Development of the Income Smoothing Literature 1893-1998: A Focus on the United States

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Overview

This volume describes the development of accounting thought during the twentieth century by focusing on a relatively narrow and long-lived issue, income smoothing.

The task begins with the creation and description of three taxonomies of income smoothing literature in order to identify the context and bounds of the preferences and behavior that are to be the subject of the study. Then a chronological review of English-language literature referring to income smoothing behavior is conducted that covers the period, 1893 through 1998. The review starts with literature discussing secret reserves created so that fat years could pay for lean years and moves to income smoothing as a criterion for accounting choice.

This literature on the smoothing criterion provided motivation for some of the earliest modern empirical studies in accounting. Empirical studies of smoothing have continued at a fairly constant rate since 1966 and make up a substantial portion of the literature review. A modification of the conventional smoothing hypothesis is proposed at the conclusion of the narrative that takes into account some relevant variables that tend to be overlooked because of the fragmentation of the literature. An extensive annotated bibliography and other appendices provide important supplements to the narrative.

This volume describes the development of accounting thought during the twentieth century by focusing on a relatively narrow and long-lived issue, income smoothing.

The task begins with the creation and description of three taxonomies of income smoothing literature in order to identify the context and bounds of the preferences and behavior that are to be the subject of the study. Then a chronological review of English-language literature referring to income smoothing behavior is conducted that covers the period, 1893 through 1998. The review starts with literature discussing secret reserves created so that fat years could pay for lean years and moves to income smoothing as a criterion for accounting choice.

This literature on the smoothing criterion provided motivation for some of the earliest modern empirical studies in accounting. Empirical studies of smoothing have continued at a fairly constant rate since 1966 and make up a substantial portion of the literature review. A modification of the conventional smoothing hypothesis is proposed at the conclusion of the narrative that takes into account some relevant variables that tend to be overlooked because of the fragmentation of the literature. An extensive annotated bibliography and other appendices provide important supplements to the narrative

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Product Details

Table of Contents

Editor's Prologue
1 Introduction 1
Objectives 1
Summary and Role in Earnings Management Research 2
Organization of the Book 5
Definition of Income Smoothing 7
Smoothing Instruments and Tactics 9
Smoothing Objects 9
Taxonomies 10
Scope of the Study and Method of Entry Identification 20
2 Income Smoothing in Accounting and Business Literature Prior to 1954 23
Secret Reserves 24
LIFO and Other Base Stock Inventory Methods 30
Empiricism 34
Hepworth (1953) 37
3 Antecedents of Modern Earnings Management Research: Income Smoothing in Literature, 1954-1965 41
Gordon (1964) 42
Other References to Income Smoothing 47
4 Early Modern Income Smoothing Research, 1966-1981 53
Evidence from Income Smoothing Studies 55
Statistical Properties of Accounting Income, Efficient Markets and Income Smoothing Incentives 57
Some Conceptual Difficulties 64
Regulatory Smoothing and Smoothing by Convention 70
Income Smoothing in Accounting Historical Literature 73
Income Smoothing in the Professional Literature and the Popular Press 74
5 Income Smoothing in Modern Accounting Literature 79
Evidence from Income Smoothing Studies 79
Analytical Modeling and Income Smoothing Research 84
Continuing and Newly Recognized Conceptual Problems 86
Regulatory Smoothing 90
Smoothing in Professional Literature and the Popular Press 93
Income Smoothing in Historical Literature 95
6 Conclusion and Restatement of the Income Smoothing Hypothesis 99
Some Definitional and Conceptual Issues 100
Implications for Income Smoothing 104
Multi-period Accounting Commitments 107
Implications for Future Research 108
Notes 111
App. A Chronological Listing of Some Modern Definitions of Smoothing 117
App. B Annotated Bibliography of Income Smoothing References: Chronological Listing of Entries 123
App. C Studies to Identify Smoothing Behavior 223
App. D Other Empirical Studies Related to Income Smoothing 247
App. E An Evaluation of the Use of ABI Inform for an Extensive Literature Review 261
Non-Smoothing References not Included in Annotated Bibliography 265
Index 269
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