Main Article Content
Abstract
Purpose – This research investigates the influence of the Board of Directors (BOD) and the Board of Commissioners (BOC) on real earnings management (REM) practices in Indonesian manufacturing companies. Real earnings management involves genuine alterations to operational decisions that affect financial reporting.
Design/methodology/approach – The research uses a sample of manufacturing firm listed on Indonesia Stock Exchange (BEI) from 2016 to 2022 and uses panel data regression techniques, including the Pooled Least Square (PLS) and Fixed Effect Model (FEM), to examine the effects of BOD and BOC characteristics on REM. The empirical analysis considers multiple proxies for BOD and BOC attributes, such as board size, independence, meeting frequency, and expertise. Additionally, control variables including leverage, firm size, and growth indicators are incorporated into the analysis.
Findings – The findings reveal a significant positive relationship between the presence of BOD and REM activities. In contrast, the presence of BOC demonstrates a non-significant but negatively associated impact on REM. Furthermore, the research identifies the moderating role of BOC in strengthening the relationship between BOD and REM.
Research limitations/implications – The research contributes to the existing literature by providing empirical insights into the roles of BOD and BOC in shaping REM practices within the Indonesian manufacturing context. These findings highlight the importance of board characteristics in influencing financial reporting decisions and emphasize the need for effective corporate governance mechanisms to mitigate opportunistic behaviors related to earnings management.
Practical implications – Enhancing corporate governance practices, provide an input for more effective board composition, increase the investor confidence and transparency, enhance policy implications and provide advice for company’s long-term performance focus.
Originality/value – This research addresses a gap in the literature by focusing on the Indonesian context. Use the BOC to moderate the relationship between BOD and REM may be less common in the context of Indonesia and even in regional focus.
Keywords
Article Details
Copyright (c) 2024 Mardianto, Ria Karina, Edi Edi
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Al-Thuneibat, A. A., Al-Angari, H. A., & Alssad, S. A. (2016). The effect of corporate governance mechanisms on earnings management: Evidence from Saudi Arabia. Review of International Business and Strategy, 26(1), 2–23.
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Ascioglu, A., Hegde, S. P., Krishnan, G. V., & McDermott, J. B. (2012). Earnings management and market liquidity. Review of Quantitative Finance and Accounting, 38, 257–274. https://doi.org/10.1007/s11156-010-0225-9
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Guangguo, S., Ruiqi, S., & Hezun, L. (2019). Does executive directors from controlling shareholders improve corporate governance? Nankai Business Review International, 10(4), 546–569. https://doi.org/10.1108/NBRI-11-2018-0064
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Harymawan, I., Nasih, M., Rahayu, N. K., Kamarudin, K. A., & Ismail, W. A. W. (2022). Busy CEOs and financial reporting quality: evidence from Indonesia. Asian Review of Accounting, 30(3), 314–337. https://doi.org/10.1108/ARA-11-2021-0203
Healy, P. M., & Wahlen, J. M. (1999). A Review of the Earnings Management Literature and Its Implications for Standard Setting. Accounting Horizons, 13(4), 365–383. https://doi.org/10.2308/1558-7975-30.4.525
Hutchinson, M. R., Percy, M., & Erkurtoglu, L. (2008). An investigation of the association between corporate governance, earnings management and the effect of governance reforms. Accounting Research Journal, 21(3), 239–262. https://doi.org/10.1108/10309610810922495
Imen, F., & Anis, J. (2021). The moderating role of audit quality on the relationship between auditor reporting and earnings management: empirical evidence from Tunisia. EuroMed Journal of Business, 16(4), 416–430. https://doi.org/10.1108/EMJB-03-2020-0024
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Mahrani, M., & Soewarno, N. (2018). The effect of good corporate governance mechanism and corporate social responsibility on financial performance with earnings management as mediating variable. Asian Journal of Accounting Research, 3(1), 41–60. https://doi.org/10.1108/AJAR-06-2018-0008
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Mather, P., & Ramsay, A. (2006). The Effects of Board Characteristics on Earnings Management around Australian CEO Changes. Accounting Research Journal, 19(2), 78–93. https://doi.org/10.1108/10309610680000680
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