R_SR and the control variables. Below each estimated coefficient we show the estimated standard error (firm and year clusters). The results shown in column (1) illustrate that, consistent with our maintained assumption, negative earnings changes contain a large transitory component (i.e., = -0.450 and has a p-value that is less than 0.01). Results in column (2) β3 suggest the extent to which negative earnings changes are transitory is a function of strategic aggregation as the coefficient on R_SR×N_NI×DNI is positive and statistically significant. Hence, firms with high values of R_SR tend to smooth the recognition of bad economic news over multiple accounting periods, which is consistent with our main hypothesis. However, the coefficient on R_SR×N_NI×DNI is positive but insignificant when controls for BTM, LEV, and SIZE are added. 5.5 Summary Taken together the results shown in Tables 5, 6 and 7 support our main hypothesis and complement the results of our first set of tests where we directly examined accruals that are designed to communicate bad news. In these latter tests we take a broader approach by examining the properties of total earnings, their association with bad news, and how this changes as aggregation varies. As shown in Table 5, aggregation clearly dampens the relation between earnings and bad economic news. The evidence provided in Table 6 suggests that the extent to which accruals reflect bad cash-flow news is significantly lower when aggregation is high. Finally, the results shown in Table 7 further buttress our argument as they show that when R_SR is high, bad economic news is smoothed over time. 6. Supplementary Analyses
R_SR and the control variables. Below each estimated coefficient we show the estimated standard error (firm and year clusters). The results shown in column (1) illustrate that, consistent with our maintained assumption, negative earnings changes contain a large transitory component (i.e., β3 = -0.450 and has a p-value that is less than 0.01). Results in column (2) suggest the extent to which negative earnings changes are transitory is a function of strategic aggregation as the coefficient on R_SR×N_NI×DNI is positive and statistically significant. Hence, firms with high values of R_SR tend to smooth the recognition of bad economic news over multiple accounting periods, which is consistent with our main hypothesis. However, the coefficient on R_SR×N_NI×DNI is positive but insignificant when controls for BTM, LEV, and SIZE are added. 5.5 Summary Taken together the results shown in Tables 5, 6 and 7 support our main hypothesis and complement the results of our first set of tests where we directly examined accruals that are designed to communicate bad news. In these latter tests we take a broader approach by examining the properties of total earnings, their association with bad news, and how this changes as aggregation varies. As shown in Table 5, aggregation clearly dampens the relation between earnings and bad economic news. The evidence provided in Table 6 suggests that the extent to which accruals reflect bad cash-flow news is significantly lower when aggregation is high. Finally, the results shown in Table 7 further buttress our argument as they show that when R_SR is high, bad economic news is smoothed over time. 6. Supplementary Analyses