Corresponding Author: Wildan Lukmanul Hakim
E-mail: [email protected]
INTRODUCTION
Advances in technology and a rapidly growing economy
have led to very tight competition in various parts of the world. This
situation spurred the company to be able to compete and maintain its business.
Various information provided by the company, financial statements are one of
the many sources of information that can be accessed and used by external
parties to assess the company's performance. Financial reports are included in
one of the information that must be provided to be used as an instrument of management's
accountability to the owner's resource processing (Boediono, 2005).
One of the elements in the financial statements is the
income statement. The report is a report that presents information related to
profits, expenses, and revenues obtained by a company over a predetermined
period. The profits obtained by the company are then used as performance
benchmarks and information for debtors and creditors when making decisions in
credit funding and investment activities. Companies that present profit reports
with the highest profits will be good news for stakeholders who invest, then
these stakeholders will not hesitate when investing in the company. Therefore, creditors
will be more confident if they will get a profit from interest when returning
the principal of the loan presented to the company.
Profit is included in one of the many elements of
financial statements that are used as indicators in measuring manager
performance during the reporting process and earnings that have predictive
value. Profits that have good quality are profits that are givenbyh
the actual situation without any manipulation from other parties who have an
interest in it, then the profit in question can be used in making decisions.
Manipulation that may be carried out by managers, namely on earnings
management.
According to (Gumanti, 2000), earnings management is carried out by financial
managers in the hope that there will be usefulness in what they do. This
situation is very interestinexciting is because it
will provide an explanation related to the behavior of managers when reporting
their business activities in a predetermined period. Earnings management has
various meanings, in this case earnings management is, related to efforts to
manage earnings for predetermined interests based on various predetermined
factors (Nur�aini &
Raharja, 2012).
The management of a company affects the implementation
of earnings management on earnings quality. This is due to the discovery of
different interests between the owner and the agent. These different interests
are known as agency conflict. Agency conflconflictses
the presence of profit reporting with opportunities in optimizing their own
profits. Managemehould take action for the welfare of
the owner of the company, but it is not uncommon for management to reconsider
due to the presence of financial risks that may be faced by the company and its
own benefits. These pems have resulted in a decrease
in the quality of earnings that are present in financial reporting
In fact in the business world, the implementation of
earnings management is not infrequently associated with the presence of an
indication of the quality of earnings held by the company. Earnings quality is
defined as a profit capability when it responds to the market (Wahyuni & Muslim,
2010).
The agency problem is the problem behind the
manipulation of financial reporting organized by the management of a company,
because in agency theor there are differences in the
interests of the principal and the agent. One of the fraudulent actions when
making financial statements carried out by the managemis
to increase the company's profits so that investors are interested in the
company.
There are inconsistencies in previous studies related
to earnings quality and earnings management. As research conducted by (Rahman, 2019) if earnings managemehas a
significant effect on earnings quality, the problem in question does not get
support from research conducted by (Nanang &
Tanusdjaja, 2019) if earnings management has a significant negative
effect on earnings quality .
One of the many methods used to minimze
management fraudulent behavior by making earnings management is corporate
governance. This is the main element when implementing economic efficiency
improvements, for example shareholders, the board of commissioners,, company management, and other stakeholders. Corporate
Governance can be said to be a regulation that regulates relationships between
various parties who have interests, for example creditors, investors, company
managers and other stakeholders in a company. With the mechanism that organizes
the regulation and control of the company, Corporate Governance also aims to
maximize the long-term profits of shareholders. Corporate governance is used to
control companies that act for external and other internal interests related to
their obligations and rights.
According to (Midiastuty &
Machfoedz, 2003) suggests that the mechanism of Good Corporate
Governance can limit the behavior of managers as agents to carry out fraudulent
actions in making financial statements in this case an action of earnings
management. The research conducted by Midiastuty is
not in line with the research carried out (Agustia, 2013).
Based on the implementation of the (Agustia, 2013), it can be conclude Austria if all elements of good
corporate governance (managerial ownership, institutional, independent audit
committee ratios, and audit committee size) have no significant effect on
earnings management, then leverage has an effect, free cash flow there is a
significant negative effect on earnings management. That is, companies with
high free cash flow will place restrictions on the implementation of earnings
management. In addition, according to research results (Octavia, hat if the
size of the board of commissioners ratio signiantly
has no effect on earnings management carried out by a company. Institutions
that have fairly large shares can intervene in the company and the procedures
for making its financial statements. Managerial ownership creates alignment
between shareholders and managers to minimize opportunistic actions. The audit
committee has a maximum function when supervising financial reports and
internal audit performance.
