Companies Determinants Of Income Smoothing: Empirical Study Of Property, Real Estate, And Building Construction Sectors Before And In The Time Of Covid 19

This research aims to obtain empirical evidence regarding the effect of financial leverage, profitability, cash holding, and firm value towards income smoothing. Income smoothing is a company’s effort to make earnings less volatile significantly. Stable earnings can be used as a basis for decision-making by stakeholders, while for the company itself, it’s useful for maintaining business continuity and management performance. The object of this research is all companies in the property, real estate, and building construction sector listed on Indonesia Stock Exchange for the 2016-2021 period. Research samples were taken using a purposive sampling method. Secondary data was used in the form of financial reports and stock price information to be tested using the multiple linear regression method. The results of this research are (1) financial leverage has no effect towards income smoothing, (2) profitability has a significant negative effect towards income smoothing, (3) cash holding has no negative effect towards income smoothing, (4) firm value has a significant positive effect towards income smoothing. Financial


INTRODUCTION
The sudden emergence of the covid-19 pandemic affected Indonesia's economy significantly.Many companies have experienced a decline in sales and had to go out of business.One example of pandemic impact can be seen from the reduced number of Business Competition Index (BCI) in Indonesia, especially in 2020, when the pandemic first entered Indonesia.The BCI then improved in 2021 due to the new policies issued by the government to cope with the impact of pandemic.One of the policies was Omnibus Law on Job Creation in 2020 which is specifically beneficial for business people.One of the sectors affected by the pandemic is property, real estate, and building construction.Based on the annual growth data on house sales from the Residential Property Price Survey conducted by Indonesia Central Bank, sales of small and medium-sized houses in 2018-2019 were relatively stable.However, in 2020, all sales growth is below 0 which means that the overall house sales were reduced compared to the previous year.The biggest decline befalls to large-type houses that reached -60%.
Sales growth slowly improved in 2020 as a result of government assistance to the property sector by issuing various policies, such as VAT incentives, low and stable BI-7-DRR lending rates, easing the loan-to-value (LTV) ratio, as well as relaxing the disbursement of property funds (Anggraeni, 2021).The property and real estate sector becomes the government's attention because they are directly connected to 175 other industries, from material providers to financial and banking services (Jannah, 2020).
The number of workers covering this sector can reach up to 30 million people (Lubis, 2021).Based on the Badan Pusat Statistik (BPS) or Central Bureau of Statistics in Indonesia, the number of people in the range of productive age for work (15-64 years) Determinants Of Income Smoothing: Empirical Study Of Property, Real Estate, And Building Construction Sectors Before And In The Time Of Covid 19 94 in 2021 is 188.915.300.This means that the labor absorption power in 2021 is 15,88%, which makes the property and related industrial sectors take the second position that contributes to the largest absorption of labor in Indonesia (BPS, 2021).Thus, a decline or bankruptcy in the property and real estate sector would affect the other related industries and threaten a major number of labor in Indonesia.
Eventually, the government's efforts and assistance to this sector seem to be paying off because along with the growth in sales, the Gross Domestic Product (GDP) for the property and real estate sector, especially in 2021 also show a positive growth.This can be used as an indication that the growth rate in the sector will continue to increase in 2022 and beyond (Pratomo et al., 2023).With a good prospect in the future, property and real estate companies will certainly try to improve their performance to outperform their competitors.
One of the indicators that the most often used as a benchmark for evaluating a firm's performance is the profit or loss reported periodically in the income statement.
Positive profit growth every period is expected by the stakeholders.However, the firm must also show stable profit growth, not the extreme ones.Stable profits can be used as a basis for creditors to make loan approval decisions and for investors as a benchmark to invest (Putra, 2022).Meanwhile, from the firm's point of view, stable profit is useful for maintaining business continuity, management performance indicators, giving a sense of optimism, and also maintaining the level of expectations and trust from its stakeholders.The importance of stable profits makes companies try to maintain their profit fluctuations within a stable range through various efforts, which is known as income smoothing.The manager's action of income smoothing is to make income stable and reduce the covariance return with the market (Rahmini & Panggabean, 2019).Ayuningtyas (2019) summarizes the performance of property companies with total assets above IDR 10 trillion in the first half of 2019 and states that the majority of the companies reported negative growth in revenue.On the contrary, majority of the companies reported positive growth in profit.Then, based on Utomo (2021) summary, in the third quarter of 2020, PT Ciputra Development (CTRA) experienced a decrease in revenue and net profit compared to the same period last year.However, at the end of 2020, PT CTRA was actually able to report an increase in revenue and net profit (Fernando, 2021).These events can be used as an indication of income smoothing action taken by property companies in Indonesia in order to maintain their performance.Income smoothing is a common and legal action if the efforts are still in accordance with the applicable accounting rules and principles, as practiced by PT Adhi Commuter Properti (ADCP).The results of PT ADCP's efforts to maintain stable profits can be seen in Figure 1 which shows PT ADCP's financial summary for 2018-2021(ADCP, 2022)).All financial components increased in 2019 because PT ADCP acquired PT Mega Graha Citra Perkasa (PT MGCP) at the end of 2019.This subsidiary firm will be prepared to generate recurring income for all PT ADCP's projects (Fadillah, 2019).
