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Earnings Smoothness, Average Returns, and Implied Cost of Equity

See the attachments.

Discuss the scope of the resource.
Discuss the purpose and philosophical approach.
Discuss the underlying assumptions.
If referring to a research reporting article, present the methodology.
Relate the resource to the body of resources you have consulted in this course.
Discuss any evident limitations and opportunities for further inquiry.

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The response addresses the query posted in 792 words with APA references.

//In the below-mentioned segment an annotated bibliography of the article written by McInnis, (2010) has been mentioned. Under the bibliography, the scope and purpose of the philosophical article have been stated along with the methods, assumptions adopted under the process of research followed by the limitations of the study.//
McInnis, J. 2010. Earnings Smoothness, Average Returns, and Implied Cost of Equity Capital. The Accounting Review 85(1), pp. 315-341.
The article from the Accounting Review Journal deals with the relationship of earnings of an organization and returns offered to the stakeholders. There is a general perception that higher risk is compensated with a higher return. Therefore, an organization investing in risky assets will tend to offer a comparatively greater return in the long run. The assets facing more risk have a tendency to generate fluctuating returns over a period of time. Therefore, the organizations putting their funds in volatile investments also opt for inconsistent dividend and other policies that generally change depending on the profits earned by the organization in that fiscal year. Similarly, the organizations offering a consistent rate of return do not have a proportionate reduction in their cost of capital. It has been assumed by the ...

Solution Summary

The expert discusses the scope of the resources. The purpose and philosophical approaches are determined. The response addresses the query posted in 792 words with APA references.

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