Marcia Millon Cornett, Jamie
John McNutt, Hassan Tehranian (2009) examined whether
corporate goverand nance
systems affect earnings and earnings management in the parent company of the
largest publicly traded bank in the United States. Initially, find out if the
company's governance, earnings management, and company performance are
determined by itself. Therefore, the OLS estimation will result in a bias in
the coefficients as well as the simultaneous equation approach used. The study
provides evidence that pay sensitivity in CEO performance (PPS), board
independence, and capital are positively related to earnings and earnings,
board independence, and capital are negatively rela and
ted to earnings management. We also find that PPS is positively related to
earnings management. Finally, PPS and board independence are positively
related, as well as bidirectional. Although PPS and board independence are
associated with greater earnings, the results of this study provide evidence
that a more independent board appears to impose a constraint on earnings
management that forces greater PPS.
Sandra Alves (2012) examines the relationship between
corporate ownership structure in Portugal and earnings management. Sandra found
that discretionary accruals as a proxy for earnings management were negatively
related to the concentration of ownership and managerial ownership. The results
of the study prove that the concentration of ownership and managerial ownership
increases the quality of annual earnings by reducing the level of earnings
management.
METHOD
The form of
research that the researcher conducts is causality research. According to (Sekaran, 2009) what is meant by causality research is included in the
type of research used to explain the relationship between cause and effect that
occurs in a problem. In the research that the researchers carry out, the
researchers will analyze the influence of Good Corporate Governance, in this
case the size of the company, the ratio of independent commissioners,
managerial ownership, audit committees, and institutional ownership, become
independent variables on earnings quality as the dependent variable.
1.
Research Sample
The data collection
method used in the research that the researchers conducted was the purposive
sampling method. The purposive sampling method is the determination of data
samples with information that has been determined as the requirements needed by
researchers in carrying out their research (Sekaran, 2009). The data criteria needed in the research that the
researcher conducts are; 1) Manufacturing companies listed on the Indonesia
Stock Exchange from 2016 to 2020; 2) Manufacturing companies that have a book
closing date that ends on December 31 in one accounting period and have been
audited from 2016 to 2020; 3) Manufacturing companies that have institutional
shareholders from 2016 to 2020; 4) Manufacturing companies that have managerial
shareholders from 2016 to 2020; 5) Companies that consistently generate profits
in the 2016 � 2020 period. We get 28 companies that are included in the
criteria and the researchers make samples.
2.
Data analysis method
a. Path Analysis
The analytical
technique used in the implementation of the research is path analysis. Path
analysis is included in multiple linear regression analysis which is used with
the aim of making estimates of causality relationships between predetermined
variables based on predetermined theories. This analysis has not been able to
establish a cause and effect relationship and has not been able to be used as a
substitute for researchers in studying causal relationships between variables (Ghozali, 2018). This data processing uses the Eviews application.
b. Sobel Test
To determine the
effect of X on Z through Y, the Sobel test concept will be used. Intervening
hypothesis testing can be carried out by the process Sobel developed, known as
the Sobel test. The Sobel test is carried out by testing how much influence the
indirect strength of X has on Z through Y. The indirect effect of X on Z
through Y is calculated by switching paths X and Y (a) with paths Y and Z (b)
or ab.
c. Coefficient
of Determination
The coefficient of determination is used to
determine how much the independent variable variance can be defined by the
dependent variable, and the rest that have not been able to be defined are
elements of the variance of other variables that have not been included in the
regression model. If R2 is small, it indicates that the capability of the
independent variable to define the dependent variable is still limited (Ghozali, 2018). The value of R2
which almost reaches 1 indicates that the independent variable provides most of
the information needed to explain the dependent variable.
d. Model
Fit Test (F Test)
The F test is used to determine a regression
model simultaneously, whether all of the independent variables have a joint effect
on the dependent variable (Ghozali, 2018). The model can be
said to be suitable if the results of model testing are significant, and vice
versa. The level of significance in the research that the researchers carried
out was 0.05. If sig. 0.05, then the conclusion is drawn if the model is in
accordance with the research. But if sig. > 0.05, the model is not in
accordance with the research.
e. Effect
Test (t test)
The t-test is useful in finding the history
of the influence of the independent variables individually on the dependent
variable (Ghozali, 2018). The research that
the researcher carried out used a significance level of 0.05. If sig. 0.05, it
can be concluded that if there is an individual effect on variable X on
variable Y. But if sig. > 0.05, there is no individual effect of variable X
on variable Y.
RESULTS AND DISCUSSION
Hypothesis testing
1.
T
test
The t-test generally has the objective of g showing the
extent to which the influence of an independent variable is independent of the
dependent variable. The level of significance that researchers used in
conducting the research was 0.05 (α=5%). The acceptance or rejection of
the hypothesis is carried out with the conditions, namely; a) If the magnitude
of the Prob value. (0.05), conclusions can be drawn if the hypothesis is
accepted; b) If the magnitude of the value of Prob. (0.05), conclusions can be
drawn if the hypothesis is rejected.
