What question did this study set out to answer?

The study investigates how income smoothing is a rational choice influenced by managerial actions and incentive structures.

Income Smoothing as Rational Equilibrium Behavior.

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Analysis examines how income smoothing occurs as rational behavior in organizational settings, indicating managerial incentives.

The study investigates how income smoothing is a rational choice influenced by managerial actions and incentive structures.
Applied agency theory to analyze income smoothing behavior.
Modeled interactions between principals (employers) and managers as rational agents.
Examined responses of managers to different compensation schemes.
Identified that managers select actions to smooth income towards expected values.
Demonstrated that rational prediction of actions influences optimal compensation schemes.
Found that income smoothing is a result of rational equilibrium behavior between principals and managers.

Richard A. Lambert (1984) studied this question.

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