Effect of Good Corporate Governance (GCG) Mechanism on Earning Management Practices and the Impact on Stock Returns (Case Study on LIQUID (lQ 45) Companies Listed in Indonesia Stock Exchange Period 2013-2017)

M Noor Salim,M Rusman Hn

doi:10.11114/bms.v5i3.4313

Abstract

This study aims to analyze the effect of the mechanism of good corporate governance (GCG) on earnings management practices and their impact on stock returns. The population used in this study is the companies included in the go public LQ 45 group listed on the Indonesia Stock Exchange in 2017. The analytical tool used in this study is Eviews software version 8.0. The results of the analysis in this study indicate that (1) Institutional Ownership has a negative and significant effect on Earning Management Practices, (2) Managerial Ownership has a negative and significant effect on Earning Management Practices, (3) Independent Board of Commissioners has a negative and significant effect on Earnings Management, (4) The Audit Committee has a negative and significant effect on Earning Management Practices, (5) Institutional Ownership, Managerial Ownership, Independent Board of Commissioners and Simultaneous Audit Committee (Together) have a significant effect on earnings management, (6) Earning Management Practices have a negative and significant effect on stock returns(7) Institutional Ownership has a positive and significant effect on stock returns, (8) Managerial ownership has a positive and significant effect on stock returns, (9) The Independent Board of Commissioners has a positive and significant effect on stock returns, (10) The Audit Committee has a positive and significant to stock returns, and (11) Earning Management is able to mediate the influence of Institutional Ownership, Managerial Ownership, Independent Board of Commissioners, and the Audit Committee simultaneously (jointly) on Stock Returns. It is recommended that the LQ45 company increase the portion of Institutional ownership as part of a supervision for management in managing the company so as to increase stock returns on an ongoing basis.

Highlights

The funds needed by the company to carry out development are increasingly high, while on the other hand the government's ability to provide funding needs is increasingly limited
The results show that Earning Management Practices are able to mediate the influence of Institutional Ownership, Managerial Ownership, Independent Board of Commissioners, and Audit Committee simultaneously on Stock Return
Non-executive directors (Independent Board of Commissioners) can act as mediators in disputes that occur between internal managers and oversee management policies and provide advice to management, 4) Based on the results of the study, it is known that the Audit Committee has a negative and significant effect on Earnings Management

Summary

Introduction

The funds (capital) needed by the company to carry out development are increasingly high, while on the other hand the government's ability to provide funding needs is increasingly limited. To anticipate these conditions, the Indonesian economy requires alternative sources of funds other than through bank loans, namely through the capital market Given the importance of earnings information as a basis for consideration of someone making an investment decision, the company managers try their best so that the profits contained in the annual report of the publication provide a positive signal to potential investors to invest. The theory states that the practice of earnings management is influenced by conflicts of interest between the parties concerned (principal) and management as those who carry out the interests (agent) (Sedarmayanti, 2012, p. 54)

Objectives

Results

Discussion

Conclusion