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European Online Journal of Natural and Social Sciences

The relationship between financial leverage and profitability with an emphasis on income smoothing in Iran's capital market

Xu Fengju, Rasool Yari Fard, Leila Ghassab Maher, Nader Akhteghan


The main purpose of this research is the study of the financial leverage effect on profitability and also the presence of smoothing in listed companies of Tehran Stock Exchange. Since financial reports are important in forecasting and decision making of users, therefore, in this research has been addressed to survey income smoothing effect on financial leverage and profitability during 2006-2010 period. In this study, 60 companies listed on the Tehran Stock Exchange were selected by using systematic elimination way and for analysis and hypothesis testing using from statistical techniques such as simple linear regression and Pearson's correlation test and Zr. And finally used in ECKEL model for identifying smoothing firms from non-smoothing. This research findings confirmed the presence of smoothing and relationships between financial leverage and profitability in listed companies of Stock Exchange and showed that firms do smooth include operating profit, gross profit and net profit. The main result of the study indicates that despite significant relationship between some variety of research hypotheses in smoothing and non-smoothing firms, there are significant differences between financial leverage and profitability between these two groups of firms.


Income smoothing, financial leverage, owner's equity efficiency ratio, ECKEL model.

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