The results of the multiple regression partial t-test of
equations 1 and 2 are shown in the table below:
Table 1. Partial t test of Equation 1 (Fixed Effect
Model)
|
Variable
|
Coefficient
|
Std. Error
|
t-Statistic
|
Prob.
|
|
C
|
7.019599
|
2.654002
|
2.644911
|
0.0094
|
|
KM
|
-0.224400
|
0.090457
|
-2.480736
|
0.0147
|
|
KI
|
-0.672289
|
0.243228
|
-2.764031
|
0.0067
|
|
KA
|
-0.187525
|
0.078833
|
-2.378758
|
0.0191
|
|
DKI
|
-0.391975
|
0.182395
|
-2.149051
|
0.0339
|
|
UP
|
-0.208107
|
0.092062
|
-2.260497
|
0.0258
|
Source: Data processed with eviews 9, 2021
Table 2. Partial
t test of Equation 2 (Fixed Effect Model)
|
Variable
|
Coefficient
|
Std. Error
|
t-Statistic
|
Prob.
|
|
C
|
212.1765
|
52.91154
|
4.010023
|
0.0001
|
|
KM
|
14.82313
|
4.404425
|
3.365510
|
0.0011
|
|
KI
|
11.56165
|
5.542935
|
2.085835
|
0.0394
|
|
KA
|
-1.855060
|
0.634454
|
-2.923867
|
0.0042
|
|
DKI
|
-0.425024
|
3.579881
|
-0.118726
|
0.9057
|
|
UP
|
-7.469346
|
1.813068
|
-4.119726
|
0.0001
|
|
ML
|
-2.114888
|
0.492719
|
-2.322211
|
0.0221
|
Source: Data processed with eviews 9, 2021
Based on the results of the t-test in
tables 1 and 2, then:
a.
Hypothesis 1: There is an effect of managerial ownership on
earnings management.
Based on the table above, it is found
if the magnitude of the prob value. Managerial
ownership variable (KM) 0.0147 <0.05, this matter shows if there is an
effect of managerial ownership on earnings management. Based on the statistical
processing that has been described previously, conclusions can be drawn if the
first hypothesis is declared accepted.
b.
Hypothesis 2: There is an effect of institutional ownership on
earnings management.
Based on the table above, it is found
if the magnitude of the prob value. Institutional
ownership variable (KI) 0.0067 <0.05, this shows that the effect of
institutional ownership on earnings management is found. Based on the
statistical processing described previously, conclusions can be drawn if the
second hypothesis is accepted.
c.
Hypothesis 3: There is an effect of the audit committee on
earnings management.
Based on the table above, it is found
if the magnitude of the prob value. The audit
committee variable (KA) 0.0191 < 0.05, this shows that the effect of the
audit committee on earnings management is found. Based on the statistical
processing that has been described previously, conclusions can be drawn if the
third hypothesis is accepted.
d.
Hypothesis 4: There is an effect of the proportion of independent
commissioners on earnings management.
Based on the table above, it is found
if the magnitude of the prob value. Variable
independent board of commissioners (DKI) 0.0339 <0.05, this matter shows if
found the effect of the proportion of independent commissioners on earnings
management. Based on the statistical processing described previously,
conclusions can be drawn if the fourth hypothesis is accepted.
e.
Hypothesis 5: There is a simultaneous effect of managerial
ownership, institutional ownership, the proportion of independent commissioners
and audit committees on management.
Based on the table above, it is found
that the magnitude of the F value (Statistic) in equation 1 is 0.000 < 0.05.
Which means that managerial ownership, institutional ownership, audit committee
and independent board of commissioners simultaneously have an effect on
earnings management. Based on the statistical processing described previously,
conclusions can be drawn if the fifth hypothesis is accepted.
f.
Hypothesis 6: There is an effect of firm size on earnings
management.
Based on the table above, it is found
if the magnitude of the prob value. Firm size (UP)
< critical probability value (α = 5%) worth 0.0258 < 0.05, this
shows that the influence of firm size on earnings management is found. Based on
the statistical processing described previously, conclusions can be drawn if
the sixth hypothesis is accepted.
g.
Hypothesis 7: There is an effect of managerial ownership on
earnings quality
Based on the table above, it is found
if the magnitude of the prob value. Managerial
ownership variable (KM) 0.0011 <0.05, this matter shows if there is an
influence of managerial ownership on earnings quality. Based on the statistical
processing described previously, conclusions can be drawn if the seventh
hypothesis is accepted.
h.
Hypothesis 8: There is an effect of institutional ownership on
earnings quality
Based on the table above, it is found
if the magnitude of the prob value. Institutional
ownership variable (KI) 0.0394 <0.05, this shows that the effect of
institutional ownership on earnings quality is found. Based on the statistical
processing described previously, conclusions can be drawn if the eighth
hypothesis is accepted.
i.
