Income Smoothing and Cost of Equity: Evidence From Tehran Stock Exchange

This research investigates the relationship between income smoothing and cost of equity. This event study has been done using observations analysis. Cost of equity has been calculated using four models: Gebhardt et al (2001), Claus and Thomas (2001), Gode and Mohanram (2003) and Easton(2004). The sample consists of 87 companies in a 15-year time period from 1996 to 2010 and hypotheses test were run using 8,526 year / company observations. The results show that using Gebhardt et al (2001) and Gode & Mohanram (2003) models for calculating cost of equity, there is a significant and positive relationship between income smoothing and cost of equity.