Earnings Management Practices Research Articles

Pengaruh Independensi Komite Audit dan Kepemilikan Keluarga terhadap Manajemen Laba di Perusahaan Bursa Efek Indonesia

This study aims to examine how audit committee independence and family ownership affect earnings management. This study was prepared by considering the prevalence of earnings management cases in Indonesian companies. Earnings management is the act of a company manipulating related company profits obtained in one period in order to gain profits. In this study, the audit committee's independence and family ownership are the independent variables, whereas earnings management is the dependent variable. Family ownership also acts as a moderating variable. There are 11 other control variables included in support of the research conducted. The annual reports and financial statements of non-banking companies listed on the Indonesia Stock Exchange were used as secondary data sources for this study. This research uses Multiple Regression Analysis utilizing the SPSS software. According to the study’s findings, audit committee independence has no significant relationship to earnings management, while family ownership is significantly positively correlated with earnings management. Besides that, family ownership is not able to moderate audit committee independence on earnings management. Thus, it may be said that the family ownership structure of companies may influence earnings management practices in Indonesian public non-banking companies.

Accounting Discretion, Loan Loss Provision in Financial Distress: Evidence from Commercial Banks

Abstract This study explores the association between earning management practices and financial distress in commercial banks. Earning management is measured through discretionary loan loss provisions and non-discretionary loan loss provisions. Modified Altman’s Z-score has been used as a proxy for financial distress. Panel regression with fixed and random effect has been employed for empirical analysis. The study finds a significant positive association between DLLP, NDLLP and financial distress in terms of the Altman Z-score. In the case of NDLLP, liquidity reduces the probability of financial distress. Whereas, a bank’s SIZE, LEVG and AQ enhance the likelihood of financial distress. The robustness tests were applied to find the association between NDLLP and FD using logistic regression to validate baseline estimates results of the random effect model. The findings of this study have implications for the policymakers, regulators and internal stakeholders to devise effective regulatory measures for well-informed investment decisions.

PENGARUH ADOPSI IFRS TERHADAP MANAJEMEN LABA DI INDONESIA

This study aims to examine the effect of IFRS adoption on earnings management. Since 2012 Indonesia has adopted IFRS which is an internationally accepted high quality financial reporting standard. One of the characteristics of the quality of financial statements is the low level of earnings management. The population in this study are manufacturing companies listed on the Stock Exchange, with a sample of 115 companies before the adoption of IFRS and 115 companies after the adoption of IFRS. The results showed that there was no effect of IFRS adoption on earnings management practices.

Impact of Earning Volatility, Real Earnings Management and Accruals on Investment Policy: Evidence From Indonesia

This study aims to analyze earnings volatility, real earnings management activities, and accruals on the company's investment policy. The sample used is manufacturing companies on the Indonesian stock exchange as many as 117 companies with a total of 351 observations during the 2018-2020 period. This study used 2 models, each of which was tested using linear regression. The results showed that earnings volatility increased management motivation in carrying out accrual earnings management practices and real earnings management through the manipulation of production costs by managers, but the effect of greater volatility was found in the real earnings management model. Accrual earnings management has an effect on the company's over-under investment policy, while real earnings management through operating cash flow and production costs has no significant effect on investment policy. Accrual earnings management is able to increase the company's over-under investment policy

COVID-19: Accrual Earnings Management Practices in Pharmaceutical Companies in Indonesia

The COVID-19 pandemic has disrupted the supply chain of domestic pharmaceutical raw materials, where 95% of the fulfillment of raw materials relies on imports. Amid difficulties in meeting raw materials, the pharmaceutical sub-sector companies have become one of the sectors of choice for investors throughout 2020, in line with the sentiment of the COVID-19 pandemic. As one of the prima donnas’ sectors during pandemic, financial reports presented by pharmaceutical sector should report the actual condition of the company. This study aims to empirically examine the differences in accrual earnings management before and after the COVID-19 pandemic in pharmaceutical sub-sector companies in Indonesia. To evaluate changes in accrual earnings management in the period before the COVID-19 pandemic, namely in 2019 and after the COVID-19 pandemic, namely in 2020, the Paired Sample T-test was used. The findings of this study show that there is no average difference between accrual earnings management before COVID-19 (Pre-test) and after COVID-19 (Post-test), indicating that COVID-19 has no impact on earnings management practices in the pharmaceutical sub-sector companies in Indonesia. The deteriorating global economic conditions caused by the COVID-19 pandemic do not necessarily encourage managers to carry out aggressive earnings management. The pharmaceutical sub-sector companies that have become the center of attention of investors during this pandemic, as a result the company’s performance shown in the financial statements does not make managers aggressively try to manipulate their financial statements.

