INVESTIGATING INCOME SMOOTHING: EMPIRICAL EVIDENCE FROM SERBIAN’S HOTEL COMPANIES
Dragana Bešlić Obradović - Alfa BK University, 3 Palmira Toljatija, 11070 Belgrade, Serbia
Ivana Bešlić Rupić - Alfa BK University, 3 Palmira Toljatija, 11070 Belgrade, Serbia
Bojan Rupić - Kapital revizija doo, 1 Vojvode Mišića, 21000 Novi Sad, Serbia
DOI: https://doi.org/10.31410/tmt.2020.347
5th International Thematic Monograph - Modern Management Tools and Economy of Tourism Sector in Present Era, Belgrade, 2020, Published by: Association of Economists and Managers of the Balkans in cooperation with the Faculty of Tourism and Hospitality, Ohrid, North Macedonia; ISSN 2683-5673, ISBN 978-86-80194-42-4; Editors: Vuk Bevanda, associate professor, Faculty of Social Sciences, Belgrade, Serbia; Snežana Štetić, full time professor, The College of Tourism, Belgrade, Serbia, Printed by: SKRIPTA International, Belgrade
Abstract: The flexibility in accounting standards and principles, lead to incentives for managers to show a good picture of the companies. It is logical and rational for managers to attempt to smooth income by using certain accounting devices to reduce the companies’ income fluctuation over time to improve relations with creditors, investors, and employees. Income smoothing enables companies to stabilize earnings and thereby increase earnings predictability. For detecting income smoothing through examining the financial statements Eckel’s (1981) approach (income variability approach) has been the most popular and most used one. In this research study, we use a selection criterion between smoothers and non-smoothers hotel companies based on the income smoothing.
This study aims to classify Serbian hotel companies during the period 2016-2019 as smoothing and non-smoothing hotel companies. The method used to determine the presence or absence of income smoothing and the company value results is based on the coefficient of variation model proposed by Eckel (1981). According to the coefficient of variation method, the more the income smoothing (IS) index tends to zero, the more smoothed out the company’s earnings are. This study examines the presence of artificial income smoothing in 22 Serbian hotel companies. A binomial test is used to test the hypothesis. As a result of research, there are no significant statistical indicators of income smoothing practices in Serbian hotel companies during the period 2016-2019.
Keywords: Income smoothing, Eckel model, Hotel company, Serbia, Binomial test.
REFERENCES
Abdullah Al Baaj, Q., M., Hadi Al-Zabari, S. A., & Shareef Al Marshedi, A. A. (2018). The impact
of income smoothing on tax profit: an applied study to a sample of international companies.
Academy of Accounting and Financial Studies Journal, 22(5), 1-11.
Alexandri, M. B., & Anjani, W. K. (2014). Income smoothing: impact factors, evidence in Indonesia.
International Journal of Small Business and Entrepreneurship Research, 3(1), 21-27.
Al Baaj, Q. M. A., Marshedi, A. A. S. Al, & Al-Zabari, S. A. H. (2018).The impact of income
smoothing on tax profit: An applied study to a sample of international companies. Academy
of Accounting and Financial Studies Journal, 22(5), 1-11.
Al-Othman, L. (2019). Income smoothing in banks and insurance companies and its impact on
earnings per share – evidence from Jordan. Banks and Bank Systems, 14(4), 126-132. https://
doi:10.21511/bbs.14(4).2019.12.
Altaie, B., Hammood, H., & Talab, H. (2017). Measurement of income smoothing and its effect
on accounting conservatism: an empirical study of listed companies in the Iraqi Stock Exchange.
International Journal of Economic Perspectives, 11(3), 710-719.
Amina, F. (2018). Using Eckel model to measure income smoothing practices the case of French
companies. International Journal of Economics and Management Engineering, 12(10),
1284-1287.
Baik, B., Sunhwa, Ch., & Farber, D. B. (2019). Managerial ability and income smoothing. The
Accounting Review, 95(4), 1-46. https://ssrn.com/abstract=3469415.
Bora, M. J., & Saha A. (2015). Investigation on the presence of income smoothing – A study on
the companies listed in NSE. Global Journal of Management and Business Research, 15(3),
1-12.
Ergin, E. (2011). Income smoothing: evidence from Turkey. Kahramanmaraş Sütçü İmam Üniversitesi
İktisadi ve İdari Bilimler Fakültesi Dergisi, 1(2), 27-38.
de Almeida, J. E. F., Neto, A. S., Bastianello, R. F., & Moneque, E., Z. (2012). Effects of income
smoothing practices on the conservatism of public companies listed on the BM&FBOVESPA.
Revista Contabilidade & Finanças, 23(58), 65-75.
Fengju, X., Fard, R. Y., Maher, L. G., & Akhteghan, N. (2013). The relationship between financial
leverage and profitability with an emphasis on income smoothing in Iran’s capital market.
European Online Journal of Natural and Social Sciences, 2(3), 156-164.
Feres de Almeida, J. E., Neto, A. S., Bastianello, R. F., & Moneque E. Z. (2012). Effects of income
smoothing practices on the conservatism of public companies listed on the BM&FBOVESPA.