In 2020, marketing sales (calculated based on agreed contracts, but still cannot be recognized as revenue in financial statements) have decreased due to the pandemic.However, the recognized revenue increased because PT ADCP accelerated the completion of its subsidiary firm's projects.PT ADCP also recognized revenue through the cooperation contract that has been upon agreed with PT MGCP.Meanwhile, the net profit decreased due to an increase in financial costs aligned with an increase in debts that be used to accelerate its subsidiary's projects.In 2021, there was a decline in revenue due to all projects have been completed, thus firm no longer recognized  (Petriella, 2021).
Compared to similar industries during the pandemic, the profit decline at PT ADCP in 2020-2021 is not significant, in fact highly favorable.Eckel Index for PT ADCP in 2021 is 0,2993.Eckel Index below 1 means that the firm performs income smoothing.
It can be concluded that the strategies and efforts carried out by the firm to maintain its performance, especially during the pandemic have been successful.The firm even shows potential future revenue through an increase in marketing sales in 2021.
Efforts carried out by PT ADCP to make its profit stable still in accordance with the applicable standards and regulations.Otherwise, the management will be categorized as committing intentional manipulation and fraud which may cause bigger problems.There was a case of financial statements manipulation in the property sector done by PT Hanson International (MYRX).The case was revealed in 2019 for the manipulation conducted in 2016 by its president director Benny Tjokrosaputro.The firm recognized revenue using the full accrual method, however, the firm did not disclose the sell and purchase agreement of land dated July 14  Figure 2 shows a summary of PT MYRX's financial statements.Eckel Index calculation for 2017 using data before restatement is -14,74.Eckel Index below 1 means that the firm performs income smoothing.Meanwhile, Eckel Index for 2017 using data after restatement is 3,043.Eckel Index greater than 1 means that the firm does not perform income smoothing.It can be concluded that PT MYRX has done efforts to do income smoothing, but the efforts were not in accordance with the standards, thus providing incorrect information that causes disadvantage to financial statement users.
The price and trading volumes of PT MYRX's shares during 12 tradings days before and after the announcement issued by OJK also show a downward trend, indicating that investors became less interested in the firm shares after it was proven to have manipulated its financial statements.These data concluded that if a firm is exposed to financial problems, especially related to incorrect financial data, it could affect investors' interest and drop the firm's share price in the market.From those two cases, can be concluded that maintaining performance using the right strategies in accordance with accounting standards and regulations, as done by PT ADCP is a common thing to do.Moreover, this action could grow the firm to have a good prospect in the future, maintaining business continuity, keeping the stakeholders' trust, and in the end bringing success to the firm.However, if the actions to maintain performance are too extreme which leads to a violation of standards, as done by PT MYRX, then those actions are illegal and actually sent administrative sanctions and/or written orders to the firm.The firm's reputation would plummet and also lose the trust of all stakeholders.Therefore, the firm's management should be careful in doing income smoothing actions by following the applicable standards and regulations.
Income smoothing practices can be known by using the Eckel Index.The formula compares the coefficient of variation for changes in profit with the coefficient of variation for changes in sales.If the coefficient of variation for changes in profit is smaller (or the Eckel Index value is below 1), then the firm is classified to do income smoothing.If the Eckel Index value is the same or greater than 1, then the firm is not classified to do income smoothing.There are several factors that are assumed to influence income smoothing practices, such as financial leverage, profitability, cash holding, and firm value.
The first factor that is assumed to influence income smoothing practices is financial leverage.According to Fahmi (2012) in Nengsi (2019), leverage measures how much a firm is financed by debts.According to Fahmi (2013) in Putri & Budiasih (2018) financial leverage can be measured using the Debt to Assets Ratio (DAR).According to Kieso et al. (2018), DAR measures the percentage of the total assets provided by creditors.The greater the value of DAR, the greater the assets financed or obtained by debts.These assets can be used to increase productivity, for example by buying the most sophisticated machines.These machines will contribute to time efficiency, labors can do other work that cannot be done with machines.All work will be completed faster which allows the firm to recognized revenue faster and also reduce labor costs.