Hypothesis 9: There is an effect of the audit committee on
earnings quality
Based on the table above, it is found
if the magnitude of the prob value. The audit
committee variable (KA) 0.0042 <0.05, this shows that the audit committee's
influence on earnings quality is found. Based on the statistical processing
described previously, conclusions can be drawn if the ninth hypothesis is
accepted.
j.
Hypothesis 10: There is an effect of the proportion of independent
commissioners on earnings quality
Based on the table above, it is found
if the magnitude of the prob value. Variable independent
board of commissioners (DKI) 0.9057 > 0.05, this matter shows if there is no
effect of the proportion of independent commissioners on earnings quality.
Based on the statistical processing described previously, conclusions can be
drawn if the tenth hypothesis is rejected.
k.
Hypothesis 11: There is a simultaneous effect of managerial
ownership, institutional ownership, the proportion of independent commissioners
and audit committees on earnings quality.
Based on the table above, it is found
that the magnitude of the F value (Statistic) in equation 2 is 0.000 < 0.05.
Which implies that managerial ownership, institutional ownership, audit
committee and independent board of commissioners simultaneously have an effect
on earnings quality. Based on the statistical processing described previously,
conclusions can be drawn if the eleventh hypothesis is accepted.
l.
Hypothesis 12: There is an effect of firm size on earnings quality
Based on the table above, it is found
if the magnitude of the prob value. Firm size (UP)
0.0001 < 0.05, this matter shows if the influence of firm size on earnings
quality is found. Based on the statistical processing described previously,
conclusions can be drawn if the twelfth hypothesis is accepted.
m.
Hypothesis 13: There is an effect of earnings management on
earnings quality
Based on the table above, it is found
if the magnitude of the prob value. Earnings
management (ML) 0.0221 <0.05, this shows that the effect of earnings
management on earnings quality is found. Based on the statistical processing
that has been described previously, conclusions can be drawn if the thirteenth
hypothesis is accepted.
Multiple regression analysis was used
to find out the direct relationship of the independent variables of firm size,
independent board of commissioners, managerial ownership, audit committee, and
institutional ownership to earnings management. The results of testing equation
1 after going through the Chow and Hausman tests, the
model used is the fixed effect model which is presented in the table below:
Table 3. Regression Analysis Equation 1
(Fixed Effect Model)
|
Variable
|
Coefficient
|
Std. Error
|
t-Statistic
|
Prob.
|
|
C
|
7.019599
|
2.654002
|
2.644911
|
0.0094
|
|
KM
|
-0.224400
|
0.090457
|
-2.480736
|
0.0147
|
|
KI
|
-0.672289
|
0.243228
|
-2.764031
|
0.0067
|
|
KA
|
-0.187525
|
0.078833
|
-2.378758
|
0.0191
|
|
DKI
|
-0.391975
|
0.182395
|
-2.149051
|
0.0339
|
|
UP
|
-0.208107
|
0.092062
|
-2.260497
|
0.0258
|
Source: Data processed with
eviews 9, 2021
Based on the regression results in the
table above, the relationship between the variables of firm size, independent
board of commissioners, managerial ownership, audit committee, and
institutional ownership on earnings management can be presented in the
following equation:
ML������ = 7.019 � 0.224 KM � 0.672 KI � 0.187 KA � 0.391 DKI � 0.208
UP
The above equation means that:
a.
The constant c is 7,019, which means that if the variables of firm
size, independent board of commissioners, managerial ownership, audit
committee, and institutional ownership are 0 (no change), earnings management
has a value of 7,019
b.
The managerial ownership variable regression coefficient of -0.224
shows a negative direction. Which holds meaning if managerial ownership has
decreased by 1 percent while other variables are constant, therefore earnings
management will increase by 22.4 percent.
c.
Institutional ownership variable regression coefficient of -0.672
shows a negative direction. Which holds meaning if institutional ownership
decreases by 1 percent while other variables are constant, therefore earnings
management will increase by 67.2 percent.
d.
The audit committee variable regression coefficient of -0.187
shows a negative direction. Which holds meaning if the audit committee has
decreased by 1 percent while other variables are constant, therefore earnings
management will increase by 18.7 percent.
e.
The board of commissioners variable
regression coefficient of -0.391 shows a negative direction. Which holds
meaning if the board of commissioners decreases by 1 percent while other
variables are fixed/constant, therefore earnings management will increase by
39.1 percent.
f.
The regression coefficient of the firm size variable is -0.208
which shows a negative direction. Which holds meaning if the size of the
company decreases by 1 percent while other variables are constant, therefore
earnings management will increase by 20.8 percent.
Table 4 Regression
Analysis Equation 2 (Fixed Effect Model)
|
Variable
|
Coefficient
|
Std.