Revista Contabilidade & Finanças, 23(58), 65-75.
Firnanti, F. (2019). The influence of dividend policy and income tax on income smoothing. Accounting
and Finance Review, 4(1), 15-20.
Husaini, & Sayunita (2016). Determinant of income smoothing at manufacturing firms listed on
Indonesia Stock Exchange. International Journal of Business and Management Invention,
5(9), 1-4.
Indrawan, V., Pangaribuan, H., Muse, O., Popoola, O. M. J., & Agoes, S. (2018). The impact of
audit committee, firm size, profitability, and leverage on income smoothing. Indian-Pacific
Journal of Accounting and Finance, 2(1), 61-74.
Kustonovo, A., S. (2011). The theoretical construction of income smoothing measurement. Journal
of Economics, Business, Accountancy Ventura, 14(1), 59-78.
Kusuma, I. W. (2005). Do income smoothing practices explain the lower earnings-price ratio of
Japanese firms compared to those of the U.S. firms?. Gadjah Mada International Journal of
Business, 7(1), 69-94.
Martinez, A. L., & Castro, M. A. R. (2011). The smoothing hypothesis, stock returns and risk in
Brazil. BAR - Brazilian Administration Review, 8(1), 1-20.
Meiryani, R. A., Puspokusumo, A. W., Udjaja, Y., & Juwita, A. (2020). The effect of debt to equity
and company size on income smoothing practices. Journal of Critical Reviews, 7(7), 316-
319. https://doi.org/10.31838/jcr.07.07.51
Mushtaq, A., Sultan, H., & Ijaz, F. (2016). Income smoothing and Islam: evidence from Pakistan
Shari‘ah compliant companies. Journal of Islamic thought and civilization, 6(2), 77-93.
Namazi, M., & Khansalar, E. (2011). An investigation of the income smoothing behavior of
growth and value firms (case study: Tehran Stock Exchange market). International Business
Research, 4(4), 84-93.
Nejad, H. S., Zeynali, S., & Alavi, S. S. (2013). Investigation of income smoothing at the companies
listed on the stock exchange by the using index Eckel (case study: Tehran Stock Exchange).
Asian Journal of Management Sciences and Education, 2(2), 49-62.
Obaidat, A. N. (2017). Income smoothing behavior at the times of political crises. International
Journal of Academic Research in Accounting, Finance and Management Sciences, 7(2),
1-13. https:// doi:10.46223/hcmcoujs.econ.en.7.2.188.2017.
Pallant, J. (2009). SPSS: Priručnik za preživljavanje [SPSS: Guide for survival]. Belgrade: Mikro
knjiga.
Savitri, E. (2019). Can effective tax rates mediate the effect of profitability and debts on income
smoothing?. Problems and Perspectives in Management, 17(3), 89-100.
Suyono, E. (2018). Institutional ownership, types of industry, and income smoothing: empirical
evidence from Indonesia. Journal of Auditing, Finance, and Forensic Accounting, 6(1), 1-12.
Thu, P. A., & Khuong, N. V. (2017). Investigating income smoothing: empirical evidence from
Vietnam’s listed companies. Journal of Science Ho Chi Minh City Open University, 7(2),
82-95. http://journalofscience.ou.edu.vn/index.php/econ-en/article/view/188/154.
Tucker, J. W., & Zarowin P. A. (2006). Does income smoothing improve earnings informativeness?.
The Accounting Review, 81(1), 251-270.
This study aims to classify Serbian hotel companies during the period 2016-2019 as smoothing and non-smoothing hotel companies. The method used to determine the presence or absence of income smoothing and the company value results is based on the coefficient of variation model proposed by Eckel (1981). According to the coefficient of variation method, the more the income smoothing (IS) index tends to zero, the more smoothed out the company’s earnings are. This study examines the presence of artificial income smoothing in 22 Serbian hotel companies. A binomial test is used to test the hypothesis. As a result of research, there are no significant statistical indicators of income smoothing practices in Serbian hotel companies during the period 2016-2019.
Keywords: Income smoothing, Eckel model, Hotel company, Serbia, Binomial test.
REFERENCES
Abdullah Al Baaj, Q., M., Hadi Al-Zabari, S. A., & Shareef Al Marshedi, A. A. (2018). The impact
of income smoothing on tax profit: an applied study to a sample of international companies.
Academy of Accounting and Financial Studies Journal, 22(5), 1-11.
Alexandri, M. B., & Anjani, W. K. (2014). Income smoothing: impact factors, evidence in Indonesia.
International Journal of Small Business and Entrepreneurship Research, 3(1), 21-27.
Al Baaj, Q. M. A., Marshedi, A. A. S. Al, & Al-Zabari, S. A. H. (2018).The impact of income
smoothing on tax profit: An applied study to a sample of international companies. Academy
of Accounting and Financial Studies Journal, 22(5), 1-11.
Al-Othman, L. (2019). Income smoothing in banks and insurance companies and its impact on
earnings per share – evidence from Jordan. Banks and Bank Systems, 14(4), 126-132. https://
doi:10.21511/bbs.14(4).2019.12.