With increasing in revenue and decreasing in costs, the firm's profit will increase.If the firm gets an indication that there will be a significant increase in profit, then the firm will choose to use a large amount of long-term interest-bearing debt policy to acquire its assets.The debt is a non-specific debt, therefore the interest expenses cannot be fully capitalized into assets.This debt can be used to increase income, but it also causes a greater amount of interest expenses because long-term debt has a higher risk, making the fund provider set a high interest rate.Large amount of interest expenses can prevent a significant increase in profit and stabilize the profits.This condition will cause deviations from changes in profits to be smaller and closer to the expected value compared to deviations from changes in sales.Thus, the Eckel Index would be smaller than 1, making the firm classified to do income smoothing.
The second factor that is assumed to influence income smoothing practices is profitability.Profitability shows the firm's ability to generate profits for a certain period of time (Agustia & Suryani, 2018;Syakdiyah & Putra, 2021).According to Putri & Budiasih, (2018), profitability can be measured using Return on Assets (ROA)."The rate of return a firm achieves through the use of its assets is ROA (Kieso et al., 2018).
The greater the value of ROA, the better the firm's ability to use its assets to generate net profit after tax which results in a high profit reported.However, if the firm gets an indication that there will be a significant increase in profit, then the firm will choose a finance lease policy to acquire its assets.In finance lease policy, lessee has the right to use asset and at the end of lease term, lessee has an option to acquire ownership of the asset.Thus, the firm must record depreciation expense and interest expense arising from the difference in the present value of the recognized rental amount per period of lease payment.In order to get a higher interest expense, the firm can choose a lessor that has lower implicit interest rate.An increase in these expenses can prevent a significant increase in profit and stabilize the profits.This condition will cause deviations from changes in profits to be smaller and closer to the expected value compared to deviations from changes in sales.Thus, the Eckel Index would be smaller than 1, making the firm classified to do income smoothing.
The third factor that is assumed to influence income smoothing practices is cash holding.Cash holding is cash owned by the firm and used for firm activities (Angreini & Nurhayati, 2022).According to Putri & Budiasih (2018), cash holding can be measured by comparing cash and cash equivalents to total assets.Cash policy is arranged by management, the more cash holding means the more cash and cash equivalents held by the firm based on management discretion.A high value of cash holding can be used by the firm to purchase land and raw materials that can be utilized 100 to increase inventory in the form of property and real estate assets, thereby increasing the recognized revenue.A high value of cash holding also allows cost efficiency by paying debt within the discount period and/or buying a great amount of raw material in advance to avoid price inflation.With increasing in revenue and decreasing in costs, the firm's profit will increase.However, if the firm gets an indication that there will be a significant increase in profit, then the firm will increase the carrying cost of inventories, such as purchasing damage insurance for its properties and real estate assets, and/or increasing the estimated allowance for impairment losses on its inventories.An increase in these expenses can prevent a significant increase in profit and stabilize the profits.This condition will cause deviations from changes in profits to be smaller and closer to the expected value compared to deviations from changes in sales.Thus, the Eckel Index would be smaller than 1, making the firm classified to do income smoothing.
The fourth factor that is assumed to influence income smoothing practices is firm value.High firm value means that the firm's reputation is considered good by investors, thus they want to buy the firm's shares (Elisa et al., 2024;Winanda & Astika, 2021).According to Winanda & Astika (2021), firm value can be measured by Price to Book Value (PBV), PBV is calculated by dividing the closing share market price per share by the book value of its equity.Thus, PBV can be interpreted as a way to see how high the firm's equity's book value is assessed by the investors.If the PBV is greater than 1, then investors are willing to buy shares above their book value.High-valued firms usually have high and consistent profits because they're able to provide high and consistent returns to investors too.This increases investors' interest which causes a high demand for firms' shares thereby increasing firms' share' price.An increase in share prices creates capital gains, which also greatly contributes to increasing the interest of investors.Therefore, if the firm gets an indication that there will be a significant increase in profit, the firm will do income smoothing practices to maintain investors' expectations of the return and capital gain they will obtain.In addition, the firm avoids a significant decline in profits to maintain investors' trust in business continuity.If the firm gets an indication that there will be a significant increase in 2. Companies that consecutively publish audited financial statements by independent auditors for the year ending December 31 for the 2016-2021 period.
3. Companies that consecutively using IDR currency for financial statements during the 2016-2021 period.
4. Companies that consecutively earn positive profits for the 2016-2021 period.
5. Companies that did not carry out a share split or share reverse during the 2018-2021 period.
6. Companies that are not subject to stock trading suspensions during the 2018-2021 period.
According to Ghozali (2018), the purpose of data analysis is to get relevant information contained in the data and use the results to solve certain problems.In this research, descriptive statistics, normality test, and classical assumption tests were used to analyze data.Microsoft Excel 365 and IBM SPSS (Statistical Package for Social Sciences) applications were used to process the data.

