‘Smoothing’ Manifestations in Fourth Quarter Results of Operations: Some Empirical Evidence

‘Smoothing’ Manifestations in Fourth Quarter Results of Operations: Some Empirical Evidence The subject of smoothing of annual income numbers has occupied a good deal of the accounting literature. The finding of most studies was that managers of firms did behave as if they intended to impart a smoother trend to accounting earnings. The availability of quarterly reports provides us with an opportunity to gain insights into the timing of smoothing decisions. The paper tests the hypothesis that the observed first three quarters' results trigger actions by management during the fourth quarter that appear as smoothing behaviour. The findings indicate that the manifestations of end-of-year actions by managers are consistent with the possible attempt on their part to alter fourth quarter reported results so as to offset extreme deviations of the first three quarters' reported numbers from a given, predefined, ‘normal’ trend presumably deemed by managers to be desirable to report.