Error
|
t-Statistic
|
Prob.
|
|
C
|
212.1765
|
52.91154
|
4.010023
|
0.0001
|
|
KM
|
14.82313
|
4.404425
|
3.365510
|
0.0011
|
|
KI
|
11.56165
|
5.542935
|
2.085835
|
0.0394
|
|
KA
|
-1.855060
|
0.634454
|
-2.923867
|
0.0042
|
|
DKI
|
-0.425024
|
3.579881
|
-0.118726
|
0.9057
|
|
UP
|
-7.469346
|
1.813068
|
-4.119726
|
0.0001
|
|
ML
|
-2.114888
|
0.492719
|
-2.322211
|
0.0221
|
Source:
Data processed with eviews 9, 2021
Based on the regression results in the
table above, the relationship between firm size, independent board of
commissioners, managerial ownership, audit committee, and institutional
ownership as well as earnings management intervening variables on earnings
quality can be presented in the following equation:
KL� = 212.177 + 14.823 KM + 11.562
KI � 1.855 KA � 0.425 DKI � 7.469 UP � 2.115 ML
The above equation means that:
a.
Constant c is 212.177, it means that if the independent variable
is firm size, independent board of commissioners, managerial ownership, audit
committee, and institutional ownership and earnings management intervening
variable is 0 (no change), then earnings quality has a value of 212.177.
b.
The managerial ownership variable regression coefficient of 14,823
shows a positive direction. Which means that if managerial ownership increases
by 1 percent while other variables are constant, it can be concluded that
earnings quality will increase by 1482.3 percent.
c.
The institutional ownership variable regression coefficient of
11,562 shows a positive direction. Which means that if institutional ownership
increases by 1 percent while other variables are constant, it can be concluded
that earnings quality will increase by 1156.2 percent.
d.
The audit committee variable regression coefficient of -1.855
indicates a negative direction. Which means that if the audit committee
decreases by 1 percent while other variables are constant, it can be concluded
that the earnings quality will increase by 185.5 percent.
e.
The regression coefficient for the board of commissioners
variable is -0.425, indicating a negative direction. Which means that if the
board of commissioners decreases by 1 percent while other variables are
constant, it can be concluded that the quality of earnings will increase by
42.5 percent.
f.
The regression coefficient of the firm size variable is -7.469
which proves the negative direction. Which means that if the size of the
company decreases by 1 percent while other variables are constant, it can be
concluded that the earnings quality has increased by 746.9 percent.
g.
The earnings management variable regression coefficient of -2.115
indicates a negative direction. Which means that if earnings management has
decreased by 1 percent while other variables are constant, it can be concluded
that earnings quality will increase by 211.5 percent.
2. Sobel Test
Table 5. Sobel Test Calculation Results
|
Hypothesis
|
Standard
Error
|
Nilai t-hitung
|
|
Managerial ownership
|
0.22
|
2.155
|
|
Institutional Ownership
|
0.62
|
2.292
|
|
Audit Committee
|
0.19
|
2.079
|
|
Independent Board of
Commissioners
|
0.44
|
1.880
|
|
Company Size
|
0.22
|
1.999
|
Based on the above
calculation, then:
a.
Hypothesis 14: There is an effect of managerial ownership on
earnings quality mediated by earnings management. The value of t arithmetic
(KM) > t table value (α = 5%) is 2.155 > 1.977, this finding
provides evidence if there is an effect of managerial ownership on earnings
quality mediated by earnings management. Based on the statistical processing
that has been described previously, a conclusion can be drawn if the fourteenth
hypothesis is declared accepted.
b.
Hypothesis 15: There is an effect of institutional ownership on
earnings quality mediated by earnings management. The value of t count (KI)
> t table value (α = 5%) is 2.292 > 1.977, this finding provides evidence
that there is an effect of institutional ownership on earnings quality mediated
by earnings management. Based on the statistical processing that has been
described previously, a conclusion can be drawn if the fifteenth hypothesis is
declared accepted.
c.
Hypothesis 16: There is an effect of the audit committee on
earnings quality mediated by earnings management. The value of t count (KA)
> t table value (α = 5%) is 2,079 > 1,977, this finding provides
evidence if there is an effect of the audit committee on earnings quality
mediated by earnings management. Based on the statistical processing that has
been described previously, it can be concluded that the sixteenth hypothesis is
accepted.
- Hypothesis 17 : There is an effect of the proportion of independent
commissioners on earnings quality mediated by earnings management. The value of
t count (DKI) > t table value (α = 5%) is 1,880 < 1,977, this
finding provides evidence that there is no influence of independent
commissioners on earnings quality mediated by earnings management. Based on the
statistical processing that has been described previously, a conclusion can be
drawn if the seventeenth hypothesis is accepted.
d.
