Institutional Ownership, Types of Industry, and Income Smoothing: Empirical Evidence from Indonesia

Eko Suyono

Abstract


This paper aims to evaluate the influence of institutional ownership and types of industry on income smoothing in the Indonesian listed firms. Basing on the literature and using panel data approach, it examines 112 firms listed on the Indonesia Stock Exchange during 2012 to 2016 periods  (i.e., 560 observations).  By using OLS regression to test the hypotheses, the result shows that institutional ownership does not influence significantly on income smoothing practice.  Moreover, types of industry do not influence on income smoothing practices, except for consumer goods industry which influences significantly on income smoothing practice.  With regard to the company size as a control variable, the result shows that company size influences positively on income smoothing practice.  Therefore, this study contributes in providing empirical evidence on the link between institutional ownership, types of industry, and income smoothing practice in emerging market context (i.e., Indonesia).


Keywords


Income Smoothing, Institutional Ownership, Types of Industry, Company Size

Full Text:

PDF

References


Albrecht, W.D. and Richardson, F.M. 1990. Income Smoothing by Economic Sector. Journal of Business Finance & Accounting, 17(5). 713-730.

Atik, A. 2009. Detecting Income Smoothing Behaviors of Turkish Listed Companies through Empirical Test Using Discretionary Accounting Changes. Critical Perspective on Accounting, 20(5), 591-613.

Bartov, E., Radhakrishnan, S., and Krinsky, I. 2000. Investor Sophistication and Patterns in Stock Returns after Earnings Announcements. The Accounting Review, 75(1), 43-63.

Beidleman, C. R. 1973. Income Smoothing: The Role of Management. The Accounting Review, 48(4), 653-657.

Belkaoui, A. and Picur, R.D. 1984. The Smoothing of Income Numbers: Some Empirical Evidence on Systematic Differences between Core and Periphery Industrial Sectors, Journal of Business Finance and Accounting, 11(4), 527-545.

Bushee, B.J. 1998. The Influence of Institutional Investors on Myopic R&D Investment Behavior. The Accounting Review, 73(3), 305-333.

Chen, C.L., Weng, P.Y., and Fan, H.S. 2016. Institutional Ownership, Income Smoothing and the Value-relevance of Accounting Numbers. Management Review, 35, 109-134.

Chung, R., Firth, M., and Kim, J.B. 2002. Institutional Ownership and Opportunistic Earnings Management. Journal of Corporate Finance, 8(1), 29-48.

Eckel, N. (1981). The Income Smoothing Hypothesis Revisited. ABACUS, 17 (1), 28-40.

Edmans, A. 2009. Blockholder Trading, Market Efficiency, and Managerial Myopia. Journal of Finance, 64(6), 2481-2513.

Ergin, E. 2010. Income Smoothing: Evidence from Turkey. Working Paper, Kocaeli Unversity. Turkey.

Gujarati, D.N., & Porter, D.C. (2009), Basic Econometric. 5th Edition, McGraw-Hill, Book Co., Singapore.

Hadani, M., Goranova, M., and Khan, R. 2011. Institutional Investors, Shareholder Activism, and Earnings Management. Journal of Business Research, 64(12), 1352-1360.

Healy, P.M., and Wahlen, J.M. 1999. A Review of the Earnings Management Literature and Its Implications for Standard Setting. Accounting Horizons, 13(14), 365-383.

Hunt, A., Moyer, S.E, and Shevlin, T. 2000. Earnings Volatility, Earnings Management, and Equity Value. Working Paper, University of Washington.

IDX (The Indonesian Stock Exchange). 2016. www.idx.go.id

Jensen, M.C. and Meckling, W.H. 1976. Theory of The Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics, 3(4), 305-360.

Jiambalvo, J., Rajgopal, S., and Venkatachalam, M. 2002. Institutional Ownership and the Extent to Which Stock Prices Reflect Future Earnings. Contemporary Accounting Research, 19(1), 117-146.

Kalelkar, R., and Nwaeze, E.T. 2011. Sarbanes-Oxley Act and the Quality of Earnings and Accruals: Market-Based Evidence. Journal of Accounting and Public Policy, 30(3), 275-294.

Koch, B.S. 1981. Income Smoothing: An Experiment. The Accounting Review, 15(3), 574–586.

Li, S., and Richie, N. 2016. Income Smoothing and The Cost of Debt. China Journal of Accounting Research, 9(3), 175-190.

Mahastanti, L.A., and Pratiwi, S.O. 2014. “Income Smoothing Phenomenon in Indonesia: Garbling Vs Signalling. Proceeding of The 2nd IBEA – International Conference on Business, Economics and Accounting, Hong Kong.

Mahmud, N.M. 2012. Income Smoothing and Industrial Sector. Financial Management, 50, 10248-10252.

Makaryanawati, M., and Milani, M. 2008. The Effect of Good Corporate Governance on Income Smoothing at Manufacturing Firms Listed on The Indonesian Stock Exchange (Pengaruh Good Corporate Governance Terhadap Praktik Perataan Laba Pada Perusahaan Manufaktur yang Listing di BEI). Jurnal Modernisasi, 4(1), 14-31.

Michelson, S., Wagner, J.J., and Wooton, C.W. 1995. A Market Based Analysis of Income Smoothing. Journal of Business Finance and Accounting. 22 (8), 1179-1193..

Putri, I.F., and Natsir, M. 2006. Simultaneous Equations Analysis of Managerial, Institutional, Risk, Debt, and Policy Ownership on Dividend Policy in the Perspective of Agency Theory (Analisis Persamaan Simultan Kepemilikan Manajerial, Institusional, Risiko,Kebijakan Hutang, dan Kebijakan Deviden dalam Perspektif Teori Keagenan. Proceeding of National Simposium on Accounting 9, Padang, Indonesia.

Sherlita, E., and Kurniawan, P. 2013. Analysis of Factor Affecting Income Smoothing Among Listed Companies in Indonesia. Jurnal Teknologi (Social Sciences) Universiti Teknologi Malaysia, 64 (3), 17–23.

Stein, J. 1989. Efficient Capital Markets, Inefficient Firms: A Model of Myopic Corporate Behavior. Quarterly Journal of Economics, 104(4), 655-669.

Suyono, E. (2016). Family Controlled Firm, Governance Mechanisms and Corporate Performance : Evidence from Indonesia. Journal of Economics, Business, and Accountancy Ventura,. 19 (1), 111 – 124.

Trisanti, T. 2014. Income smoothing practices and empirical testing using discretionary accounting changes. Journal of Economics, Business, and Accountancy Ventura,.17(1), 117 – 126.

Tucker, J.W., and Zarowin, P.A. 2006. Does Income Smoothing Improve Earnings Informativeness?. The Accounting Review, 81(1), 251-270.




DOI: https://doi.org/10.21107/jaffa.v6i1.4128

Refbacks

  • There are currently no refbacks.


Our Journal indexed by:



Our support tools using:

 

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.