Pappas, Kostas 
ORCID: 0000-0003-3012-0858, Martin, Walker, Alice Liang, Xu and Cheng (Colin), Zeng
(2024)
Government Subsidies and Income Smoothing.
Contemporary Accounting Research.
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Abstract
This study examines the relationship between government subsidies and income smoothing using a sample of US listed firms. We find that subsidized firms smooth their earnings more aggressively than their unsubsidized peers. This finding is consistent with the reasoning that subsidized firms bear higher political costs and have more incentives to smooth earnings to avoid public attention. In addition, smoothing by subsidized firms is more pronounced when the subsidies are granted through non-tax-related channels than through tax-based channels, and the positive association between government subsidies and income smoothing is stronger for firms under higher public scrutiny and with less transparent information environments. Further analysis shows that smoothing by subsidized firms serves mainly to obfuscate earnings and subsidized firms that smooth earnings tend to continue receiving subsidies in the future. Overall, our results help explain the role of government subsidies in shaping firms’ accounting and disclosure choices.
| Item Type: | Article |
|---|---|
| Divisions: | Faculty of Humanities and Social Sciences > School of Management |
| Depositing User: | Symplectic Admin |
| Date Deposited: | 15 Mar 2024 09:27 |
| Last Modified: | 09 Apr 2024 14:30 |
| DOI: | 10.1111/1911-3846.12947 |
| URI: | https://livrepository.liverpool.ac.uk/id/eprint/3179402 |
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