Institutional Ownership, External Auditor Reputation, and Income Smoothing: Evidence from Indonesia

Abstract

This study investigates how institutional ownership and external auditor reputation affect the income smoothing of the LQ45 index non-financial firms with firm size as the control variable. Because of the consistency of the companies shaping this index between 2017 and 2022, this study utilizes the population and samples of 18 and 15 as the total. Then, this investigation applies the multiple regression model to analyze the data. Based on the statistical testing outcome, this study infers the negative tendency of institutional ownership and external auditor reputation toward income smoothing. It indicates that institutions and reputable external auditors can cut this earning smoothing. Hence, it practially suggests that the company should utilize the Big Four auditor to overcome this smoothing, leading to the trust of public shareholders to buy the stocks. Also, these shareholders should select companies with a high share portion of institutions to obtain trusted earning reporting.