Altaie, B., Hammood, H., & Talab, H. (2017). Measurement of income smoothing and its effect
on accounting conservatism: an empirical study of listed companies in the Iraqi Stock Exchange.
International Journal of Economic Perspectives, 11(3), 710-719.
Amina, F. (2018). Using Eckel model to measure income smoothing practices the case of French
companies. International Journal of Economics and Management Engineering, 12(10),
1284-1287.
Baik, B., Sunhwa, Ch., & Farber, D. B. (2019). Managerial ability and income smoothing. The
Accounting Review, 95(4), 1-46. https://ssrn.com/abstract=3469415.
Bora, M. J., & Saha A. (2015). Investigation on the presence of income smoothing – A study on
the companies listed in NSE. Global Journal of Management and Business Research, 15(3),
1-12.
Ergin, E. (2011). Income smoothing: evidence from Turkey. Kahramanmaraş Sütçü İmam Üniversitesi
İktisadi ve İdari Bilimler Fakültesi Dergisi, 1(2), 27-38.
de Almeida, J. E. F., Neto, A. S., Bastianello, R. F., & Moneque, E., Z. (2012). Effects of income
smoothing practices on the conservatism of public companies listed on the BM&FBOVESPA.
Revista Contabilidade & Finanças, 23(58), 65-75.
Fengju, X., Fard, R. Y., Maher, L. G., & Akhteghan, N. (2013). The relationship between financial
leverage and profitability with an emphasis on income smoothing in Iran’s capital market.
European Online Journal of Natural and Social Sciences, 2(3), 156-164.
Feres de Almeida, J. E., Neto, A. S., Bastianello, R. F., & Moneque E. Z. (2012). Effects of income
smoothing practices on the conservatism of public companies listed on the BM&FBOVESPA.
Revista Contabilidade & Finanças, 23(58), 65-75.
Firnanti, F. (2019). The influence of dividend policy and income tax on income smoothing. Accounting
and Finance Review, 4(1), 15-20.
Husaini, & Sayunita (2016). Determinant of income smoothing at manufacturing firms listed on
Indonesia Stock Exchange. International Journal of Business and Management Invention,
5(9), 1-4.
Indrawan, V., Pangaribuan, H., Muse, O., Popoola, O. M. J., & Agoes, S. (2018). The impact of
audit committee, firm size, profitability, and leverage on income smoothing. Indian-Pacific
Journal of Accounting and Finance, 2(1), 61-74.
Kustonovo, A., S. (2011). The theoretical construction of income smoothing measurement. Journal
of Economics, Business, Accountancy Ventura, 14(1), 59-78.
Kusuma, I. W. (2005). Do income smoothing practices explain the lower earnings-price ratio of
Japanese firms compared to those of the U.S. firms?. Gadjah Mada International Journal of
Business, 7(1), 69-94.
Martinez, A. L., & Castro, M. A. R. (2011). The smoothing hypothesis, stock returns and risk in
Brazil. BAR - Brazilian Administration Review, 8(1), 1-20.
Meiryani, R. A., Puspokusumo, A. W., Udjaja, Y., & Juwita, A. (2020). The effect of debt to equity
and company size on income smoothing practices. Journal of Critical Reviews, 7(7), 316-
319. https://doi.org/10.31838/jcr.07.07.51
Mushtaq, A., Sultan, H., & Ijaz, F. (2016). Income smoothing and Islam: evidence from Pakistan
Shari‘ah compliant companies. Journal of Islamic thought and civilization, 6(2), 77-93.
Namazi, M., & Khansalar, E. (2011). An investigation of the income smoothing behavior of
growth and value firms (case study: Tehran Stock Exchange market). International Business
Research, 4(4), 84-93.
Nejad, H. S., Zeynali, S., & Alavi, S. S. (2013). Investigation of income smoothing at the companies
listed on the stock exchange by the using index Eckel (case study: Tehran Stock Exchange).
Asian Journal of Management Sciences and Education, 2(2), 49-62.
Obaidat, A. N. (2017). Income smoothing behavior at the times of political crises. International
Journal of Academic Research in Accounting, Finance and Management Sciences, 7(2),
1-13. https:// doi:10.46223/hcmcoujs.econ.en.7.2.188.2017.
Pallant, J. (2009). SPSS: Priručnik za preživljavanje [SPSS: Guide for survival]. Belgrade: Mikro
knjiga.
Savitri, E. (2019). Can effective tax rates mediate the effect of profitability and debts on income
smoothing?. Problems and Perspectives in Management, 17(3), 89-100.
Suyono, E. (2018). Institutional ownership, types of industry, and income smoothing: empirical
evidence from Indonesia. Journal of Auditing, Finance, and Forensic Accounting, 6(1), 1-12.
Thu, P. A., & Khuong, N. V. (2017). Investigating income smoothing: empirical evidence from
Vietnam’s listed companies. Journal of Science Ho Chi Minh City Open University, 7(2),
82-95. http://journalofscience.ou.edu.vn/index.php/econ-en/article/view/188/154.
Tucker, J. W., & Zarowin P. A. (2006). Does income smoothing improve earnings informativeness?.
The Accounting Review, 81(1), 251-270.
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