Income Smoothing, Investor Reaction and Earnings Persistence

Abstract

The main objective of this study was to investigate the effect of income smoothing on investors reaction to Earnings Persistence of companies listed on the Stock Exchange in Tehran. The population of the study was companies listed on the Stock Exchange in Tehran, the sample size due to screening method and after removing outliers is equal to 118 companies. In this study, earnings persistence and income smoothing are considered as independent variables, and their impact on companies' reaction of investors is examined. In this study, the panel data is used with fixed and random effects, the results of the analysis of corporate data using multivariate regression at confidence level of 95% shows that the net income persistence and operating profit persistence have a direct impact on the reaction of investors. In addition, the results show that, income smoothing has a direct impact on relationship between investors and the net income persistence and operating profit.