Hypothesis 18: There is an effect of firm size on earnings quality
mediated by earnings management. The t value of the firm size variable (UP)
> t table value (α = 5%) is 1.883 < 1.977, this finding provides
evidence that there is no effect of firm size on earnings quality mediated by
earnings management. Based on the statistical processing that has been
described previously, a conclusion can be drawn if the eighteenth hypothesis is
accepted.
3. Simultaneous F Test
The results of the f test in equations 1 and 2 are presented in
the table below:
Table 6. F
Statistical Test Results
|
Model
|
Prob. F
|
Alpha level (a = 5 %)
|
Final decision
|
|
Equality 1
|
0.0000
|
0.0000 < 0.05
|
Simultaneous Effect
|
|
Equality 2
|
0.0000
|
0.0000 < 0.05
|
Simultaneous Effect
|
Source: Data processed with eviews 9, 2021
The test results in the table above, indicate if
the prob value. F (Statistics) in equation 1 is 0.000
<0.05. Which implies that the size of the company, independent board of
commissioners, managerial ownership, audit committee, and institutional
ownership simultaneously have an effect on earnings management.
The test results in the table above prove that the prob value. F (Statistic) in equation 2 is 0.000 < 0.05.
Which implies that the size of the company, independent board of commissioners,
managerial ownership, audit committee and institutional ownership, and earnings
management simultaneously have an effect on earnings quality.
4. Coefficient of Determination Test
The results of the coefficient of
determination in the implementation of the research are shown in the following
table below:
Table 7.
Coefficient of Determination (R�)
|
Equality
|
R-Square
|
Adjusted-R
Square
|
|
Equality 1
|
0.951643
|
0.937181
|
|
Equality 2
|
0.539963
|
0.396744
|
Source: Data processed
with eviews 9, 2021
Based on the results
of the coefficient of determination in the table above, the adjusted r square
value in equation 1 is 0.9372 which proves that firm size, independent board of
commissioners, managerial ownership, audit committee, and institutional
ownership have a strong relationship with earnings management. The proportion
of the effect of firm size, independent board of commissioners, managerial
ownership, audit committee, and institutional ownership on earnings management
is 93.72 percent while the remaining 6.28 percent (100 � 93.72 percent) has the
influence of other variables that the researcher did not use in this study.
The value of adjusted
r square in equation 2 is 0.3967 which proves that company size, independent
board of commissioners, managerial ownership, audit committee, and
institutional ownership and earnings management have a sufficient relationship
to earnings quality. The proportion of the effect of firm size, independent
board of commissioners, managerial ownership, audit committee, and
institutional ownership and earnings management on earnings quality is 39.67
percent while the remaining 60.33 percent (100 � 39.67 percent) has the
influence of other variables that have not been used by researchers in
conducting research.
Discussion
Hypothesis one, with
managerial ownership, management's position will be in line with company owners
who are able to unite or adjust the priorities of management with stockholders,
which makes management take the same action as investors as usual and will not
carry out earnings management to monitor the actual state of the company. The
results of the research that the researchers carried out received support from
research conducted by (Octavia, 2017), he explained that managerial
ownership had a significant influence on earnings management. (Octavia, 2017) states that the lower level of
managerial ownership in the company will increase the implementation of
earnings management. These results are not in line with research from (Agustia, 2013). According to Agustia,
companies have a tendency to make regulations in carrying out earnings
management from the perspective of the wishes of shareholders, for example by
increasing the level of profit given in the financial statements and making
many potential investors feel interested in investing and can increase the
company's share price.
Hypothesis two, in the
research that the researchers carried out proved that institutional ownership
had an effect on earnings management. When examined from the pattern of
existing relationships, the effect found is negative. The results of the
research that the researchers carried out did not support the research carried
out (Suryani & Rahardja, 2010), Suryani
proved that there was a significant negative effect of ownership on earnings
management. This party proves that the shares owned by institutional investors
are able to play a role in preventing and resolving earnings management
practices carried out by the company's managers.
Hypothesis three, the
authority, responsibility, and task of the audit committee is to serve the
board of commissioners. In addition, the audit committee has the authority to
limit the earnings management practices of a company. This is in accordance
with research conducted by (Octaviani, 2018) where the audit committee has a
significant negative effect on earnings management. The research that the
researcher carried out did not get support from the results of the research
carried out (Nanang & Tanusdjaja, 2019) in which the research results
stated that the audit committee had no significant effect on earnings
management.
The fourth hypothesis,
according to the results of the research that the researchers carried out, was
that this amount was sufficient to implement Good Corporate Governance. With
its status as an independent party, the independent board of commissioners can
play a free and active role because there is no conflict of interest for the
board of other stakeholders who are bound by the company. The research that the
researcher carried out was in accordance with (Octaviani, 2018) which said that if the
independent board of commissioners had a significant effect on earnings
management. However, the research that the researchers carried out did not get
support from research conducted by (Nanang & Tanusdjaja, 2019) independent commissioners, which
had no significant effect on earnings management.
