BS ECONOMICS

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INCOME SMOOTHING IN SHARIAH COMPLIANT COMPANIES OF PAKISTAN
(UMT, Lahore, 2016) HASSAN SULTAN
Income smoothing refers to the use of accounting techniques to level out net income fluctuations from one period to the next. Companies indulge in these practices by using accounting techniques to level out and decrease uncertainty in their profit and to set out ups and downs in income time to time. By doing this they attract the investors because with more and constant income investors are willing to pay more price for company stock that increase the value of stock. Present study has analyzed the existence of artificial income smoothing in Pakistani Shariah compliant companies and compared their performance in relation with smoothing behavior. In order to investigate the income smoothing companies, the Eckel’s Index model was used, with the sample of 64 companies for the time of 2008-2015. It was found that 34 percent of the companies are non-smoothers and rest of the 66 percent of the companies are smoothers in pooled sample. Among high performing companies, 37.5 percent of the companies are non-smoothers and rests of the 62.5 percent are smoothing companies. In low performing companies, it was found that 31 percent companies are non- smoothing, rest 69 percent companies are practicing income smoothing.