Corporate governance mechanisms and earnings quality: Is firm size a moderation variable?

Abstract

The main objective of this research is to analyze the influence of independent commissioner, audit committee, managerial ownership, and institutional ownership on earnings quality. This study also observes the role of a firm’s size as a moderating variable. Using specific considerations, the number of the sample is reduced to 20 out of 144 companies from manufacturing companies listed in the Indonesian Stock Exchange during 2013–2016. The data analysis in this research used moderating regression. The results show that managerial ownership affects positively toward quality of the earnings. The firm’s size has proven to be able to strengthen the influence of managerial ownership and institutional ownership on earnings quality. Overall, this study reveals that the implementation of good corporate governance has been obliged by the government, but the supervisory function has not been executed optimally so it is not fully able to affect earnings quality. The results of this study contribute to both investors and potential investors in investment decisions. This paper suggests considering managerial and institutional ownership and company size since the variable is proven to be able to improve earnings quality.

Relationship Between Ownership Concentration, Firm Size, and Earnings Quality in Indonesian Companies

“…Therefore, it can be concluded that Hypothesis H 2 is not supported. The research findings are not consistent with prior research that supports this hypothesis (Andriani et al, 2021;Purnamasari & Fachrurrozie, 2020;Solikhah et al, 2022). These research findings are also not consistent with legitimacy theory, which explains that companies need to maintain their reputation in order to maintain legitimacy.…”

“…Furthermore, Kumala and Siregar (2021) argued that large companies tend to have higher earnings quality. In the Indonesian context, prior research found that firm size had a positive influence on earnings quality (Andriani et al, 2021;Purnamasari & Fachrurrozie, 2020;Solikhah et al, 2022). Andriani et al (2021) argued that large companies need to provide a good signal by improving earnings quality to reduce information asymmetry.…”

“…In conclusion, their research found that firm size significantly has a positive effect on earnings quality. Solikhah et al (2022) found that firm size was proven to be able to improve earnings quality. According to the argument and the result of prior research, this study argued that firm size is expected to have a positive influence on earnings quality.…”

The influence of board of directors’ characteristics on corporate social responsibility disclosures in Jordanian Islamic banks

“…Hence, independent directors may have an incentive to adjust the direction and the performance of opportunistic managers (Khan et al, 2012). In this regard, independent board members can be seen as an effective supervisory tool that contributes to controlling manager's behavior (Solikhah et al, 2022), and reducing agency costs (Naciti, 2019). Additionally, they may play a key role in increasing the levels of information disclosures in firms (Carnini Pulino et al, 2022).…”

Company Size as Moderating Variable of Intellectual Capital and Good Corporate Governance Towards the Financial Performance of Banking Firms

“…Values are given based on predetermined criteria. The banking GCG value is then calculated by comparing the total value obtained with the highest score (Solikhah et al, 2022;Suryati, 2020). According to previous research, company size is a scale for determining the size of a company entities which is viewed through total asset, total revenue, total sales for a year, and so on which describes a company's wealth (Clarisa & Pangerapan, 2019;Putra & Wilopo, 2018).…”