Article Sidebar

Download
Full Text PDF
Statistic
Read Counter : 862 Download : 1057

Downloads

Download data is not yet available.

Main Article Content

Abstract

This research investigates the impacts of earnings management, both accrual earnings management (AEM) and real earnings management (REM), as well as Board of Directors (BOD) on earnings persistence. Accrual earnings management was measured using Modified Jone's Model, and real earnings manage­ment was assessed by three measures: abnormal cash flow, abnormal production expenditure, and abnormal discretionary expenditure. In addition, Board of Directors was measured using BOD size and BOD independence. Earnings persistence was measured based on the current year earnings to following year earnings regression coefficients. Using the samples consisting of the manufacturing companies listed at the Indonesia Stock Exchange 2016-2020, the study finds the evidence that accrual earnings management and cash flow of real earnings management negatively affect earnings persistence, while production expenditure, earnings management, discretionary expen­diture, BOD size, and BOD independence positively affect earnings persistence.

Keywords

accrual earnings management real earnings management earnings persistence board of directors

Article Details

Creative Commons License

This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

References

  1. Adams, R. B. (2009). Asking Directors About Their Dual Roles. Finance and Corporate Governance Conference 2010 Paper.
  2. Ahmed, K., Hossain, M., & Adams, M. B. (2006). The effects of board composition and board size on the informativeness of annual accounting earnings. Corporate Governance, 14(5), 418–431.
  3. Alves, S. (2014). The effect of board independence on the earnings quality: Evidence from Portuguese listed companies. Australasian Accounting, Business and Finance Journal, 8(3), 23–44.
  4. Arayssi, M., Jizi, M., & Tabaja, H. H. (2020). The impact of board composition on the level of ESG disclosures in GCC countries. Sustainability Accounting, Management and Policy Journal, 11(1), 137–161.
  5. Atashband, A., Moienadin, M., & Tabatabaenasab, Z. (2014). Examining the earnings persistence and its components in explaining the future profitability. Interdisciplinary Journal of Contemporary Research In Business, 5(10), 104–117.
  6. Baber, W. R., Fairfield, P. M., & Haggard, J. A. (1991). The effect of concern about reported income on discretionary spending decision: The case of research and development. The Accounting Review; Sarasota, 66(4), 818–829.
  7. Cheng, Z., Rasiah, R., & Cheok, C. K. (2018). Determinants of board composition and corporate governance in Chinese enterprises since reforms began: A comparison of controlling shareholders. The Chinese Economy, 51, 446–467.
  8. Chi, W., Lisic, L. L., & Pevzner, M. (2011). Is enhanced audit quality associated with greater real earnings management? Accounting Horizons, 25(2), 315–335.
  9. Cohen, D. A., Dey, A., & Lys, T. Z. (2008a). Real and accrual-based earnings management in the pre-and-post-Sarbanes-Oxley periods. The Accounting Review, 83(3), 757–787.
  10. Cohen, D. A., Dey, A., & Lys, T. Z. (2008b). Real and accrual‐based earnings management in the pre‐and post‐Sarbanes‐Oxley periods. The Accounting Review, 83(3), 757–787.
  11. Cohen, D. A., & Zarowin, P. (2010). Accrual-based and real earnings management activities around seasoned equity offerings. Journal of Accounting and Economics, 50(1), 2–19.
  12. 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.
  13. Dechow, P. M., & Dichev, I. D. (2002). The quality of accruals and earnings: the role of accrual estimation errors. The Accounting Review, 35, 35–59.
  14. Dechow, P. M., Sloan, R. G., & Amy P. Sweeney. (1996). Causes and consequences of earnings manipulation: An analysis of firms subject to enforcement actions by the SEC. Contemporary Accounting Research, 13(1), 1–36.
