The effect of the banking business model on earning smoothing and cash flow forecasting with an emphasis on audit quality

Rashidi Baqhi, Mohsen; Papi, Fatemeh

doi:10.22034/jse.2025.12431.2269

The effect of the banking business model on earning smoothing and cash flow forecasting with an emphasis on audit quality

Document Type : Original Article

Authors

mohsen rashidi baqhi ¹

fatemeh papi ²

¹ Associate Professor, Department of Accounting, Faculty of Management and Economic, Lorestan University, Khoramabad, Iran.

² M.Sc. Department of Accounting, Faculty of Management and Economic, Lorestan University, Khoramabad, Iran.

10.22034/jse.2025.12431.2269

Abstract

Abstract
Purpose: The purpose of this paper is to examine whether the banking business model affects earning smoothing or not. In addition, the current research deals with the role of auditors' participation in independent monitoring.
Method: Profit smoothing with loan loss reserves is measured on unmanaged profit and corrected standard errors are used. Also, the sample includes Iranian banks that were observed from 1390 to 1401.
Findings: The current research showed that despite the effect of the diversification business model, the retail and market-oriented business model does not have a significant effect on earning smoothing. But the retail business model and diversification has a significant effect on the predictability of cash flows. Also, the emphasis on audit quality has no significant relationship with the smoothing of market-oriented banks.
Conclusion: Based on the results of the research, it can be stated that the expected loss approach for estimating credit losses cannot increase the information of the accounting numbers of other business models except the information of the accounting numbers of the diversification business model. Also, the present paper contributes to the earning smoothing literature by addressing the role of the business model as a whole in explaining the smoothing propensity, rather than limiting the observation to particular features of the balance sheet.

Keywords

cash flow forecasting

audit quality

banking business model and earning smoothing

Subjects

Securities Exchange

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