Abstract

This study aims at achieving the following objectives: examining the explanatory power of the income smoothing of future profitability, introducing evidence about the information content of income smoothing from the Iranian market and enriching the literature on income smoothing relationships in the capital market research. The study sample consists of (46) industrial companies listed in the Tehran Stock Exchange, during the period (2004-2011). Regression analysis is employed to examine the study's hypotheses (Four Models). Wald test and Adjusted-R2 was used to indicate the incremental information content for the study variables. The study found the following: 1. Current profitability predicts future profitability. 2. Income smoothing hasn’t incremental information relative to current profitability when predicting future profitability. 3. Past profitability doesn’t provide incremental information related to current profitability when predicting the future profitability. 4. Income smoothing hasn’t incremental information content with respect to current and past profitability when predicting future profitability. These results mean that the lagged earnings is a good predictor to the future earnings and Iranian companies' managers can manipulate profitability trend in the future to achieve a target level in earnings by using income smoothing tools.

Keywords:

Information content, income smoothing, profitability,

References

Competing interests

The authors have no competing interests.

Open Access Policy

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Copyright

The authors have no competing interests.