Earnings Management, Conceptual Framework and Literature Review: Saudi Arabia as a Case Study

This article provides the conceptual framework for earnings management, which begins by presenting the concept of earnings management, then the actions, motives, techniques, measurement, and then the consequences of this practice. This article also presented studies that dealt with earnings management in the Saudi context. This is because the Kingdom of Saudi Arabia has recently witnessed a clear development in companies and changes in accounting systems which in turn provides an opportunity for more research on earnings management in Saudi Arabia. Several studies provide evidence that EM occurs in Saudi companies, and there are many motivations to practice earnings management in Saudi companies.

Does environmental, social, and governance performance mitigate earnings management practices? Evidence from US commercial banks.

Environmental, social, and governance (ESG) performance has attracted debates of regulatory bodies and the academic community. Previous studies highlighted the relationship between corporate social responsibility (CSR) disclosure index and earnings management (EM) for non-financial firms. In this paper, we examine the relationship between the ESG performance and EM practices for a sample of US commercial banks over the period 2010–2019. We use two proxies for earnings management: abnormal loan loss provisions (ALLP) and EM to meet the threshold of reporting small positive profit or avoiding losses (SPOS). Consistent with the transparent financial reporting hypothesis, we find that banks reporting higher ESG performance are less likely engaged in income-increasing practice through ALLP. However, no evidence supports that ESG score mitigates EM through loss avoidance. Furthermore, we disaggregate the ESG score into its main three components: environmental, social, and governance. Our findings show that the governance pillar effectively mitigates EM practice under its two proxies. Specifically, the social pillar also seems to be an efficient constraint of banks’ EM through income-increasing abnormal loan loss provisions and loss avoidance activity. However, no supporting evidence of a mitigating role for the environmental pillar is provided. Taken together, our results show that, except the environmental pillar, ESG performance score acts as an efficient mitigating tool for EM practices for US banks. Our findings provide a better understanding of banks’ earnings management practices. Our findings are helpful for managers when undertaking long-term investment strategies in ESG reporting practices, regulators when issuing new standards, and banks’ stakeholders when assessing both the financial and non-financial performance of such entities.

Environmental, social and governance disclosure’s impacts on earnings management: Family versus non-family firms

Firms may strategically disclose corporate social responsibility (CSR) activities to compensate for their earnings management practices and, in this way, deflect stakeholders' attention from non-standard reporting procedures. However, CSR dimensions can contribute differently to these practices, and these impacts may be affected by specific business contexts. This study investigated how each component of environmental, social and governance (ESG) disclosure individually affects earnings management in family versus non-family firms. The analysis used data from 2009 to 2018 on listed companies in France and Spain as these code law countries both have concentrated ownership. The results show that not all ESG dimensions are equally important for reducing earnings management and that the relationship between ESG disclosure and earnings management is affected by firms’ family or non-family status. The findings contribute to resolving the debate generated by inconsistent results reported regarding the relationship between disclosure of CSR activities and earnings management.

Corporate governance, competition and earnings management: evidence from Asian emerging economies

Purpose This paper aims to explore the nexus between corporate governance, competition and earnings management (EM) in Asian emerging economies. Design/methodology/approach The authors used a sample of 116 banks from 10 Asian emerging economies from 2010 to 2021. To measure corporate governance, the board size, chief executive officer duality and ownership concentration are used. Competition is captured with Herfindahl-Hirschman Index (HHI) and Lerner index (LI). Although earning management is measured through discretionary accruals. The authors use fixed effect regression for hypothesis testing. However, dynamic panel system generalised method of moments estimation is used to confirm the robustness of the results. Findings The authors find that corporate governance and competition are significantly related to earning management practices of banks in emerging Asian economies. The authors report similar outcomes with both estimation methods verifying the reliability of results. Originality/value The findings of the study have implications for corporate regulatory authorities, management and investors in the Asian emerging economies. Banks in the Asian emerging economies need to pay more attention to factors such as governance and competition to avoid EM.

