Corporate governance quality, firm size and earnings management: empirical study in Indonesia Stock Exchange

Yulia Saftiana,Krisna Winda Putri,Mukhtaruddin Mukhtaruddin,Ika Sasti Ferina

doi:10.21511/imfi.14(4).2017.10

Yulia Saftiana, Krisna Winda Putri + Show 2 more

Open Access

https://doi.org/10.21511/imfi.14(4).2017.10

Copy DOI

Abstract

Earnings management (EM) is manipulation done by management in preparing financial statement in order to gain management advantages or to increase the firm value. EM can reduce the quality of financial statements because it does not show the real earning periodical. This research aims to identify the effect of good corporate governance (GCG) (institutional ownership, managerial ownership, frequency of board meetings, frequency of audit committee (AC) meetings), firm size, and leverage on the EM. Population comprises the companies in LQ 45 index of Iindonesia Stock Exchange (IDX) for the period 2010–2014. Samples of the research were taken using purposive sampling method, and the variables are tested using multiple linear regression analysis. The results of the research show that partially, only leverage has significant effect on EM, while institutional ownership, managerial ownership, frequency of board meeting, frequency of AC meetings, and firm size have no significant effect on EM, but all of the variables have simultaneously significant effect on EM. Limitations of the research are the only used 6 independent variables and 21 companies as samples of the research.

Highlights

The financial statements are the media of information that indicates the state of a company
The report contains information used by the parties concerned, both the external and internal
Management is trying to show a good performance on the financial statements, especially on profits

Summary

Introduction

The financial statements are the media of information that indicates the state of a company. Statement of Financial Accounting Standards (SFAS) No 1 (2015) stated that the objectives of financial statements are to report the company’s performance during a period and as a result of management accountability in using the resources. The report contains information used by the parties concerned, both the external and internal. For external parties, such as investors and potential investors, financial reports are used to assess the ability and prospects of the company in making investment decisions, while for internal parties, the information in the financial statements can be useful for assessing the achieved performance by the management. If the management won’t succeed in achieving the profit targets, management can utilize the accounting method that has been allowed by accounting standard to modify profit in preparing financial statements. The companies which are involved in EM case are widely known as Enron, Merck, and World

Objectives

Discussion

Conclusion