The Role of Income Smoothing on Financial Performance Indicators

Abstract

The primary objective of this study is to determine whether income smoothing procedures have an impact on the financial performance of return on assets (ROA) and return on equity (ROE). Data for this study came from a sample of banks that are listed on the Iraq Stock Exchange. The research sample consists of banks listed between 2015 and 2019 on the Iraq Stock Exchange. The model estimate is done using the panel data approach. Five banks match the required requirements, and the samples were chosen using a purposive sampling technique. This study employs Miller's model to distinguish between banks that used income smoothing and banks that did not, as well as certain statistical techniques to examine the data. Two indices of financial performance—return on assets (ROA) and return on equity (ROE). Were used to compare the performance of smooth and non-smooth income banks and the variations in the influencing variables that influence each. The findings of this study demonstrate that return on assets (ROA) and return on equity (ROE) have a considerable impact on income smoothing procedures, while variable volume has a significant positive impact as well. In this study, we observed statistically significant differences between banks with and without smooth income in terms of their returns on assets (ROA) and returns on equity (ROE). We found a statistically significant positive relationship between bank size, financial success, and income smoothing in our study.