The Effect of firm characteristics and good corporate governance characteristics to earning management behaviors

Abstract

This research is carried out to investigate the influence of firm characteristics and good governance characteristics to earnings management behavior. Furthermore, the research is expanded to determine the predictive discretionary accruals models in Indonesia. The author utilizing firm listed in Indonesia Stock Exchange during 2014-2018 as research object. Design/methodology/approach: The research samples is selected by utilizing the purposive sampling method. In addition, the data analyze is conducted through E-Views version 10. Three discretionary accruals models is used to define earnings management behavior. The research assumed firm characteristics factors such as financial performance, firm size, leverage, and share issuance activity and good governance characteristics such as board of directors' size and auditor's size. Findings: The research discovers that firm characteristics can accentuate the earnings management behavior significantly. In other hand, in good corporate governance characteristics only big four auditor is significant. The research also find that discretionary accruals model of Jones, Dechow, and Kothari are predictive in Indonesia. Practical implications: The discoveries of this research provide understanding for investors that enforcement on both governance and monitoring mechanism are essential approach to reduce earnings management behavior. Originality/value: The research investigated three models of discretionary accruals' capability in predicting earnings management behavior, and found out all discretionary accruals model are still relevant to be use in predictive to define earnings management behavior in Indonesia.

Dividend Policy, Corporate Governance and Earnings Quality: A Case of Non-Financial Listed Firms of Pakistan

“…And found a significant negative impact of FS on the earning quality. This is consistent with the work of (Epps & Ismail, 2009;Hassan & Farouk, 2014;Jessica, 2020) and argued that the larger firms increases the value of discretionary accruals and do more earning manipulation because they want to present good financial condition of the firm in the market and wants to attract more investor so in doing so, they manipulate the earnings by making changes in the discretionary accruals and in return the earning quality is effected. While it is inconsistent with the work of some researchers who found a negative relationship between the firm size and earning management (Fodio et al, 2013).…”

“…As (Waweru & Prot, 2018; González & García-Meca, 2014) found that the firm leverage positively related with the earnings management and indicated that the highly levered firms do more earning manipulation because they want to get the relaxation on the debt covenants and, in turn, decreases the earnings quality. While some studies like (Hassan & Farouk, 2014;Jessica, 2020) found a negative association between earning management and leverage. Hence they supported the view that the highly levered firm faces more scrutiny from the creditors, so they do less manipulation and, in turn, have higher earning quality.…”

“…The literature revealed that many researchers used firm size as control variables because they found it to have an association with earnings quality. Like (He et al, 2017;Jessica, 2020) found that firm size has a positive association with earning management and a negative association with earning quality which indicated that the larger firms do more earning management because they want to present a good financial position of the firms in the market and turn have fewer earnings quality. While (Fodio et al, 2013; Parte-Esteban & García, 2014) found that firm size harms earnings management which revealed that the larger firms do less earning management because they face more scrutiny from the market, so have higher earnings quality.…”

“…). Board size is measured by the total number of directors on the firm's board(Houqe et al, 2011; Chaharsoughi & Rahman, 2013;Jessica, 2020). Board independence is assessed by the number of independent directors in the board divided by a total number of board members(González & García-Meca, 2014).…”

Pengaruh Karakteristik Perusahaan, Kinerja Perusahaan, Dan Management Entrenchment Terhadap Manajemen Laba

“…Ukuran auditor independen dalam perusahaan dapat dijadikan sebagai patokan kualitas audit perusahaan tersebut (Edi & Jessica, 2020). Oleh karena itu, berbagai peneliti yang berargumentasi dalam menentukan ukuran auditor berdasarkan kantor akuntan publik yang bekerja sama dengan BIG 4 atau 4 kantor akuntan publik terkenal (KPMG, EY, Deloitte & PwC).…”