The Impact of Audit Committee, Firm Size, Profitability, and Leverage on Income Smoothing

  • Veronica Indrawan Tarumanagara University, Indonesia
  • Sukrisno Agoes Tarumanagara University, Indonesia
  • Hisar Pangaribuan Adventist University of Indonesia, Indonesia
  • Oluwatoyin Muse Johnson Popoola Tunku Puteri Intan Safinaz School of Accountancy, Universiti Utara Malaysia
Keywords: Income Smoothing, Firm Size, Profitability, Leverage, Audit Committee, Developing Countries

Abstract

The objective of this study is to examine the impact of the audit committee, firm size, profitability, and leverage on income smoothing in manufacturing companies listed in Indonesia stock exchange for the period of 2013-2015. Regression statistics are employed to analyse the secondary source of data collected from the annual report of the companies. Measurement of income smoothing is proxied by discretionary accruals. The results of the study reveal that the firm size has a direct positive influence on income smoothing in the listed manufacturing companies in Indonesia. In essence, the more significant a firm size, the more actively performed income smoothing practices. In contrast, profitability indicates an adverse effect on income smoothing in the listed manufacturing companies. The adverse effect indicates that the higher the profit generated, the lesser the income smoothing practices performed. Similarly, leverage posits an adverse effect on income smoothing in the manufacturing sector. This indicates the smaller the risk of companies debt, the more exceptional the practice of income smoothing occurs. The audit committee size similarly shows a negative influence on income smoothing in the listed manufacturing companies. This finding indicates the larger audit committee size, the smaller practice of income smoothing. This occurs because the audit committee oversight function on financial reporting is more efficiently performed. The result of this research shows the contribution to theory, practice, and method, especially in developing countries.

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Published
2018-01-01
How to Cite
Indrawan, V., Agoes, S., Pangaribuan, H., & Popoola, O. M. J. (2018). The Impact of Audit Committee, Firm Size, Profitability, and Leverage on Income Smoothing. Indian-Pacific Journal of Accounting and Finance, 2(1), 61-74. https://doi.org/10.32890/ipjaf.2018.2.1.42
Section
Main Section

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