Why State-Owned Enterprises Often Do Earnings Management?

The requirement that the income statement provided be in the profit position all of the time encourages the use of earnings management. Managers manipulate data using accounting practices to fool stakeholders. The goal of this research is to see how the effect of government ownership on earnings management affects audit quality. For 2015-2020, the population is State-Owned Enterprises listed on the IDX. A sample of 24 State-Owned Enterprises is obtained using the purposive sampling method. Using EViews version 10, simple regression and moderated regression analysis (MRA) were used to analyze the data. The findings reveal that government ownership has no effect on earnings management and that audit quality has no effect on earnings management when it comes to government ownership. Big Four public accounting firms have been unable to curb earnings management practices due to government expectations and protection. The bank's earnings management profit maximization occurred as a result of the bank's desire to attract and increase the confidence of third-party funds, which are the bank's greatest source of funds. Income minimization, on the other hand, occurred because the corporation intended to lower the amount of tax it had to pay to the government.

The impact of ownership concentration and board of directors mechanisms on earnings management practices: an applied study on a sample of private Iraqi banks listed on the Iraqi Stock Exchange.

يهدف البحث إلى قياس اثر آليتي تركز الملكية ومجلس الإدارة على إدارة الأرباح تمثلت عينة البحث ب16 مصرف من المصارف العراقية المدرجة في سوق العراق للأوراق المالية للفترة من ( 2010-2019) وقد توصل البحث إلى أن آليتي تركز الملكية ومجلس الإدارة ذات تأثير في تخفيض ممارسات إدارة الأرباح ,ويوصي البحث بإصدار قواعد او دليل بتطبيق قانون حوكمة الشركات في سوق العراق للأوراق المالية ولا سيما أن البحث اثبتت من ممارسات المصارف العراقية لإدارة الأرباح .

Factors Affecting Earning Management in Companies on the Indonesia Stock Exchange: Study of Fraud and Corruption Practices

This study examines the phenomenon of corruption fraud proxied by earning management in companies listed on the Indonesia Stock Exchange. This study uses the variables of leverage, capital expenditure, and profitability as key variables influencing earning management practices that lead to fraud and corruption. This study uses time-series data from 2017 to 2021 and selects a sample by purposive sampling of as many as 28 companies listed on the Indonesia Stock Exchange. The study's results found that the key variables of leverage, capital expenditure, and profitability turned out to have a positive and significant effect on corruption fraud proxied by earning management. This research contributes mainly to the management of shareholders, practitioners, and investors to predict the possibility of earning management practices that lead to corruption and fraud committed by the company. The originality of this research is mainly in measuring corruption and fraud projected by earning management, thus providing a reference for future research.

Perbedaan Praktik Manajemen Laba pada Perusahaan Berbasis Syariah dan Non Syariah

Investment interest from the public from year to year continues to increase, not only those who have a lot of capital but people who have limited capital make investments. Various conveniences of investors in investing can be seen from the various existing application platforms. Investors in seeing the company's performance, one of which uses financial statements. However, there is a behavior of the company's management not displaying actual performance such as earnings management, it is based on individual interests and harms other parties who have a tendency not to comply with sharia principles.
 This study uses a quantitative approach with secondary data in the form of financial statements of Consumer Non-Cyclicals sector companies registered with ISSI and those not registered with ISSI in 2018-2020. The measurement of variables uses a modified jones model analysis in measuring the amount of profit management carried out by the company. The results of this study showed that there was no difference in earnings management practices in Consumer Non-Cyclicals sector companies registered with ISSI and those not registered with ISSI. Although there are differences on average, the differences do not occur significantly in statistics.
 Keywords: Earnings Management, Modified Jones Model, Consumer Non Cyclicals