Analysis and Discussion
Descriptive statistics provide an overview or description of the data from the research's variable: income smoothing (IS), financial leverage (DAR), profitability The multicollinearity test on all independent variables has a tolerance value> 0.10 and the same as the VIF value < 10.These results indicate that there is no multicollinearity in all independent variables used in this study.Based on the Durbin-Watson table, with the number of observations (n) of 72 and the number of independent value (k) of 4, the dU value is 1,7366.Durbin-Watson value in Table 4.8 is 1,7366 < 2,089 < 2,2634 (4-1,7366), thus there is no autocorrelation problem in the research regression model.The multicollinearity andautocorrelation test results are listed in table 3 below.3, it can be seen that the dots spread both above and below 0 on the Y axis and there is no particular pattern (wavy, widened, then narrowed).Therefore, there is no heteroscedasticity in the research regression model.

Hypotesis Testing
The test result of the coefficient of determination (Adjusted R^2) value is 0.087.This means that the independent variables are only able to explain the dependent variable by 8.7% while the remaining 91.3% is explained by other variables outside this study.The Standard Error of the Estimate (SEE) value of 2.3288595 means that the smaller the SEE value, the more precise the regression model is in predicting the dependent variable.Based on table 4, the value of correlation coefficient (R) in this research is 0,372 or 37,2%.This value indicates that the relationship between the independent variables and the dependent variable has a low correlation because the correlation value is in the range of 0,20-0,399.5, the F value is 2,688 with a significant value of 0,039.A significant value below 0,05 means that the independent variables jointly or simultaneously have a significant effect towards the dependent variable.In measuring the accuracy of the sample regression function in estimating the actual value measured from the goodness of fit, it is necessary to compare the calculated F value with the table F value.The calculated F value is 2,688, while the table F value is seen from the degree of freedom (df) at α = 0,05 determined by df1 and df2.The value of df1=k, where k is the number of independent variables, thus df1=4.Then the value of df2=n-k-1, or the number of the observations reduced by the number of independent variables then reduced again by 1, thus df2=72-4-1=67.With this, the F table value is 2,51.The calculated F value (2,688) > F table (2,51), means that the sample regression function in estimating the actual value is correct or the model is fit.The t value of financial leverage (DAR) is -1,503, with a significance value of 0,138.Since the significance value is greater than 0,05, then Ha1 is rejected, which means that financial leverage proxied by Debt to Asset Ratio (DAR) has no effect towards income smoothing.This result is in line with the research conducted by (Angreini & Nurhayati, 2022;Fitriani, 2018;Suhartono & Hendraswari, 2020).Majority of the observations having DAR below average due to a decrease in liabilities.That observations experienced an increase in assets with the largest changes happening to investment properties at 16,46% on average due to reclassification of inventories into investment properties caused by changes in use and additional development carried out by the company using cash as the fund.However, there was an average decrease of 1,32% in sales for those observations, while profit for the year increased by an average of 42,64%.The increase in profit for the year came from an average increase in other income such as gains on foreign exchange, gains on realization of investment, gains on sales of fixed assets, sales of shares, and also from interest income.The increase in other income led to an increase in profit for the year that was greater than the changes in sales, which then made the company want to reduce the growth rate of the profit so it would not increase significantly.The strategy used was to increase maintenance & repair expense and depreciation expense, especially for investment properties.From these observations, there was an average increase in depreciation expense for investment properties of 7,33% and an average increase in maintenance & repair of 11,09%.An increase in these expenses can stabilize the growth rate of the profit.The average value of the coefficient variation for changes in profit is 2,4933, while the average value of coefficient variation for changes in sales is -5,4233, this makes the Eckel Index for the observations is -0,4597.The result is below 1, which means the company is classified to do income smoothing.Hence, in this research, DAR is not able to influence the company's decision to do income smoothing.
The t value of profitability (ROA) is -2,449, with a significance value of 0,017.
Since the significance value is less than 0,05, then Ha2 is accepted, which means that profitability proxied by Return on Asset (ROA) has a significant negative effect towards income smoothing.This result is in line with the research conducted by (Islah et al., 2019;Suhartono & Hendraswari, 2020).
