Market Risk Moderating the Income Smoothing-Firm Value Relationship: Evidence from Indonesia

Santi Yopie; Sari Dewi; Anita Anita; Christina Christina; Hanini Ilyana Che Hashim

doi:10.32535/ijafap.v9i3.4711

Market Risk Moderating the Income Smoothing-Firm Value Relationship: Evidence from Indonesia

Santi Yopie, Sari Dewi, Anita Anita, Christina Christina, Hanini Ilyana Che Hashim

Abstract

This research aims to examine the effect of income smoothing and corporate reputation on firm value, with market risk as a moderating variable. The research sample consists of financial reports for non-financial sector companies listed on the Indonesia Stock Exchange (IDX). The data were analyzed using Eviews 12 through panel data regression analysis. The key findings indicate that although income smoothing is intended to present a stable financial performance, it actually has a negative effect on firm value because it distorts the company's true financial condition. In contrast, a strong corporate reputation significantly enhances firm value by building stakeholder trust and improving the company’s public image. Furthermore, the study finds that market risk does not moderate the relationship between income smoothing and firm value, indicating that external market volatility does not influence the negative impact of income smoothing. These findings are expected to provide useful insights for regulators, investors, and corporate managers in developing policies and strategic decisions that promote financial transparency, accountability, and long-term sustainability.

Keywords

Firm value; income smoothing; firm reputation; market risk; Leverage; Profitability.

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DOI: https://doi.org/10.32535/ijafap.v9i3.4711