Do Income Smoothing Practices Explain The Lower Earnings - Price Ratio of Japanese Firms Compared to Those of The U. S. Firms ?  

Oleh:

Kusuma, Indra Wijaya

Jenis: Article from Journal - ilmiah nasional - tidak terakreditasi DIKTI
Dalam koleksi: International Journal of Business vol. 7 no. 1 (Jan. 2005), page 69-94.
Topik: INCOME; earnings price ratio; income smoothing; japanese earningd adjustment; japanese firms; U. S. firm

Ketersediaan

Perpustakaan Pusat (Semanggi) Nomor Panggil: II51.4 Non-tandon: 1 (dapat dipinjam: 0) Tandon: tidak ada

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Isi artikel

This study examines the variation in earnings - price ratios across japanese and U. S. firms. The earnings - price ratio is one of the indicators often used by investors to determine their trading strategy. Previous literature document that japanese firms have consistently lower earnings - price ratios than U. S. firms even though the earnings of japanese firms have been adjusted to the U. S. GAAP. The objective of this study is to show that japanese firms egage in income smoothing practices that stabilize earnings, thereby increasing japanese investors' willingness to pay higher prices for japanese stocks. Comparing the income smoothing index and proportion of firms identified as smoothers shows that the intensity of japanese firms practicing income - smoothing is greater than that of U. S. firms. The results also shows that the intensity of japanese firms practicing income - smoothing is greater than that of U. S. forms. The results also show that income - smoothing index is significant in explaining the cross - sectional variation of earnings - price ratios for japanese firms but it is not significant for U. S. firms. Two potential explanations for the result of U. S. firms are as follows. First income smoothing is not practiced widely across firms in the U. S. Therefore, the variation of income smoothing does not explain the variation in the cross - sectional earnings - price ratios. Second, even if U. S. firms practice income smoothing the investors are aware of it and do not take earnings figures literally.

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