Abstract
Tis study aims to detect the background of earnings management behavior in which it shows the tendency of type I or II agency conflict. The high ownership concentration of firms in In-donesia leads type II agency conflict, but the good corporate governance formulation assumes conflict between management and shareholders. This study uses published data in IDX from 2009–2014. TThe result reveals that reputation quality has negative significant correlation to earnings management behaviors, but corporate governance quality has insignificant correlation to earnings management, except percentage of independent commissioner board in moder-ate level. It has implication that management faces type II agency conflict. The majority may monitor management directly, so the finding reveals that independent commissioner board’s function is not optimum as part of corporate governance mechanism. According to the evi-dence, corporate governance formulation, especially in Indonesia, should be needed for reduc-ing earnings management on type II tendency.
Highlights
There are two possibilities types of agency conflicts that depending on ownership setting
Type II agency conflict assumes that majority shareholder expropriates minority shareholders, because this agency conflict type could happen in concentrated ownership
As the statement of Aguilera and Crespi-Cladera (2016), the objective of corporate governance mechanism design mitigates the conflict between manager and shareholders, so the design is on widely owned firm context
Summary
There are two possibilities types of agency conflicts that depending on ownership setting. The type I agency conflict assumes that management takes benefit from shareholders, because agency conflict could happen in dispersed ownership. Type II agency conflict assumes that majority shareholder expropriates minority shareholders, because this agency conflict type could happen in concentrated ownership. According to both characteristics, asymmetric information depends on the conflict in which the management’s objective is serving for. As the statement of Aguilera and Crespi-Cladera (2016), the objective of corporate governance mechanism design mitigates the conflict between manager and shareholders, so the design is on widely owned firm context
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