Abstract
The aim of this research is to examine the effect of real earnings manipulation (REM) on the performance of state-owned enterprises (SOEs) in Indonesia. This research was conducted at a state-owned company listed on the Indonesia Stock Exchange (IDX) in 2013-2017. Data obtained from financial reports and annual reports issued by IDX and the Web of each SOEs. Data also comes from the Indonesian Capital Market Directory. The research variables consist of a dependent variable, which is financial performance, and an independent variable that is REM. Financial performance is proxy by net profit margin (NPM) and returns on equity (ROE). Earnings manipulation is proxy by Roychowdhury's model. The type of ownership is used as a control variable of this research. Generally, the least square regression model is used to test the relationship between earnings manipulation and SOEs performance. This research shows that earnings manipulation based on real activities through production costs negatively affects the performance of Indonesian SOEs, government ownership negatively effects on NPM whereas public ownership has a positive effect on performance, as measured by ROE. Improper government policies can reduce the performance and significant disadvantages of SOEs.
Highlights
This research examines the effect of real earnings manipulation (REM) on state-owned enterprises (SOEs) performance in Indonesia
The average net profit margin (NPM) of 8.33% shows that the performance of SOEs is still worrying because the NPM only takes into account the cost of products or services
Government ownership negatively affects NPM with a significance level of 5%, this means that the higher the percentage of government ownership, the lower the NPM
Summary
This research examines the effect of real earnings manipulation (REM) on state-owned enterprises (SOEs) performance in Indonesia. Earnings management can be opportunistic and efficient. Opportunistic earnings management is connoted as earnings manipulation. In this paper, the terms manipulation and earnings management are similar to opportunistic earnings management. This research was motivated by SOEs' performance which continues to be in the spotlight. Major cases such as the PLN case which lost 53 trillion in the first quarter 2020, the Jiwa Sraya Case (2019), and the improper financial statement Case of PT Garuda Indonesia (2018), as well as 24 SOEs losers (2017), raise big questions. Why do SOEs suffer losses, even though they enjoy many facilities from the Government of Indonesia?
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