Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
1004341 | China Journal of Accounting Research | 2016 | 16 Pages |
Abstract
The literature on income smoothing focuses on the effect of earnings smoothing on the equity market. This paper investigates the effect of income smoothing on the debt market. Using the Tucker–Zarowin (TZ) statistic of income smoothing, we find that firms with higher income smoothing rankings exhibit lower cost of debt, suggesting that the information signaling effect of income smoothing dominates the garbling effect. We also find that the effect of earnings smoothing on debt cost reduction is stronger in firms with more opaque information and greater distress risk.
Related Topics
Social Sciences and Humanities
Business, Management and Accounting
Accounting
Authors
Si Li, Nivine Richie,