Abstract
Earnings management (EM) refers to the common use of accounting techniques in various economic settings, such as Initial Public Offerings (IPOs), to produce financial statements. This study, therefore, analyzes the effect of firm size, operating cash flow, the used IPO proceeds, earnings changes, and leverage on EM of manufacturing companies on the Indonesia Stock Exchange from 1989 to 2013. This sector comprises the essential chemical industry, miscellaneous organizations, and consumer goods, with 63 firms being used to meet the selection criteria. The regression analysis showed that the intended use of funds and leverage had a negative and significant impact on EM. Furthermore, the process is measured using Friedlan’s (1994) Discretionary Current Accruals model with similar results found in each industry group and their insignificant differences used to regulate the level of discretionary accruals between the three sectors. This study implies that the EM level is qualitatively similar among IPO companies in the three sub-sectors examined. AcknowledgmentsThe authors are grateful to the audience for their comments during the 11th Environmental and Sustainability Management Accounting Network-Asia Pacific (EMAN-AP) Conference held at the Danang University of Economics, Danang, Vietnam, 12-13 August 2019. The early draft was titled “Earnings Management and Initial Public Offerings on Manufacturing Sectors Companies”.
Highlights
The activity of purposely influencing the financial reporting process for personal gain is called earnings management (EM)
Previous studies have reported that it is rampant in countries that discharge earnings forecasts, including France (Cormier & Martinez, 2006), Taiwan (Jaggi et al 2006), and Indonesian Initial Public Offerings (IPOs), which has a limited impact on the capital market (Hutagaol et al, 2012)
This study focuses on the proposed utilization of the Indonesian proceeds or funds, which serves as a determinant of Earnings management (EM)
Summary
The activity of purposely influencing the financial reporting process for personal gain is called earnings management (EM). Meidiaswati et al (2019) reported that using proceeds related to the performance of IPOs in the Indonesian market is utilized during decision-making concerning investment. Leone et al (2006) and Balatbat and Bertinshaw (2008) reported that the use of funds caused a decline in information asymmetry among issuers (managers) and third parties such as investors and other fund providers. These firms are strongly encouraged to sell new shares for prospective purposes, including EM’s execution to show that they possess strong financial performance. Operational activities’ cash flows, earnings changes, and company size have an insignificant impact on discretionary accruals in the miscellaneous sector
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
