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Extraordinary items and income smoothing: a positive accounting approach

Research output: Contribution to Journal/MagazineJournal articlepeer-review

  • Vivien Beattie
  • Stephen Brown
  • David Ewers
  • Brian John
  • Stuart Manson
  • Dylan Thomas
  • Michael Turner
<mark>Journal publication date</mark>09/1994
<mark>Journal</mark>Journal of Business Finance and Accounting
Issue number6
Number of pages21
Pages (from-to)791-811
Publication StatusPublished
<mark>Original language</mark>English


This is an empirical study of single-period income smoothing which uses an incentives-based model to explain classificatory choices. An index is constructed to measure the smoothing effect of these choices. Weighted least squares regression results indicate that classificatory choices consistent with smoothing are more likely to be observed in firms with high earnings variability, high dividend payout, substantial managerial holdings of share options and diffuse share ownership. The existence of material scope for smoothing strengthens these findings. The model as a whole is statistically significant and, although the proportion of variability in smoothing explained is modest, it compares very favourably with other accounting choice studies. The relationship between smoothing and alternative earnings management strategies, including big bath accounting, is explored.