The Effects of Cash Holding, Firm Size and Financial Leverage on Income Smoothing; A Case of Pakistani Non‐Financial Firms

Abstract

This study is conducted to determine that there is an influence between the size of the company, the leverage of the company, and the amount of cash held by a company on the income smoothing in non-financial companies listed in PSX during 1994 – 2019. The hypothesis of the study suggests that the cash holding, size of the firm, and financial leverage has a significant effect on income smoothing. The smoothing of income is the general administration of financial statements which makes these statements overly appealing. The major model used in the study for the computation of income smoothing is the modified Jones model. The method of this study used is the quantitative method. The result includes a quantitative method and secondary data which leads to the removal of subjectivity and biases. The sampling technique used is convenient sampling. The data used in this study is panel data which is the merger of cross-sectional and time-series data. The research used linear and random effect regressions GLS analysis using STATA 14.1 software. The result of this study demonstrates that the cash holding, firm size, financial leverage have a significant effect on income smoothing. The variables have also shown a negative relationship between them.