The t value of cash holding (CH) is 0,866, with a significance value of 0,390.Since the significance value is greater than 0,05, then Ha3 is rejected, which means that cash holding has no effect towards income smoothing.This result is in line with the research conducted by (Islah et al., 2019;Putri & Budiasih, 2018;Suhartono & Hendraswari, 2020).Majority of the observations having value of Cash Holding below average due to a decrease in cash & cash equivalent and an increase in total assets.Those observations experienced an average increase in inventory of 22,49% obtained by debts.The majority of increased inventory is in the form of land that has not been and/or is being developed, thus they cannot contribute to generating sales.Those observations experienced an average decrease in sales by 23,67% and a decrease in cost of goods sold by 20,68%, while profit for the year decreased by 41,53% on average.In order to prevent the profit from decreasing significantly, the company wants to increase its sales.The company's effort to increase its sales can be seen from an increase of 22,19% on average in selling expenses (promotional, advertising, commission, and sales incentives) for those observations.This is also in line with the increasing down payments from customers on an average of 39,31%.However, these efforts were not successful because there were still unfulfilled performance obligations making the sales could not be recognized immediately.But still, the increase in selling expenses makes the decrease in profit higher than the decrease in sales which results in an average value of the coefficient variation for changes in profit is -0,0975, while the average value of coefficient variation for changes in sales is -0,4913, this makes the Eckel Index for those observations is 0,1985.The result is below 1, which means the company is classified to do income smoothing.Hence, in this research, CH is not able to influence the company's decision to do income smoothing.
The t value of firm value (PBV) is 3,072, with a significance value of 0,003.Since the research direction is not inline with hypothesis, then Ha4 is rejected, which means that firm value proxied by Price to Book Value (PBV) has a significant positive effect towards income smoothing.This result is in line with the research conducted by (Benandri & Andayani, 2018;Winanda & Astika, 2021).Majority of the observations having PBV below average due to a decrease in the average closing price and an increase in the average book value of equity.Those observations experienced an increase in equity which was used to distribute dividends, paid up capital, establish reserves for impairment losses, and buy back shares.Equity was not used for operational activities causing sales only increase by an average of 0,47%, while profit for the year increased by 24,90%.The increase in profit for the year resulted from an increase in other income such as gain on sales of investment in shares, interest income, gain on foreign exchange, gain on acquisition revaluation, and gain from changes in fair value of investments.The increase in other income led to an increase in profit for the year that was greater than the changes in sales, which then made the company want to reduce the growth rate of the profit so it would not increase significantly.The strategy used was to increase the financial costs.This can be seen from the increase in bank loans of 8303,62% on average which then results in an increase in financial costs by 114,69% on average.This makes the average value of the coefficient variation for changes in profit is -0,2155, while the average value of coefficient variation for changes in sales is 2,1674, this makes the Eckel Index for those observations is -0,09941.The result is below 1, which means the company is classified to do income smoothing.

Figure 2 .
Figure 2. Financial Statements Summary of PT Hanson International Source: Noviani (2019) and MYRX's Financial Statements Financial statements are obtained from the company's website and the Indonesia Stock Exchange (IDX)'s official website www.idx.co.id.Meanwhile, information on stock prices is obtained from investing.comand finance.yahoo.com.The population in this

Table 1 .
ROA), cash holding (CH), and firm value (PBV).The results of descriptive statistical analysis can be seen in table 1 as follows: Results of Descriptive Statistics Determinants Of Income Smoothing: Empirical Study Of Property, Real Estate, And Building Construction Sectors Before And In The Time Of Covid 19 103 (

Table 2 .
Results of Normality Test

Table 3 .
Results of Multicollinearity and Autocorrelation Test

Table 4 .
Results of Correlation (R) and Determination Coefficient Test (R 2 )

Table 5 .
Results of Simultaneous Significance Test (Statistical F Test)

Table 6 .
Results of Individual Significance Test (Statistical t Test) Based on the results of statistical t test in table 6, the regression equation in this research is as follows: