Abstract
The objective of this study is to test the influence of free cash flow, operating cash flow, managerial ownership, financial leverage, and firm size on earnings management at manufacturing firms listed in the Indonesian Stock Exchange (IDX) from 2012 to 2016. The study was aimed to testseveral hypotheses. The sample was selected by using purposive sampling technique, resulting in 106 sampled firms. The data were obtained from firms’ annual report and analyzed by using panel data regression. The study results showed that the free cash flow and operating cash flow as the independent variables with financial leverage as the control variable influenced the earnings management, while managerial ownership withfirm size as control variable did not influence the earnings management.
Highlights
A financial statement is a primary tool used by managers to show effectiveness in achieving goals and to perform accountability function in an organization
0.000, lower than 0.05 (5%), which showed that operating cash flow influenced negatively earnings management in manufacturing firms listed in Indonesian Stock Exchange from 2012 to 2016
The first control variable, managerial ownership, has the regression coefficient of 0.00047 with the significant level of 0.06523, which is higher than 0.05 (5%). This showed that managerial ownership did not influence earnings management for manufacturing firms listed in Indonesian Stock Exchange in 2012-2016
Summary
A financial statement is a primary tool used by managers to show effectiveness in achieving goals and to perform accountability function in an organization. The financial statement becomes media for firms to deliver financial information regarding accountability of the management on fulfilling need of external parties’ expectation, i.e., obtaining information regarding the firm performance. Information on earnings is one of indicators to measure performance of manager’s accountability in achieving operational goal and in assisting firms’ownersin estimating earnings power of firm in the future (Herawaty, 2009). Earnings have become indicator ofmanagements manipulation through their opportunistic action to maximize their satisfaction This opportunistic action is performed by choosing a particular accounting policy so that earnings can be manipulated, increased or decreased as their requirement. The managers’ behavior to manageearnings according to their needs and interest is known as earnings management
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