐way relationship between export growth and trade‐adjusted GDP growth is robust even after controlling for the effects of income and export volatility. In addition, neither trade nor GDP volatility bears any impact on the bi‐directional causality between imports and unadjusted GDP growth thereby highlighting the crucial role of imports as intermediate inputs and embodying foreign technology in promoting economic growth. There is also evidence that output volatility impedes output and trade growth, while trade volatility exerts a negative influence on the trade‐adjusted income growth.

Ignoring the presence of trade and output volatility in modeling the trade‐growth relationship provides biased empirical results which have serious implications for trade‐oriented growth strategies that policy makers cannot afford to ignore.

This is the first attempt to explicitly model output, export and import volatility in empirically testing the trade‐growth hypothesis. Second, the robustness of the hypothesis is also tested by considering GDP and non‐trade GDP as it has been argued that use of GDP may lead to the problems of simultaneity and specification bias since exports and imports are themselves a component of GDP.

The purpose of this paper is to determine a financial institution's optimal hedging degree under consideration of costly earnings volatility induced by fair value accounted derivatives. The discussion on the adoption of fair value accounting in the financial industry has been rather controversial in recent years. Under this accounting regime, the change in market values of specific assets must be considered as profit or loss. Critics argue that fair value accounting induces higher earnings volatility compared to historical cost accounting and, therefore, may initiate a downward spiral during recessions. Thus, increased earnings volatility induces costs, which can be explained by disappointed capital market expectations. Consequently, in general, a lowering of earnings volatility will be rewarded. Consistent with this theoretical finding, empirical research provides strong evidence that companies pursue income smoothing to reduce earnings volatility. In contrast to industrial corporations, financial institutions may easily reduce their earnings volatility by engaging in additional hedging activities. However, more intense hedging usually reduces expected profits.

Based on a research project initiated by a large German bank, this study quantitatively models the trade-off between the (utility of) costs of earnings volatility and the reduction of profit potential through additional hedging.

By conducting sensitivity analyses and simulations of the crucial factors of the trade-off, we examine relevant causal relationships to obtain first indications about the economic benefits of income smoothing.

To the best of our knowledge, we are the first to develop an optimization model that supports decision-making by attempting to determine an optimal (additional) hedging degree considering the costs induced by earnings volatility.

The purpose of this study is to evaluate the impact of ASU 2016–01 on the predictive value, the confirmatory value and the value relevance of earnings. One of the key provisions of ASU 2016–01 is the requirement that all changes in unrealized gains and losses on all equity securities are recognized in income instead of other comprehensive income (OCI) as under prior guidance (SFAS 115). Because many companies in the insurance industry are large holders of equity securities, the sample for this study consists of firms from the insurance industry.

The author compares the change in earnings volatility and analysts’ forecast error for the periods before and after adoption of ASU 2016–01, and the relationship between the percentages of assets invested in equity securities for both earnings volatility and analysts’ forecast error. Further, the author tests the price reaction at the time of the release of earnings using an event study. The author also tests the value reliance of earnings measured by the correlation of earnings and stock prices, as well as the change in earnings and stock returns. The association between investment gain/loss components of earnings, and OCI, with stock prices and returns is tested for value relevance.

The findings of this study show that earnings volatility and analysts’ forecast errors increased in the period after adopting ASU 2016–01 and an initial overreaction to earnings releases. Further, the investment gain/loss components of earnings and OCI are not value-relevant in this study and including unrealized gains/losses on equity securities in income decreased value relevance of earnings in the post-adoption period, particularly for firms with large equity investment portfolios.

This study is limited to one industry and only represents the impact of ASU 2016–01 on that industry. Thus, there are opportunities to extend the research to other industries. Furthermore, the time-period of study since adopting ASU 2016–01 is limited to only two years and with the passage of time, a greater sample of post-ASU 2016–01 will be available for testing.

Standard setters considering recognizing fair value changes on all investment securities in income should consider the findings of this study. Further, industry participants affected by ASU 2016–01 should consider improving explanation of earnings to mitigate the initial misunderstanding of earning announcements found in this study.

To the best of the author’s knowledge, this is the first study on the effects of ASU 2016–01 on volatility of earnings, earnings forecast errors, market reactions to earnings releases and the value relevance of earnings. This paper fills a gap in prior research by studying the effects of fair value on reported earnings, which is limited in prior research. This study contributes to the growing field of research on fair value accounting.

Many developing countries are pursuing policies that foster international financial integration after decades of financial repression. Greater access to foreign financial markets may have both positive and negative impact on the performance of the economy. One of the concerns of international financial integration is macroeconomic volatility which may affect both monetary and real sectors. Zimbabwe has chosen to pursue a financial liberalization strategy in the form of imperfect financial integration following periods of excessive domestic shocks. An upsurge of capital flows since the epic of economic crisis in the 2000s has been observed with varying macroeconomic impacts. This study empirically examines the impact of partial international financial integration on the volatility of macroeconomic variables.

The study utilized an ARDL Model suggested by Pesaran et al., (2003) which is appropriate for short time periods.

The results show that financial integration has a negative effect on output volatility while insignificant on consumption volatility.

The study recommends that the country should gradually liberalize the capital account and properly sequence financial development reforms in order to minimize losses from global financial integration.

The study used time series for Zimbabwe during a period of external imbalance, repeated economic cycles, sudden stops in capital flows and limited scope of imperfect financial integration. Findings in such an economy will be a referral for policymakers in other economies that would want to pursue international financial integration.