A Theory of Income Smoothing When Insiders Know More Than Outsiders
- When?
- Wednesday 6 February 2013, 15.00 to 16.30
- Where?
- 32 MS 03
- Open to:
- Staff, Students
- Speaker:
- Professor Bart Lambrecht, University of Cambridge
Abstract
We develop a theory of income smoothing by firms when insiders know more about income than outside shareholders, but property rights ensure that outside shareholders can enforce a fair payout. Insiders report income consistent with outsiders' expectations and underproduce in order not to unduly raise expectations about future income. The observed income and payout process are smooth and adjust partially and over time towards a target. The underproduction problem is more severe the smaller is the inside ownership and results in an “outside equity Laffer curve", but the problem is mitigated by the quality of independent auditing information and by introducing stock-based compensation.
Jointly written with Viral Acharya, Stern Business School, New York.
A copy of the full paper can be found here
Biography
Bart Lambrecht is a Professor of Finance in the Judge Business School, Cambridge University. Previously he served at the University of Lancaster as a Finance professor, a lecturer and senior lecturer in Finance at the University of Cambridge. Bart Lambrecht has held visiting positions at the University of Calgary (2001), UCLA (2002) and MIT (2009) and consistently published in the top Economics and Finance journals including Journal of Finance, Journal of Financial Economics, Review of Financial Studies, Journal of Money, Credit and Banking, Economic Dynamics and Control, European Economic Review. He serves on the editorial board of Journal of Business Finance and Accounting.
