Evaluation of Relationship between FinancialLeverage And Income smoothing In The Stock Exchange Of Tehran

The management of the firms with the high incremental debt usually has more incentives to satisfy the creditors via the earning management. Of course, the demand of annually auditing reports by professional auditing institutions that is one of the provider's (creditors) conditions, cause to management face chief limitations and forbiddances in the field of earning management. Accordingly, the firms with high increment in the financial leverage manipulate income lesser. In this study the relationship between financial leverage and income smoothing has been surveyed. The research has been investigated in the Tehran Stock Exchange from 1377 to the end of 1384. The results indicate that there is a meaningful and negative relationship between financial leverage and income smoothing. There is a further negative and meaningful relationship between financial leverage and income smoothing in the firms with the higher free cash flows, too.