Abstract
Purpose -This paper discusses empirical research examining whether: 1) controlling owners’typeaffectscostofequitycapital(COEC)andrealearningsmanagement(REM), 2) REM affects COEC, and 3) REM mediates the effect of controlling owners’ type on COEC.
 Design/methodology/approach–The research uses a sample of 132 publicly listed companiesontheIndonesianStockExchangeforthefiscalyearthatendsonDecember 31intheyearof2011,2012,and2013andthetotalobservationconsistof396firm-years. Cost of equity capital is estimated by using Ohlson Model, Real earnings management as mediating variable is measured by Roychowdhury model. Three models are used to calculate real activity manipulation based on operating activity, production cost, and discretionaryexpenditures.Controlvariablesconsistofcorporategovernancepractices measured by corporate governance indices, ownership concentrated level measured by ownership ratio, firm’s size measured by log total assets, and discretionary accruals measures by Modified Jones Model. Data used in this study is obtained from ICMD, Indonesian Stock Exchange database, and company annual reports.
 Findings -This research finds evidence that the ownership type affects cost of equity capital, and RCFO except private ownership. With exception for GOV, ownership type affectsproductioncosts-basedrealearningsmanagement(RPE)butallownershiptypes affect discretionary expenditures-based real earnings management (RDE). Moreover, RCFO, RPE, and RDE affect cost of equity capital. Finally, this research reports that RCFO mediates the effect of each ownership type on cost of equity except for private ownership (PRIV), RPE mediates the effect of each ownership type on cost of equity capital except for private ownership(PRIV)and government ownership(GOV)andRDE mediates the effect of each ownership type on cost of equity capital.
 Originality/value - This study provides further evidence on the effect of controlling ownership on COEC and REM, the effects of REM on COEC, and evidence that REM mediates the effect of controlling owners’ type on COEC.
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