  15. Dechow, P. M., Sloan, R. G., & Sweeney, A. P. (1995). Detecting earnings management. The Accounting Review, 70(2), 193–225.
  16. Delvira, M., & Nelvirita, N. (2013). Pengaruh risiko sistematik, leverage, dan persistensi laba terhadap Earnings Reponse Coefficient (ERC). Wahana Riset Akuntansi, 1(1), 129–154.
  17. Dimitropoulos, P. E., & Asteriou, D. (2010). The effect of board composition on the informativeness and quality of annual earnings: Empirical evidence from Greece. Research in International Business and Finance, 24(2), 190–205.
  18. Egbunike, C. F., & Odum, A. N. (2018). Board leadership structure and earnings quality: Evidence from quoted manufacturing firms in Nigeria. Asian Journal of Accounting Research, 3(1), 82–111.
  19. Eisenhardt, K. M. (1989). Agency theory: An assessment and review. Academy of Management Review, 14(1), 57–74. https://doi.org/10.5465/amr.1989.4279003
  20. Graham, J. R., Harvey, C. R., & Rajgopal, S. (2005). The economic implications of corporate financial reporting. Journal of Accounting and Economics, 40(1–3), 3–73.
  21. Graham, J. R., Harvey, C. R., & Rajgopal, S. (2006). Value destruction and financial reporting decisions. Financial Analysts Journal, 62(6), 27–39.
  22. Gunny, K. A. (2010). The relation between earnings management using real activities manipulation and future performance: Evidence from meeting earnings benchmarks. Contemporary Accounting Research, 27(3), 855–888.
  23. Hashim, H. A., & Devi, S. (2008). Board characteristics, ownership structure and earnings quality: Malaysian evidence. Research in Accounting in Emerging Economies, 8, 97–123.
  24. Hefti, A. (2017). Equilibria in symmetric games: Theory and applications. Theoretical Economics 12 (2017), 12, 979–1002.
  25. Hsu, P.-H., & Hu, X. (2016). Advisory board and earnings persistence. Journal of Accounting, Auditing & Finance, 31(1), 34–157.
  26. Hung, C.-H. D., Jiang, Y., Liu, F. H., & Tu, H. (2018). Competition or manipulation? An empirical evidence of determinants of the earnings persistence of the U.S. banks. Journal of Banking & Finance, 88, 442–454.
  27. Jensen, C., & Meckling, H. (1976). Theory of the Firm : Managerial behavior, agency costs and ownership structure. 3, 305–360.
  28. Jensen, M. C. (1993). The modern industrial revolution, exit, and the failure of internal control systems. The Journal of Finance, 48(3), 831–880.
  29. Kang, S.-A., & Kim, Y.-S. (2012). Effect of corporate governance on real activity-based earnings management: evidence from korea. Journal of Business Economics and Management, 13(1), 29–52. https://doi.org/10.3846/16111699.2011.620164
  30. Kent, P., Routledge, J., & Stewart, J. (2010). Innate and discretionary accruals quality and corporate governance. Accounting and Finance, 50(1), 171–195.
  31. Khasanah, H., & Khafid, M. (2020). IOS, company characteristics, and board of commissioners’ effect on earnings quality with intervening variable earnings persistence. Accounting Analysis Journal, 9(1), 46–52.
  32. Khuong, N. V., Rahman, A. A. A., Thuan, P. Q., Liem, N. T., Anh, L. H. T., Thuy, C. T. M., & Ly, H. T. N. (2022). Earnings management, board composition, and earnings persistence in an emerging market. Sustainability, 14(3), 1–15.
  33. Kliestik, T., Belas, J., Valaskova, K., Nica, E., & Durana, P. (2021). Earnings management in V4 countries: the evidence of earnings smoothing and inflating. Economic Research-Ekonomska Istraživanja, 34(1), 1452–1470.
  34. Kothari, S. P., Leone, A. J., & Wasley, C. E. (2005). Performance matched discretionary accrual measures. Journal of Accounting and Economics, 39(1), 163–197.
  35. Li, V. (2019). The effect of real earnings management on the persistence and informativeness of earnings. The British Accounting Review, 51(4), 402–423.
  36. Machdar, N. M., Manurung, A. H., & Murwaningsari, E. (2017). The effect of earning quality, conservatism, and real earnings management on the company’s performance and information asymmetry as a moderating variable. International Journal of Economics and Financial, 7(2), 309–318.
