Does Asymmetric Information relate to Income Smoothing? An Inquest

Abstract

Asymmetric information and income smoothing studies have shown differing results on the relationship between the concepts. Some studies show how they relate with others stating no relationship completely. This paper showed how the later is associated with the former from selected literature reviewed with a view to answering the question on whether asymmetric information is an important factor for inclusion in income smoothing studies and models. The paper is a literature review which purposively selects 15 published empirical articles, mainly, in peer reviewed journals using thematic analysis. The paper concludes that asymmetric information and income smoothing are related or associated and are placed as driving each other in both directions. Asymmetric information may be stated as an important variable for income smoothing studies with income smoothing as the independent variable and asymmetric information the dependent variable being more popular. Also, discretionary accruals for income smoothing and market-based measures for asymmetric information are the most used measures from extant studies reviewed and analyzed.