Assignment on the effect of income smoothing on the Firm’s value and size. KOSPI companies in Korea.

The effect of income smoothing on the Firm’s value and size. KOSPI companies in Korea.

Introduction of the effect of income smoothing on the Firm’s value and size. KOSPI companies in Korea.
Background of Study of the effect of income smoothing on the Firm’s value and size. KOSPI companies in Korea.

In the 21st century, the competition in the market has increased up to a lot of extents. Organizations around the world are trying their best to compete with the organization and grabbing the market share. The corporations today want to gain a competitive edge over the competitors through sustainable competitive advantage. Without a competitive edge, the organization might unable to survive in the long run (Zarowin, 2012). There are many factors which allow the organization to gain a competitive advantage over other organization for instance differentiation, high profitability and firm’s value. For increasing the firm’s value and profitability the organizations implement various techniques which include marketing strategies, providing a variety of goods and using techniques like income smoothing (Chandra, 2011).

Statement of the Problem of the effect of income smoothing on the Firm’s value and size. KOSPI companies in Korea.

Income smoothing is an accounting technique through which the organizations record their income and expenses in the different accounting periods. The organizations usually perform this technique so that it can show its stakeholders that it is earning its revenue steadily over the period of time (Zarowin, 2012). The organizations usually shift their income to such periods in which the organization does not earn much income. By doing this the organization achieves various benefits. By showing low earnings in some periods the organization might have to pay less tax to the tax authorities (Chandra, 2011).

Income smoothing is considered to have a significant relationship with the value of the firm. It is believed that income smoothing increases the value of the firm (Pandey, 2015). In order, t know whether the income smoothing increases the value of the firm or not a research study will be carried out to know how the income smoothing approach increases the value of the firm (Warren, Reeve, & Duchac, 2016). The study will try to demonstrate the relationship between the income smoothing techniques and the value of the firm. For the research purpose, a significant amount of data will be gathered (Hair, 2015). The study will be focused on Korean organizations (Mulford & Comiskey, 2011).

Research Questions of the effect of income smoothing on the Firm’s value and size. KOSPI companies in Korea.

The following are the research questions:

·         Does income smoothing increases the value of the firm?

·         Does income smoothing increases value of small firms or large firms?

·         Up to what extent companies can utilize income smoothing approach for increasing its value? (Bryman & Bell, 2015).

Significance of Study of the effect of income smoothing on the Firm’s value and size. KOSPI companies in Korea.

The organizations which are selected for the research studies are listed in the KOSPI. The research study will not only provide the information about the relationship between the income smoothing practice and value of the firm but will also provide the detail about the reasons for which income smoothing practices are performed in the organizations (Mulford & Comiskey, 2011).The study will focus on the ethical aspects of the income smoothing technique as well (Mulford & Comiskey, 2011). There are many research studies who have shown that the greater the size of the firm the less effectively the organization will be able to smooth its income. In other words, small firms are able to smooth their income more efficiently (Chandra, 2011).

If all the above discussion is summarized than it is evident that the income smoothing is considered to have a significant relationship with the value of the firm. It is believed that income smoothing increases the value of the firm (Mulford & Comiskey, 2011). The organizations usually shift their income to such periods in which the organization does not earn much income. By doing this the organization achieves various benefits. By showing low earnings in some periods the organization might have to pay less tax to the tax authorities (Mulford & Comiskey, 2011).

References of the effect of income smoothing on the Firm’s value and size. KOSPI companies in Korea.

Bryman, A., & Bell, E. (2015). Business Research Methods. Oxford University Press.

Chandra, P. (2011). Financial Management. Tata McGraw-Hill Education.

Hair, J. F. (2015). Essentials of Business Research Methods. M.E. Sharpe,.

Mulford, C. W., & Comiskey, E. E. (2011). The Financial Numbers Game: Detecting Creative Accounting Practices. John Wiley & Sons.

1.      Pandey, I. (2015). Financial Management. Vikas Publishing House.

Warren, C., Reeve, J. M., & Duchac, J. (2016). Financial & Managerial Accounting . Cengage Learning.

Zarowin, P. (2012). Does Income Smoothing Make Stock Prices More Informative? 1-40.