Hypothesis five, the
GCG organ in the research implementation is the audit committee, independent
board of commissioners ratio, institutional ownership,
and managerial ownership can effectively suppress earnings management
practices. As quoted from a book written by (Suratman, 2018) that (Ahmad, 2005) argues that if a company
implements a GCG implementation system diligently and optimally it will bring
benefits to a company.
Hypothesis six, large
companies tend to be more careful in running their business and financial
reporting, the financial statements of large companies tend to report the
condition of the company according to the actual situation. Because, large
companies are usually noticed by the public or the public. The results of the
research carried out by the researchers are in accordance with the research of (Pramudhita & Sugiyanto, 2017) which says that the size of the
company has an influence on earnings management. However, it is not in harmony
when compared with the results of research conducted by (Selviani, 2017) which states that company size
has no effect on earnings management. Companies that have large total assets
tend to be highlighted by the public if a comparison is made with small
companies that have accumulated a large number of small assets. Thus, large
companies have a tendency to carry out earnings management practices so that
they are judged by the public as companies with good performance.
The hypothesis of
seven companies with high managerial ownership is not oriented to current
earnings, they tend to focus on earnings quality, what is meant by earnings
quality here is persistent earnings in the future. The research carried out by
the researcher is in accordance with the research conducted by (Octavia, 2017) which shows that managerial
ownership has an influence on the quality of a company's earnings. However, it
is inversely proportional to the research conducted by (Rachmawati & Triatmoko, 2007) who conducted research that
discussed several factors that had an influence on earnings quality. The
results of the study provide evidence that institutional ownership and
managerial ownership have no effect on earnings quality.
Hypothesis eight,
institutional ownership has the capability to minimize the incentives of
managers who prioritize themselves by increasing supervision more intensely.
Institutional ownership is able to minimize the possibility of management
carrying out earnings management actions on financial statements which will later
report the quality of existing earnings. In addition, institutional ownership
invests in the long term so that the persistence of the profits generated by
the company must be good so that the survival of a company can be maintained.
These results are in line with research from (Oktaviani et al., 2015) that institutional management has
an influence on earnings quality. However, the results that researchers get are
not in accordance with the research conducted (Octaviani, 2018) if institutional ownership has no
significant effect on earnings quality. This is caused by institutional
investors who are only made temporary owners who have a focus on current
profits.
Hypothesis nine, with
the presence of an audit committee, a company will report its financial
statements according to the actual situation. In addition, with the existence
of an audit committee, the internal control of a company will run as it should.
The research that the researcher carried out was in line with the research
conducted by (Octaviani, 2018) if the audit committee had a
significant effect on earnings quality. However, the research that the
researchers carried out did not receive support from the research carried out (Sari, 2018). This problem is due to the fact
that the formation of an audit committee in the company is only a formality
with the aim of implementing the applicable policies, which causes the failure
of efforts to minimize earnings management and maximize earnings quality.
Hypothesis ten, the
supervision of the company's operations by independent commissioners is proven
not to be optimal, this is caused by the lack of an independent board of commissioners ratio in a company. The lack of supervision is
the cause of the ongoing tendency of fraud in a company which has an impact on
the decline in company profits that are not in line with actual conditions. The
results of the research that the researchers carried out received support from
the research carried out (Nanang & Tanusdjaja, 2019) if the proportion of independent
commissioners had no significant effect on earnings quality. But this does not
get support from research (Octaviani, 2018) that the ratio of independent
commissioners has an effect on earnings quality. With the presence of the board
of commissioners, supervision on the implementation of GCG will be more optimal
by using an independent board of commissioners not only to supervise
management, but also to supervise the board of commissioners when carrying out
their duties.
The eleventh
hypothesis, the organs of Good Corporate Governance in the research that the
researchers carried out were Managerial Ownership, Institutional Ownership,
Audit Committee and the Proportion of the Independent Board of Commissioners
effective when creating a stable company to maintain the sustainability of a
company's business. By maintaining the environment of a company that is carried
out with good internal control, a company is likely to obtain good quality earnings
in the future. In addition, the implementation of Good Corporate Governance can
provide an increase in the value of the company, both in the eyes of the public
and investors. This is very useful for the sustainability of a company.
The twelfth hypothesis
is that the larger the size of the company, the better the quality of earnings
obtained, because large companies tend to practice good corporate governance.
Meanwhile, small companies will find it difficult to carry out good corporate
governance because they need large enough capital to do these things, for
example the salary burden for commissioners. The results of the research that
the researcher carried out were in accordance with the research conducted by (Warianto & Rusiti, 2014) which said that if the
independent variable company size had a significant negative effect on earnings
quality. However, the research that the researchers carried out did not get
support from the research conducted by (Safitri & Afriyenti, 2020) saying that if the size of the
company had no significant effect on earnings quality. In his research (Safitri & Afriyenti, 2020) explained that large-scale
manufacturing companies will support companies to generate profits with optimal
quality.
