Corporate net income smoothing: A variance decomposition approach

Antonio Renzi, Pietro Taragoni and Gianluca Vagnani

Finance Research Letters, 2024, vol. 69, issue PA

Abstract: This study introduces an enriched framework depicting the channels through which managers can mitigate sales shock impacts on firm net income and dividends. Employing variance decomposition, this study provides insights into the proportion of sales shocks absorbed through different firm-level net income smoothing channels. We control for the nature (positive vs. negative) and duration (persistent vs. transitory) of sales shocks. Our findings offer significant insights into income and dividend smoothing. Research implications for theory and practice are further explored.

Keywords: Sales shocks; Net income smoothing channels; Net income and dividend smoothing; Variance decomposition approach; Risk transfer (search for similar items in EconPapers)
JEL-codes: G32 G35 M21 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:69:y:2024:i:pa:s1544612324010717

DOI: 10.1016/j.frl.2024.106041

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