This study explores the relationship between firms' tendencies to smooth earnings and the perception that firms may face of extracting private control benefits. Using a direct estimate of private control benefits that is routinely priced by noncontrolling parties, this study documents that such firms face high capital market costs, which induces them to disclose more private information through earnings smoothing. Furthermore, these results are observed primarily in less developed stock markets where disclosure costs due to information uncertainty are low and therefore the disclosure is more likely to be valued and correctly understood by market participants.

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