Hypothesis thirteen,
good earnings quality is reflected in financial statements that do not contain
elements of manipulation. One of the many efforts undertaken by managers in
generating profits is through earnings management. The research that the
researchers carried out received support from research conducted by (Nanang & Tanusdjaja, 2019) which said that earnings
management had an influence on earnings quality. However, not getting support
from research conducted by (Vika, 2021) with the presence of managerial
ownership in a company will later lead the company to a better direction,
because managerial ownership has a dual role, namely as direct owner and
managerial management.
The fourteenth
hypothesis, managerial ownership can be involved in decisions taken by
companies related to future policies, of course managerial ownership will not
make decisions only to increase current earnings, but will prioritize the
sustainability of the company. This result is in line with research from (Oktaviani et al., 2015) if earnings management can
mediate the relationship between managerial ownership and earnings quality.
However, not getting support from research conducted by (Nanang & Tanusdjaja, 2019) earnings management variables
cannot mediate the relationship between Corporate Governance in this case
managerial ownership and earnings quality. The results of the research that the
researchers carried out concluded that managerial ownership had no direct or
indirect effect on earnings management on earnings quality.
The fifteenth
hypothesis, with institutional ownership, will monitor the company. With good
monitoring, therefore the implementation of earnings management will be
smaller. This problem makes earnings management able to strengthen the
relationship between institutional ownership and earnings quality. The results
of the research that the researchers carried out were not in accordance with
the research conducted (Oktaviani et al., 2015) which said that there was no
significant effect of institutional ownership on earnings quality mediated by
earnings management. However, the research that the researchers carried out
received support from the results of research conducted by (Nanang & Tanusdjaja, 2019) if earnings management can
mediate the relationship between institutional ownership and earnings quality.
Sixteenth hypothesis,
the number of audit committees in each company that implements GCG tends to be
minimal, but with the responsibility, capacity and capability of the audit
committee, this can result in a lack of earnings management in a company, with
a lack of earnings management in a company, the profit generated from the
company will also have a good quality. The results of the research that the
researchers carried out were in accordance with the research conducted by (Oktaviani et al., 2015) which stated that the audit
committee had a significant effect on earnings quality with earnings management
as the intervening variable. However, the research that the researchers carried
out did not receive support from research conducted by (Nanang & Tanusdjaja, 2019) which stated that earnings management
had not been able to strengthen the relationship between the audit committee
and earnings quality. This problem is because the presence of an audit
committee in a company is only for the sake of applicable policies and the
elected members of the audit committee do not have the ability to carry out
their responsibilities, so that the audit committee has not been able to have a
good influence on the quality of earnings or earnings management.
Hypothesis seventeen,
with the presence of an independent board of commissioners, the audit of a
company will run effectively and according to the contents of the applicable
legislation. This effective supervision occurs because the independent
commissioner has no conflict of interest with the managers. The results of this
study are supported by (Nanang & Tanusdjaja, 2019) who stated that the proportion of
independent commissioners has an influence on earnings quality with earnings
management as an intervening variable.
Hypothesis eighteen,
earnings management does not only take place in large companies, but can also
take place in small companies that are developing. One of the motives for the
occurrence of earnings management in large and small companies is to be able to
attract investors to invest in companies with a reflection of current earnings
that promise profits. With such a large profit for the year, it seems as if the
performance of the company is good, even though this matter is not in line with
the actual situation.
CONCLUSION
Based on the research objectives presented in
CHAPTER I of this thesis, it can be concluded that the research results are; 1)
The proportion of independent commissioners, audit
committees, institutional ownership and managerial ownership either partially
or simultaneously has a significant effect on earnings management. In addition,
the size of the company also has a significant effect on earnings management;
2) Audit committee, institutional ownership, and managerial ownership partially
and significantly have an effect on earnings quality, then for the proportion
of independent commissioners there is no significant effect on earnings
quality. In addition, the proportion of independent commissioners, audit
committees, institutional ownership, and managerial ownership simultaneously
and significantly has an effect on earnings quality. In addition, company size
also has a significant effect on earnings quality; 3) Earnings management has a
significant effect on earnings quality; 4) Earnings management can
significantly mediate the relationship between the proportion of independent
commissioners, audit committees, institutional ownership, and managerial
ownership on earnings quality. However, firm size does not have a significant
effect on earnings quality with earnings management as an intervening variable.
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the authors. Submitted for possible open access publication under the terms
and conditions of the Creative Commons Attribution (CC BY SA) license
(https://creativecommons.org/licenses/by-sa/4.0/).
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Received:
24-06-2022�������������������� ��������������� Accepted: 05-07-2022���������������������� ��������������� Published: 22-07-2022������ 