Determinants of Earnings Management Actions in Indonesian Banking Companies

Abstract

Objective – This study aims to examine the influence of Investment Opportunity Set and Corporate Social Responsibility Disclosure through Profitability on Earnings Management. The companies examined are banking companies listed on the LQ45 Index of the Indonesia Stock Exchange (IDX). Methodology – This study used data sourced from annual financial reports of banking companies on the LQ45 Index of the Indonesia Stock Exchange for the 2016-2020 periods. This study used descriptive and verification analysis methods with path analysis and hypothesis testing. Investment Opportunity Set is measured by Market Value to Book Value of Assets, Corporate Social Responsibility Disclosure is measured by Global Reporting Initiative G4 indicators, Profitability is measured by Return on Assets, and Earnings Management is measured by Discretionary Accruals. Findings – The results indicate that Investment Opportunity Set and Corporate Social Responsibility Disclosure and Profitability have no effect on Earnings Management. This implies that Earnings Management actions in companies are more likely to be influenced by other variables which closely related to agency theory and hard to predict the determinants by using only several variables. Novelty - Based on the results of this study, Profitability as an intervening variable does not mediate the effect of Investment Opportunity Set and Corporate Social Responsibility on Earnings Management. This might happens because profitability is quite common for investors and users of financial statements in assessing the company's financial performance so that it is easier for users of financial statements to know the Earnings Management actions done by the company. Type of Paper: Empirical JEL Classification: G11, G20. Keywords: Bank; Investment Opportunity Set; Corporate Social Responsibility; Profitability; Earnings Management. Reference to this paper should be made as follows: Suryani, Arna. Ariayani. (2022). Determinants of Earnings Management Actions in Indonesian Banking Companies, J. Fin. Bank. Review, 7(1), 39 – 50. https://doi.org/10.35609/jfbr.2022.7.1(2)