Firm Value, Firm Size and Income Smoothing

J. Fin. Bank. Review 4 (1) 01–07 (2019)

7 Pages Posted: 1 May 2019

See all articles by Yulius Kurnia Susanto

Yulius Kurnia Susanto

Trisakti School of Management

Arya Pradipta

affiliation not provided to SSRN

Date Written: March 16, 2019


Objective - Income smoothing is a form of earnings manipulation to show that the company's performance is good. Income smoothing can be detrimental to investors, because investors do not know the real financial position and fluctuations of the company. Management of the company engage in income smoothing because investors tend to focus only on the amount of profit reported without regard to the process of generating profits. The purpose of this research is to obtain empirical evidence about the effect of firm value and size on income smoothing.

Methodology/Technique - The sample of the research includes manufacturing companies listed on the Indonesian Stock Exchange from 2014-2016. The samples were determined using a purposive sampling method and there are 51 companies that meet the criteria used. This research uses a logistic regression method for data analysis.

Findings - The results of the research show that the effect of firm value on income smoothing is positive and significant. Meanwhile, the effect of firm size on income smoothing is negative and significant. Companies that create value in the eyes of investors will try to retain their investors by engaging in income smoothing. Income smoothing will convince investors to invest in the company. Meanwhile, large companies that are convinced that investors will continue to invest do not typically engage in income smoothing.

Novelty - This study proves that, in the context of agency theory, the principal's desires are not often aligned with the wishes of management which can give rise to agency costs, one of which occurs as a result of income smoothing. Further, firm size can minimize opportunist income smoothing actions.

Type of Paper - Empirical.

Keywords: Income Smoothing; Firm Value; Firm Size; Agency Theory

JEL Classification: G32; M41; M49

Suggested Citation

Susanto, Yulius Kurnia and Pradipta, Arya, Firm Value, Firm Size and Income Smoothing (March 16, 2019). J. Fin. Bank. Review 4 (1) 01–07 (2019), Available at SSRN:

Yulius Kurnia Susanto (Contact Author)

Trisakti School of Management ( email )


Arya Pradipta

affiliation not provided to SSRN

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