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    Income Smoothing Behaviour By Asian Transportation Firms

    Access Status
    Fulltext not available
    Authors
    Rusmin, Rusmin
    Scully, Glennda
    Tower, Greg
    Date
    2013
    Type
    Journal Article
    
    Metadata
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    Citation
    Rusmin, R. and Scully, G. and Tower, G. 2013. Income Smoothing Behaviour By Asian Transportation Firms. Managerial Auditing Journal. 28 (1): pp. 23-44.
    Source Title
    Managerial Auditing Journal
    DOI
    10.1108/02686901311282489
    ISSN
    0268-6902
    School
    School of Accounting
    URI
    http://hdl.handle.net/20.500.11937/49391
    Collection
    • Curtin Research Publications
    Abstract

    figures. Using a sample of 1,094 transportation firm-year observations before and throughout theglobal financial crisis (GFC) period of 2006-2009 in seven Asian countries, the purpose of this study isto investigate whether managers’ smooth reported earnings to meet the benchmark target of last year’searnings figure.Design/methodology/approach – Following previous research (e.g.,Burgstahler and Dichev;Degeorge, Patel, and Zeckhauser; Holland and Ramsay; Burgstahler and Eames; Daske, Gebhardt, andMcLeay; Gore, Pope, and Singh; Charoenwong and Jiraporn), this study uses an earnings benchmark ofsustaining last year’s performance as the key indicator of earnings management.Findings – The empirical evidence reveals that corporate managers seem to opportunisticallysmooth income to beat earnings targets. The results also show that the AuditQuality, EcoCrisis andSize are not explanatory for the smoothing behavior of the above target firms. However, theindependent variables EcoCrisis and Size are predictors for the smoothing behavior of the sample firmsthat engage in income-increasing earnings management. The coefficient on EcoCrisis is negative andsignificantly (at p ¼ 0.001) related to the earnings management measure, suggesting that during aperiod of economic stress, transportation firm managers engage in less aggressive income-increasingdiscretionary accruals strategy. Furthermore, the findings confirm that large size firms exhibit lessaggressive income-increasing earnings management behavior. Specifically, the coefficient on Size isnegative and moderately significant ( p ¼ 0.056) associated with earnings management measure.Originality/value – This study strongly supports the political costs hypothesis which argues thatlarger firms are subject to more public scrutiny and political actions therein exhibiting less aggressiveincome-increasing earnings management behavior. The authors further note a “big bath” phenomenonduring the GFC period suggesting that corporate managers manipulate their reported earningsdownward to make poor results even worse in the current financial period, artificially enhancingfuture year’s earnings.

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