Do Owners and Auditors Matter? Examining the Governance Drivers of Earnings Management

Serly  Nurdian; Sovi Ismawati Rahayu

doi:10.64463/425ftt08

Authors

Serly Nurdian Faculty of Economics and Business, YARSI University, Jakarta Author
Sovi Ismawati Rahayu Faculty of Economics and Business, YARSI University, Jakarta Author

DOI:

https://doi.org/10.64463/425ftt08

Keywords:

Managerial Ownership, Institutional Ownership, Number of Audit Committees, Earnings Management

Abstract

This study examines the effects of Managerial Ownership, Institutional Ownership, and the Number of Audit Committees on Earnings Management. Managerial ownership is measured as the percentage of management ownership, Institutional Ownership is measured as the percentage of institutional ownership, and the number of audit committees is measured by the number of audit committees in the company. This study uses a sample of manufacturing companies in all manufacturing sectors listed on the Indonesia Stock Exchange (IDX) during the 2013-2017 period. The sampling technique in this study was purposive, and a sample of 28 companies was selected. This study uses secondary data, namely company financial reports obtained from the official website of the Indonesian Stock Exchange (IDX). The results of the study indicate that Managerial Ownership, Institutional Ownership, and the Number of Audit Committees have a significant effect on Earnings Management. Managerial Implications The results of this study provide input for management and stakeholders that increasing managerial ownership, strengthening institutional ownership, and optimizing the number and function of audit committees can be an effective monitoring mechanism to suppress earnings management practices.

Downloads

Download data is not yet available.

References

Abbott, L., Parker, S., & Peters, G. (2004). Audit committee characteristics and restatements. Auditing: A Journal of Practice & Theory, 23(1), 69–87. https://doi.org/10.2308/aud.2004.23.1.69

Alves, S. (2012). Ownership structure and earnings management: Evidence from Portugal. Australasian Accounting, Business and Finance Journal, 6(1), 57–74.*

Aryanti, V., Kristanti, F. T., & Hendranto, T. (2017). Kepemilikan manajerial, kepemilikan institusional, dan kualitas audit terhadap manajemen laba. Jurnal Riset Akuntansi Indonesia. https://doi.org/10.23969/jrak.v9i2.580

Bedard, J., Chtourou, S., & Courteau, L. (2004). The effect of audit committee expertise, independence, and activity on earnings management. Auditing: A Journal of Practice & Theory, 23(2), 13–35.* https://doi.org/10.2308/aud.2004.23.2.13

Bushee, B. (1998). The influence of institutional investors on myopic R&D investment behavior. The Accounting Review, 73(3), 305–333.*

Chung, R., Firth, M., & Kim, J. (2002). Institutional monitoring and opportunistic earnings management. Journal of Corporate Finance, 8, 29–48. https://doi.org/10.1016/S0929-1199(01)00039-6

Cornett, M., Marcus, A., & Tehrani, R. (2008). Corporate governance and pay-for-performance: The impact of earnings management. Financial Management, 37(1), 41–70.*

Dechow, P., Ge, W., & Schrand, C. (2010). Understanding earnings quality: A review of the proxies, their determinants and their consequences. Journal of Accounting and Economics, 50(2–3), 344–401. https://doi.org/10.1016/j.jacceco.2010.09.001

DeZoort, F., Hermanson, D., Archambeault, D., & Reed, S. (2002). Audit committee effectiveness: A synthesis of the empirical audit literature. Journal of Accounting Literature, 21, 38–75.*

Garza-Gómez, X. (2020). Earnings management in emerging markets. Emerging Markets Review, 45, 100725. https://doi.org/10.1016/j.ememar.2020.100725

Gunny, K. (2010). The relation between earnings management using real activities and future performance. Contemporary Accounting Research, 27(3), 855–888. https://doi.org/10.1111/j.1911-3846.2010.01029.x

Healy, P., & Wahlen, J. (1999). A review of earnings management literature. Accounting Horizons, 13(4), 365–383.* https://doi.org/10.2308/acch.1999.13.4.365

Jensen, M., & Meckling, W. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360.

Koh, P. (2007). Institutional investor type, earnings management and benchmark beaters. Journal of Accounting and Public Policy, 26, 267–299. https://doi.org/10.1016/j.jaccpubpol.2006.10.001

Krishnan, G. (2003). Does Big 6 auditor industry expertise constrain earnings management? Accounting Horizons, 17(1), 1–16.* https://doi.org/10.2308/acch.2003.17.s-1.1

Mahariana, I., & Ramantha, I. (2014). Pengaruh kepemilikan manajerial dan kepemilikan institusional pada manajemen laba. Jurnal Akuntansi, 26(1), 20–34.

Rahmaningtyas, R., & Sarsiti, S. (2017). Pengaruh kepemilikan manajerial, kepemilikan institusional, dan dewan komisaris terhadap manajemen laba. Jurnal Ekonomi.

Roychowdhury, S. (2006). Earnings management through real activities manipulation. Journal of Accounting and Economics, 42, 335–370. https://doi.org/10.1016/j.jacceco.2006.01.002

Suryani, T. (2010). Institutional ownership and earnings management. Jurnal Akuntansi.

Teshima, N. (2008). Managerial ownership and earnings management in Japan. Journal of International Financial Management & Accounting, 19(2), 107–132.*

Warfield, T., Wild, J., & Wild, K. (1995). Managerial ownership, accounting choices, and informativeness of earnings. Journal of Accounting and Economics, 20, 61–91.* https://doi.org/10.1016/0165-4101(94)00393-J

Xie, B., Davidson, W., & DaDalt, P. (2003). Earnings management and corporate governance: The role of the board and the audit committee. Journal of Corporate Finance, 9, 295–316. https://doi.org/10.1016/S0929-1199(02)00006-8