The Influence of Profitability and Income Tax on Income Smoothing Rankings

Abstract

Income smoothing is logical and rational action that managers attempt to reduce abnormal variation in earnings using special tools in accounting. The objective of this study is to investigate the influence of profitability and income tax on income smoothing rankings of the companies in basic industry and chemical sectors listed in Indonesia Stock Exchange. Statistical sample of the present study is formed from 45 companies in 2014. ROA is used as the proxy of profitability. In calculating the income smoothing, it is used Tucker-Zarowin (TZ) statistic for five year from the year 2010 to 2014 amounted to 225 firm-years observations. Income smoothing is measured by the negative correlation between the change in discretionary accruals and change in pre-discretionary income. The results from the hypotheses testing indicated that there is a negative and significant relationship between profitability and income smoothing. However, it is also found that there is no significant relationship between variables of income tax and income smoothing.Key words: profitability, income tax, income smoothing rankings, Tucker-Zarowin (TZ) statistic. Pengaruh Profitabilitas dan Pajak Penghasilan terhadap Tingkatan Perataan Penghasilan Abstrak Perataan penghasilan merupakan tindakan logis dan rasional bahwa manajer berusaha untuk mengurangi variasi

Management Dysfunctional Behaviour toward Financial Statements: Income Smoothing Practice in Indonesia’s Mining Industry Sector

“…Another possibility of bias is caused by stable economic conditions that result in stable operation of the company so that the profit also tends not to fluctuate so that companies do not need to make income smoothing. These results have been consistent with previous results research from Christiana (2012), Saeidi (2012), Nafea, Vakilifard, & Fathollahi (2013), Sherlita & Kurniawan (2013), and Ratnaningrum (2016) that profitability has no significant effect on income smoothing.…”

The Effect of Corporate Governance and Income Tax on Income Smoothing

“…The bigger income tax, the bigger opportunity for the company to practice income smoothing.This result is consistent with the research of Saedi (2012) and Luqman and Shahzad (2012). However, this result inconsistent with Ratnaningrum (2016) and Linandi (2013).…”

“…A large income tax will reduce the practice of income smoothing. Ratnaningrum (2016) and Linandi (2013) who stated income tax had no effect on income smoothing actions. They concluded low or high income tax, the company will continue to practice income smoothing.…”

Income Smoothing Determinants in Indonesia Banking Industry

“…The results of this hypothesis are supported in Wijaya in [20], Agung dan Bagus in [19] who state the higher level of profitability of banking companies will maintain the information, if high reported earnings bring the company in a favourable condition, because with a signal (high profit) will give full confidence to external parties (investors, debtors, and government) and draw resources into the company and give the impression that the company's performance is very good. These result opposite direction by Saeidi in [21] and Ratnaningrum [22].…”