Ownership Differences and Firms' Income Smoothing Behavior

Steven J. Carlson and Chenchuramaiah T. Bathala

Journal of Business Finance & Accounting, 1997, vol. 24, issue 2, 179-196

Abstract: This paper examines the association between differences in ownership structure and income smoothing behavior in firms. The underlying constructs affecting this association include agency relationships, managerial incentives, information asymmetry, and firm profitability. A logistic regression model is used to test the association between income smoothing and variables related to inside ownership, institutional holdings, leverage, managerial compensation, profitability, and firm size. The evidence suggests that ownership differences, managers' incentive structures, and firm profitability are important in explaining income smoothing behavior in firms. By separating inside ownership and levels of debt into different levels, we are able to show the existence of a non‐monotonic relationship between ownership differences and firms' income smoothing behavior.

Date: 1997
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Persistent link: https://EconPapers.repec.org/RePEc:bla:jbfnac:v:24:y:1997:i:2:p:179-196

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