  37. Mather, P., & Ramsay, A. (2006). The effects of board characteristics on earnings management around Australian CEO changes. Accounting Research Journal, 19(2), 78–93.
  38. Meini, Z., & Siregar, S. V. (2014). The effect of accrual earnings management and real earnings management on earnings persistence and cost of equity. Journal of Economics, Business, & Accountancy Ventura, 17(2), 269–280.
  39. Mizik, N., & Jacobson, R. (2007). Earnings inflation through accruals and real activity manipulation: its prevalence at the time of an SEO and the financial market consequences. SSRN. https://doi.org/10.2139/ssrn.1031006
  40. Nguyen, P.-H., Tsai, J. F., & Nguyen, V.-T. (2020). Assessing the unemployment problem using a grey MCDM model under covid-19 impacts: A case analysis from Vietnam. The Journal of Asian Finance, Economics and Business, 7(12), 53–62.
  41. Obeng, V. A., Ahmed, K., & Miglani, S. (2020). Integrated reporting and earnings quality: The moderating effect of agency costs. Pacific-Basin Finance Journal, 60, 101285.
  42. Panda, B., & Leepsa, N. M. (2017). Agency theory: Review of theory and evidence on problems and perspectives. Indian Journal of Corporate Governance, 10(1), 74–95. https://doi.org/10.1177/0974686217701467
  43. Pernamasari, R. (2018). The effect of accrual earnings, corporate governance, and firm size on earnings persistence of 100 compass index companies listed in 2015-2016. Journal of Economics and Sustainable Development, 9(10), 196–205.
  44. Pirveli, E. (2020). Earnings persistence and predictability within the emerging economy of Georgi. Journal of Financial Reporting and Accounting, 18(3), 563-589.
  45. Rahmawati, & Krismiaji. (2021). Teori Akuntansi Keuangan. UPP STIM YKPN.
  46. Rajizadeh, S., & Rajizadeh, S. (2013). Examining the factors affecting earnings persistency among the listed firms in Tehran Stock Exchange. European Online Journal of Natural and Social Sciences, 2(3), 2073–2079.
  47. Ranasinghe, D., Mather, P., & Young, S. (2020). Board structure and earnings persistence: The mediation effect of board processes. Australian Journal of Management, 45(2), 266–293.
  48. Ronen, J., & Yaari, V. (2008). Earnings Management. Springer New York. https://doi.org/10.1007/978-0-387-25771-6
  49. Roychowdhury, S. (2006). Earnings management through real activities manipulation. Journal of Accounting and Economics, 42(3), 335–370. https://doi.org/10.1016/j.jacceco.2006.01.002
  50. Scott, W. R. (2015). Financial accounting theory (7th ed.). Pearson. https://doi.org/10.4324/9781351238885-7
  51. Shapiro, S. P. (2005). Agency Theory. Annual Review of Sociology, 31, 263–284.
  52. Siekelova, A., Belas, J., Podhorska, I., & Durana, P. (2020). Accrual-based earnings management: A case study in v4 focusing on the mining and quarrying sector. Acta Montanistica Slovaca, 26(1), 70–83.
  53. Subramanyam, K. R. (1996). The pricing of discretionary accruals. Journal of Accounting and Economics, 22(1–3), 249–281.
  54. Tariverdi, Y., Moradzadehfard, M., & Rostami, M. (2012). The effect of earnings management on the quality of financial reporting. African Journal of Business Management, 6(12), 4603–4611.
  55. Ticoalu, N. Y., & Panggabean, R. R. (2020). Earnings Persistence, Systematic Risk, Audit Quality, and Earnings Response. Proceeding the 1st International Congress on Regional Economic Development, Information Technology, and Sustainable Business.
  56. Vichitsarawong, T., & Pornupatham, S. (2015). Do audit opinions reflect earnings persistence? Managerial Auditing Journal, 30(3), 244–276.
  57. Waheed, A., & Malik, Q. A. (2019). Board characteristics, ownership concentration and firms’ performance: A contingent theoretical based approach. South Asian Journal of Business Studies, 8(2), 146–165.
  58. Watts, R. L., & Zimmerman, J. L. (1986). Positive Accounting Theory. Prentice-Hall.