Theses and Dissertations
Issuing Body
Mississippi State University
Advisor
Rigsby, John
Committee Member
McNair, Frances
Committee Member
Spurlock, Stan
Committee Member
Blair, Benjamin
Committee Member
Webb, Thomas
Date of Degree
5-12-2012
Document Type
Dissertation - Open Access
Major
Accounting
Degree Name
Doctor of Philosophy
College
College of Business and Industry
Department
Richard C. Adkerson School of Accountancy
Abstract
This study examines the links between corporate governance, income smoothing, and informativeness in financial reporting. Firms’ strong corporate governance is measured by variables employed in other studies – the presence of a financial expert serving on the audit committee; whether the audit committee consists entirely of independent directors; whether the members of the audit committee meet at least four times annually; and the percentage of outsiders serving on the board of directors. Income smoothing is measured by the Albrecht-Richardson (AR) and Tucker-Zarowin (TZ) income smoothing measures. The AR measure encompasses four definitions of earnings that include accrual and cash-based transactions. The TZ measure includes only accrual-based transactions. The degree of informativeness is measured by association with two opposing ends of the spectrum. On the one hand, firms that are the most informative are predicted to have a greater association between earnings and one period ahead operating cash flows. Prior researchers have defined in a similar manner the information content of earnings to predict cash flows. On the other hand, the existence of a regulatory violation clearly indicates firms’ lack of informativeness (i.e., deceptiveness) in financial reporting. The results do not show a strong relationship between strong corporate governance and degree of income smoothing. First, results for the link between income smoothing and informativeness show only a strong, positive association between accrual-based income smoothing (i.e., TZ measure) and informativeness. Second, results for the links between deceptiveness, corporate governance, and income smoothing are weak. The corporate governance variables show no significant association with deceptiveness. A negative relationship between corporate governance and deceptiveness was predicted. For the link between income smoothing and deceptiveness, only the AR measures show the predicted negative relationship. The TZ measure shows no significant association with deceptiveness. Taken together, the results of this study provide unique insights into the links between corporate governance, income smoothing, and informativeness in financial reporting. The results confirm the informativeness of accrual accounting, but do not resolve the debate of whether corporate governance measures impact the quality of financial reporting.
URI
https://hdl.handle.net/11668/19325
Recommended Citation
Faello, Joseph Peter, "Is Strong Corporate Governance Associated with Informative Income Smoothing?" (2012). Theses and Dissertations. 2877.
https://scholarsjunction.msstate.edu/td/2877
Comments
quality of financial reporting||corporate governance||income smoothing