The effect of political connection and earnings management on management compensation

Abstract

This research aims to examine the direct effect of political connection and earnings management on management compensation as well indirect effect of political connection on management compensation through earnings management. There are three measures of earnings management used in this research, namely accrual, real, and aggregate earnings management. Samples of this research are non-financial companies listed in Indonesia Stock Exchange in the period of, 2014-2016 with 337 observations. We find that real earnings management has a significant positive effect on management compensation. However, there is no evidence that political connection has any effect on earnings management nor political connection on management compensation. Moreover, there is no evidence on the indirect effect of political connection on management compensation through earnings management.