Factors affecting income smoothing practice: Insights from the Indonesian capital market

Abstract

The objective of this quantitative study is to examine the factors that influence income smoothing practices in the Indonesian capital market, including share ownership by groups/institutions, family-owned firms, and industrial sectors, with firm size serving as a control variable. This study used a purposive sampling technique to acquire a sample of 112 businesses over the years 2017 to 2021, yielding 560 observations by using a panel data approach. The findings indicate that neither share ownership by a group/institution nor a family-owned firm has a substantial impact on income smoothing practice. Among industrial sectors, only the sector of consumer products significantly influences income smoothing. As a control variable, business size has a favorable influence on income smoothing. This paper provides empirical evidence on financial accounting research, namely on the subject of income smoothing and the quality of earnings reporting, despite a number of limitations, such as a relatively short observation period.