Earnings smoothing, mispricing of shares and investment of companies

The purpose of this study is to review the literature on earnings smoothing and its influence on the relationship between stock prices and investment firms. Previous research shows that earnings smoothing influences the relationship between stock prices and investment and reduce the strength of the relationship. Earnings smoothing can reduce mispricing of shares and thus reduce the sensitivity of investment to stock prices. The researchers also found that in an uncertain business environment, income smoothing has a greater influence on the sensitivity of investment to stock prices.