The Effect of Language on Income Smoothing: Cross-Country Evidence

• 成果类型: Article
• 署名作者: Cao, Wenjiao; Myers, Linda A.; Zhang, Zhifang
• 署名单位: Erasmus University Rotterdam; Erasmus University Rotterdam - Excl Erasmus MC; University of Tennessee System; University of Tennessee Knoxville; University of Warwick
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2021.01753
• 发表日期: 2024
• 页码: 5832-5852
• 关键词: language; future time reference; income smoothing; Stakeholder relationships; informativeness of earnings

摘要

We examine whether and how the time-oriented tendency embedded in languages influences income smoothing. Separating languages into weak- versus strong-future time reference (FTR) groups, we find that firms in weak-FTR countries tend to smooth earnings more. We also find that relationships with major stakeholders (i.e., debtholders, suppliers, and employees) amplify the effect of the FTR of languages on income smoothing. Additional analyses suggest that income smoothing driven by the FTR of languages enhances earnings informativeness. These findings provide new insights on the role that language plays in financial reporting decisions and on how relationships with major stakeholders influence the relation between an important feature of language and corporate income smoothing behavior.