Abstract
The major objective of this study is to investigate the income smoothing behaviour of two different types of firms - value and growth - in the Tehran Stock Exchange (TSE) Market. All firms listed in the TSE between 2003 and 2007 were examined using the Jones Model to investigate their income smoothing behaviours. Using the Jones model, the discretionary part of accruals was investigated. The results of this study revealed that growth firms tend to apply discretionary accruals more intensively than value firms. In order to support the robustness of the findings, the Eckel model, was also applied. The same result was found for the Eckel model as for the Jones model. The results indicated that growth firms achieved a higher degree of income smoothing than value firms. The effects of various confounding factors which are different between these two types of firms, such as size of the company, standard deviation of earnings, market capitalization and consecutive trend of earnings, were also investigated. The results indicated that income smoothing in growth firms is larger than in value firms, and also that other items, which are known as representatives of the risk, are larger for growth firms than for value firms.
Highlights
In recent years, earnings management has become a controversial issue among investors and stockholders, and has become a concern for the future (Bhattacharya et al, 2003; Becker et al, 1998)
The results indicated that income smoothing in growth firms is larger than in value firms, and that other items, which are known as representatives of the risk, are larger for growth firms than for value firms
The main objective of this study is to investigate income smoothing behaviour among both ‘value firms’ and ‘growth firms’ which are listed in the Tehran Stock Exchange (TSE)
Summary
Earnings management has become a controversial issue among investors and stockholders, and has become a concern for the future (Bhattacharya et al, 2003; Becker et al, 1998). The major objectives are first to investigate the income smoothing behaviour of ‘growth’ and ‘value firms’ (see, Pawn, 2006) in the TSE market, to present a more comprehensive definition for value and growth firms, and to compare these two groups based on the level of management of their earnings. To investigate their risk performance, and find out which type of company is the more risky for investment, by comparing risk factors that are prevalent between these two groups.
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