Managerial ability and informative earnings management: the role of CEO-commissioner relationship and board independence

Abstract

Purpose The purpose of this study is to examine the effect of managerial ability on informative earnings management (hereafter IEM) and to examine the moderating role of the chief executive officer and board of commissioner relationship (hereafter CEO-commissioner relationship) and board independence between managerial ability and IEM. Design/methodology/approach Sample consists of 864 firm-years listed on the Indonesian Stock Exchange. Informative earnings management is measured by the relationship between discretionary accruals and earnings growth. Managerial ability is measured by data envelopment analysis. This research uses firm-effect logistic regression to perform the data analysis. Findings Based on firm-effect logistic regression, managerial ability increases IEM. It confirms the managers’ stewardship behavior where managers tend to engage in IEM and provide higher quality information for shareholders. The result also shows that the absence of a CEO-commissioner relationship and higher board independence leads higher ability managers to engage more in IEM. It confirms the role of corporate governance to reduce managers-shareholders conflict (in the context of agency theory) or to facilitate higher ability managers to act as both controlling and minority shareholders’ stewards (in the context of stewardship theory) by engaging more in IEM and providing higher-quality information. Originality/value This research contributes to filling the previous studies gap that provides conflicting results on managerial ability and earnings management by considering earnings management motivations, CEO-commissioner relationship and board independence. This research also contributes to providing new evidence of managerial ability, IEM, CEO-commissioner relationship and board independence, especially in Indonesia.

The Effect of Earnings Smoothing and Earnings Informativeness on Firm Value with Managerial Ability as a Moderating Variable

“…The beneficial impact of earnings informativeness on company value was reinforced by managerial abilities. The study's findings supported those of Tucker and Zarowin (2006) and Putra (2022), who found that higher-quality information was provided to shareholders (firm value) and that informative earnings management was typically associated with skilled managers. The significant value of the size interaction variable as a control variable with managerial ability was 0.025> 0.005.…”

“…According to Lukita (2022), managerial ability had a positive effect on income quality. Putra (2022) stated that it increased informative earnings management. The study also evaluated the stewardship behavior of managers, who demonstrated a propensity to manage earnings in an informative manner and to give shareholders better information.…”

“…Lukita (2022) demonstrated that managerial skill has been demonstrated to improve earnings quality and has a positive impact on earnings quality. Putra (2022) stated that the factor increased informative earnings management. Furthermore, this study also underscored the significance of manager stewardship behavior, comprising informative earnings management and the provision of high-quality information to shareholders.…”

The Moderating Role of Independent Commissioner in Relationship between Tax Aggressiveness and Firm Value

“…Independent commissioners must also have a strong position in the company to enhance the effectiveness of the board of commissioners' oversight function (Alijoyo & Sirait, 2022). The study results by Putra (2023) show that the higher the level of independence of the board of commissioners, the stronger the oversight function of managers motivated by achieving their profits. This is supported by the study by Indriastuti et al (2020), who stated that because independent commissioners are thought to reduce agency conflicts, their proportion has a beneficial impact on business value (Bernhard & Veny, 2024;Hidayat & Muliasari, 2020).…”

The Moderating Role of Investment Opportunities Between Managerial Capability and Tax Aggressiveness

“…The manager's ability is considered an ability that can maximize the value of the company against the efficient use of limited resources during trading activities. Managers with high levels of knowledge and correct behavior have a higher industry understanding of the environment (Putra, 2023). According to agency theory, the practice of tax aggressiveness is a rational strategic action that can reduce the agency cost of a company.…”