FAKTOR-FAKTOR YANG MEMENGARUHI MANAJEMEN LABA PADA PERUSAHAAN NON-KEUANGAN

The purpose of this study is to obtain empirical information about the effect of audit comittee, independence of board of directors, firm size, board size, leverage, managerial ownership, institutional ownership, and audit quality. This study uses samples from all non-financial companies listed on the Indonesia Stock Exchange (IDX) from 2018 to 2020. The results of the sample found that there were 79 companies. The results of this study indicate that the independence of board of directors and audit quality have an effect on earnings management, that earnings management practices will be higher because the demands of good prospect reports in the public make companies with high growth motivated to carry out earnings management. However audit comittee, firm size, board size, leverage, managerial ownership and institutional ownership have no effect on earnings management.

PENGARUH MOTIVATIONAL BONUSES DAN CORPORATE GOVERNANCE TERHADAP MANAJEMEN LABA

The objective of this research is to acquire empirical evidence regarding the factors that can affect earnings management in nonfinancial companies listed on Indonesia Stock Exchange. These factors are motivational bonuses, leverage, firm size, size of audit committee, independent commissioner, institutional ownership, managerial ownership, free cash flow, board size, and audit quality. The population used in this research are nonfinancial companies consistently listed on Indonesia Stock Exchange from 2018-2020. This research uses purposive sampling method which the research sample consists of 104 nonfinancial companies listed on the Indonesia Stock Exchange. The results of the data obtained were analyzed using multiple regression method. The results of this research show that motivational bonuses has positive effect on earnings management because the company’s management has opportunistic behaviour to get bonuses with their manipulating company profits. Leverage has negative effect on earnings management because there was surveillance from creditors and investors can minimize earnings management practices, Managerial ownership has positive effect on earnings management because higher managerial ownership can control the company’s management to manipulate financial report, Free cash flow has negative effect on earnings management because the higher of free cash flow indicates the company can manage operational activity well. Audit quality has negative effect on earnings management because public accountant big 4 can detects error from financial statement and reduce earnings management. The other variables have no influence on earnings management.

Ownership Structure and Earnings Management in View of Effective Monitoring and Myopic Institutions Hypothesis: A Dynamic Panel Estimation

The current research envisages the ownership structure and earnings management nexus in the context of the effective monitoring hypothesis and myopic institutions hypothesis. The ownership aspects, including, shareholdings by the management, institutions, foreign institutions, pension funds, investment companies, and mutual funds are analyzed. The study follows Kothari et al. (2005) for the estimation of discretionary accruals and applied Arellano and Bond dynamic panel estimation to test the models based on a sample of 206 non-financial firms over the period of 2015–2019. The results of the study supported the agency theory, effective monitoring hypothesis, and myopic institutions hypothesis. Consistent with the previous empirical studies, the results reveal that managerial and institutional ownership curtails earnings management practices and discourages myopic management. Furthermore, the analysis of institutional investors based on their investment objectives reveals that the ownership of pension funds and investment companies restrains earnings management practices. On the other hand, discretionary accruals increase monotonically due to the existence of ownership by mutual funds. Furthermore, the study also provides a beer insight to regulatory authorities in order to design policies in such a way that ensures the protection of minority shareholders.

Earnings Management and Corporate Performance in the Scope of Firm-Specific Features

Various models have been created all around the world to identify enterprises that manipulate their earnings. These earnings management techniques aid businesses in enhancing their financial performance or gaining some competitive advantages. The primary goal of this article was to identify the firm-specific characteristics that affect how businesses manage their earnings using a sample of 15,716 businesses from various economic sectors in the Slovak environment during a 3 year period. The level of earnings management was measured by discretionary accruals using the Kasznik model. In this paper, a correspondence analysis using the chi-square distance measure was applied to find the dependence between the earnings management practices and firm-specific features (firm size, legal form, and sectoral classification). The results of the study indicate that aggressive (income-increasing) earnings management practices are typical of small enterprises with a public limited ownership structure, mostly in sectors R and M (using the NACE sectoral classification). Conservative (income decreasing) practices can be observed in enterprises in the sectors J or F, and they are also used by medium-sized enterprises and those with private limited ownership structure. The results revealed that large enterprises do not tend to manipulate their earnings, as well as enterprises operating in sector K. The insights of this study may provide important and useful information for shareholders and regulators in evaluating determinants that are effective in mitigating earnings management practices. Authorities, regulators, analysts, and auditors may find the importance of the discovered variances helpful in identifying various strategies and techniques for earnings manipulation that may differ among industries according to their typical characteristics.

