The effect of debt to equity and company size on income smoothing practices

Abstract

This study aims to determine the effect of debt to equity and company size on income smoothing practices. Income smoothing is one of earnings management methods by reducing fluctuations in earnings to make it look stable, because relatively stable earnings are preferred by investors. This study examines the debt to equity variable and the size of the company which according to previous studies have different results between one researcher with another related to the effect on income smoothing. Debt to equity is measured using a comparison of total debt with total capital and company size is measured using total assets. This study uses empirical data from the Indonesia Stock Exchange (IDX) with a sample of 16 companies from the property and real estate sector selected from 46 companies. The analytical method used is the t test for two free samples and multiple linear regression. The results showed that the debt to equity variable and company size did not have a significant difference between the income grading company and the non-income grading company so that the two variables could not be used as indicators that were associated with the actions of companies that did income smoothing. In addition, based on the results of the study also found that the variable debt to equity and company size do not have a significant effect on income smoothing practices.