The Effect of Reported Comprehensive Income, Firm Size, Profitability and Leverage on Income Smoothing (A Study on Companies of Consumer Goods in Manufacturing Sector Listed in Indonesia Stock Exchange)

Abstract

This study aims to examine the influence of profit or loss and other comprehensive income, firm size, profitability of the firm, and firm’s financial leverage on income smoothing conducted by the firm partially. Since 2011, new regulation of financial reporting adopted from IFRS is implemented in Indonesia to change of the income statement into a statement of comprehensive income, then changed again to the statements of profit or loss and other comprehensive income which would apply active in 2015. Therefore, this study will inspect those recent issues. Previous researches show different results regarding to the influences of each variables. Total asset will be used as the proxy of firm size, ROA as the proxy of profitability and financial leverage will be proxied by DAR. The information of statement of comprehensive income is taken from Statement of Comprehensive Income of firm’s Annual Report. Income smoothing conducted by firms can be detected by using Eckel Index. Statistical method used for the research is multiple regression analysis. Using simple linear regression analysis, it can be concluded that: (1) firm size influences the income smoothing behavior; (2) profitability of the firm does not influences the income smoothing behavior; (3) firm’s financial leverage does not influences income smoothing behavior; and (4) statement of comprehensive income influences income smoothing behavior.