The Impact of Earnings Management Practices on the Market Value of Industrial Companies Listed on the Amman Stock Exchange: Evidence from Jordan

Reported earnings and their prediction is one of the most important factors that are relied upon in determining the value of various investments, given that the higher the earnings, the greater the possibility of distributing profits, and accordingly, stock prices are determined in the financial markets. This study aims to examine the impact of earnings management on the firm value of Jordanian industrial companies listed on the Amman Stock Exchange for 2015-2019. This study used discretionary accruals according to the modified Jones model to measure earnings management. Tobin’s Q as well is used as a proxy to firm value. Furthermore, this study used firm size, firm age, and leverage as control variables. In analyzing data, STATA is used. The results showed that earnings management has a negative but insignificant impact on firm value. On the other hand, leverage has a significant and negative effect on firm value. Firm age has a positive but insignificant effect on firm value. Firm size has a negative and significant effect on firm value.

Corporate Income Tax Changes in the Context of Earnings Management: a Review of the Literature

The purpose of the article/hypothesis: This paper aims to provide a comprehensive review of the theoretical and empirical literature regarding tax-induced earnings management. In particular, the association between anticipated tax changes and earnings management is of interest to the authors.
 Methodology: This paper uses a systematic literature review to achieve its research objectives.
 Results of the research: The presented research is mostly devoted to tax rate decreases and focuses on accrual-based earnings management methods. In anticipation of a tax rate change, companies shift their income from a high to a low tax rate period. Moreover, the probability of tax-induced earnings management is higher in case of extreme changes in the tax rate, larger prospects for tax savings as well as in case of private firms. This paper identifies several inconsistencies and gaps in the current literature, emphasizing that the connection between firms’ characteristics, the level of book-tax conformity and the practice of earnings management remains unclear.

Residual audit fee and real income smoothing: evidence from quoted non-financial firms in Nigeria

PurposeThe study investigated the relationship between residual audit fee and real income smoothening, proxied as real operating cash flow and production expenditure smoothing of non-financial firms in Nigeria.Design/methodology/approachThe study relied on secondary data from annual financial statements of 75 firms in the non-financial sector from 2010 to 2019. The study estimated the residual audit fee using a modified model from several contexts to suit the Nigerian environment. The hypotheses were tested using the dynamic panel GMM estimation procedure.FindingsThe results showed a significant negative effect of residual audit fee on (real) operating cash flow smoothing and production expenditure smoothing of non-financial firms. The control variables showed mixed effects for the industry-related (firm size and profitability), auditor attribute (audit quality and audit report lag) and the board related (board size and board independence).Research limitations/implicationsThe firms included in the analysis were selected based on data availability from MachameRatios® and the occurrence of missing values for some of the variables used in the various estimation models may bias results.Practical implicationsThe study identifies the nexus between RAF and real earnings management practices of non-financial firms; and shows the implication of fee payment to the overall conduct of the audit. More so, the mixed findings from the CVs suggest that in the context of developing economies, shareholders and capital markets regulators should be watchful of residual audit fees and utilise it as a gauge for audit quality and also an indicator of opportunism and weak internal control in the firm in the future assessments.Social implicationsThe implication of the study stems from its relevance to the capital market stability and the potential negative disastrous effect of corporate failure from earnings management practices.Originality/valueThe study develops a newly residual audit fee model to explore the effect of RAF on real income smoothing rather than the widely used models from prior literature; secondly, the focus on real activities manipulation may present additional evidence that applies to developing countries rather the widely used accrual measurement technique from an economic bonding perspective.