The Effect of Opportunistic Behavior, Board Gender Diversity, Financial Distress, & Political Connections on Real Earning Management

Abstract

The desire to earn profit is one of the forms of business established by a company. Profit plays an important role for the company because profit is one of the indicators to evaluate the company’s performance and help investors in making investment decisions. Investors generally do not focus too much on management in obtaining their company’s profit. This makes management try to practice earnings management so that the company’s financial statements look good and are able to influence investor perceptions. Currently, there has been a shift in the application of accrual earnings management to real earnings management because to avoid company losses during accounting period, to avoid investigations conducted by auditors when conducting the company’s annual audit. This study aims to test and analyst the effect of opportunistic behavior, board gender diversity, financial distress, audit quality, and political connections on real earnings management. This study is quantitative research with hypothesis testing. The type of data used is the company’s annual report. The object of study is manufacturing companies listed on the Indonesia Stock Exchange from 2018 to 2021. The data collection method is documentation. The samples used in this study were 160 manufacturing companies selected using purpose sampling technique. The results showed that the more diverse the board of directors, the tendency of management to perform real earnings management techniques proxied by abnormal cash flow, abnormal production costs, and abnormal discretionary costs is getting smaller; the higher the financial distress, the tendency of management to perform real earnings management techniques both proxied by abnormal operating cash flow, abnormal production costs, and abnormal discretionary costs is increasing; the more management behaves opportunistically, the tendency of management to perform real earnings management techniques proxied by abnormal operating cash flow is higher; the higher the audit quality, the tendency of management to perform low real earnings management both proxied by abnormal operating cash flow, abnormal production costs, and abnormal discretionary costs; the higher the political connections built, the lower the tendency of management to perform real earnings management techniques proxied by abnormal operating cash flow, abnormal production costs, and abnormal discretionary costs.