| Summary: | 碩士 === 輔仁大學 === 會計學系碩士班 === 95 === This study is focused on examining the effect of income smoothing on the value relevance of earnings and book value. Assuming managers use discretionary accruals to smooth income, this study measures income smoothing by the negative correlation of a firm’s change in discretionary accruals with its change in pre-managed earnings. The hypothesis of this research is that the high level of income smoothing makes the value relevance of earnings increase and that of the book value decrease. Furthermore, this study decomposes earnings into discretionary accruals and pre-managed earnings to explore the effect of income smoothing on the value relevance of discretionary accruals.
The empirical findings support the expectation that when firms engage in income smoothing, the value relevance of earnings increase; on the contrary, the value relevance of book value decrease. It indicates that income smoothing makes investors rely more on earnings and less on book value in their stock valuation decisions. In addition, investors positively react to discretionary accruals by which firms use to smooth income.
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