Anticipatory Income Smoothing and the Investment Opportunity Set: An Empirical Test of the Fudenberg and Tirole (1995) Model
- 1 February 2003
- journal article
- Published by Emerald in Review of Accounting and Finance
- Vol. 2 (2), 99-117
- https://doi.org/10.1108/eb027009
Abstract
Fudenberg and Tirole (1995) argue that concern about job security creates an incentive for managers to smooth earnings. Consistent with their model, Defond and Park (1997) show that managers smooth earnings in consideration of both current and future relative performance. To provide a more direct evidence of anticipating smoothing and job security, we hypothesize that the extent of income smoothing will vary with managers' job security concerns as proxied by the level of the investment opportunity set or growth opportunities. Our results confirmed our predictions.Keywords
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