Job Security and Income Smoothing: An Empirical Test of the Fudenberg and Tirole (1995) Model

43 Pages Posted: 15 Dec 2000 Last revised: 13 Jun 2011

See all articles by Anwer S. Ahmed

Anwer S. Ahmed

Texas A&M University - Mays Business School

Jian Zhou

University of Hawaii at Manoa

Gerald J. Lobo

University of Houston - C.T. Bauer College of Business

Date Written: August 1, 2006

Abstract

Fudenberg and Tirole (1995) analytically demonstrate that income smoothing can arise in equilibrium if managers are concerned about job security. Consistent with their model, DeFond and Park (1997) show that managers smooth income in consideration of both current and future relative performance. We provide more direct evidence on whether job security results in income smoothing. More specifically, we hypothesize that the extent of income smoothing will vary directly with managers' job security concerns (proxied by the degree of competition in firms' product markets, product durability, and capital intensity). Our results are consistent with our predictions and add to the literature on income smoothing.

Keywords: Income smoothing, Earnings management, Job security

JEL Classification: M41, M43, G34, J41

Suggested Citation

Ahmed, Anwer S. and Zhou, Jian and Lobo, Gerald J., Job Security and Income Smoothing: An Empirical Test of the Fudenberg and Tirole (1995) Model (August 1, 2006). Available at SSRN: https://ssrn.com/abstract=248288 or http://dx.doi.org/10.2139/ssrn.248288

Anwer S. Ahmed

Texas A&M University - Mays Business School ( email )

430 Wehner
College Station, TX 77843-4353
United States

Jian Zhou (Contact Author)

University of Hawaii at Manoa ( email )

Honolulu, HI 96822
United States

Gerald J. Lobo

University of Houston - C.T. Bauer College of Business ( email )

Houston, TX 77204-6021
United States
713-743-4838 (Phone)
713-743-4828 (Fax)

HOME PAGE: http://www.bauer.uh.edu/acct/acctprofile.asp?search=Gerald%20Lobo

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