Averroes Ar Razy Tjegame, the student of Faculty of Economy, Sriwijaya University, Palembang, Indonesia

ORCID ID: 0000-0002-2757-8465
e-mail: averroesarrazy@gmail.com

Inten Meutia, Doctor of Economy, Faculty of Economy, Sriwijaya University, Palembang, Indonesia

e-mail: inten26@yahoo.com

Isnurhadi, Doctor of Economy, Faculty of Economy, Sriwijaya University, Palembang, Indonesia

e-mail: isnurhadi2020@gmail.com

The Effect of Corporate Governance and Corporate Diversification on Earnings Management

Abstract. Introduction. This research was conducted to examine the effect of corporate governance and corporate diversification on earnings management. The total sample of this study was 81 manufacturing companies listed on the Indonesia Stock Exchange (IDX) in 2012-2016. Data analysis was conducted by using regression panel data which was previously tested to determine the effect in the panel regression estimation model.

The Purpose. The purpose of this research was to measure and analyze the effect of corporate governance (projected by institutional ownership, managerial ownership and the proportion of independent commissioners) and corporate diversification (projected by industrial diversification) on earnings management.

Results. From the results of the data processing, the model was estimated using the Fixed Effect Model (FEM). R2 value was 43.53% and based on the F test it was stated that corporate governance and corporate diversification affect earnings management. The results of the t test showed that institutional ownership, managerial ownership, and the proportion of independent commissioners have no effect on earnings management. Industrial diversification affects earnings management.

Conclusions. Based on the results of analysis and testing of the effects of corporate governance and corporate diversification on earnings management in manufacturing companies listed on the Indonesia Stock Exchange (IDX), it can be concluded that institutional ownership and managerial ownership have no effect on earnings management while the proportion of independent commissioners and  industrial diversification variables has an effect on earnings management.

Keywords: Institutional Ownership; Managerial Ownership; Independent Board of Commissioners; Industrial Diversification; Earnings Management.

References:

1. Agustia, D. (2013). Pengaruh Faktor Good Corporate Governance, Free Cash Flow dan Leverage Terhadap Manajemen Laba. Jurnal Akuntansi Dan Keuangan, 15(1), 27-42. https://doi.org/10.9744/jak.15.1.27-42.
2. Al-Fayoumi, N., Abuzayed, B., & Alexander, D. (2010). Ownership Structure and Earnings Management in Emerging Markets : The Case of Jordan. International Research Journal of Finance and Economics, 38.
3. Alzoubi, E. S. S. (2016). Ownership Structure and Earnings Management : Evidence from Jordan. International Journal of Accounting & Information Management, 24(2). https://doi.org/10.1108/IJAIM-06-2015-0031.
4. Aryati, T. (2013). Analisis Pengaruh Diversifikasi Perusahaan Terhadap Manajemen Laba. Jurnal Akuntansi & Auditing, 9(2), 244-260.
5. Fama, E. F. & Jensen, M. C. (1983). Agency Problems and Residual Claims. Journal of Law & Economics, XXVI, 327-349.
6. Farida, D. N. & Kusumumaningtyas, M. (2017). Pengaruh Dewan Komisaris Independen dan Kepemilikan Manajerial terhadap Kualitas Laba. Jurnal STIE Semarang, 9(1), 50-71.
7. Fischer, M. & Rosenzweig, K. (1995). Attitudes of Students and Accounting Practitioners Concerning the Ethical Acceptability of Earnings Management. Journal of Business Ethics, 14(6), 433-444.
8. Guo, F. & Ma, S. (2015). Ownership Characteristics and Earnings Management in China. The Chinese Economy, 48(5), 372–395. https://doi.org/10.1080/10971475.2015.1067086.
9. Hidayanti, E. & Paramita, R. W. D. (2014). Pengaruh Good Corporate Governance terhadap Praktik Manajemen Laba Riil pada Perusahaan Manufaktur. Jurnal WIGA, 4(2), 1-16.
10. Indrawati, N. (2011). Pengaruh Mekanisme Corporate Governance Asimetri Informasi dan Leverage Terhadap Manajemen Laba dan Kualitas Laba. Jurnal Riset Akuntansi Dan Bisnis, 11(2), 189-215.
11. Jensen, M. C. & Meckling, W. H. (1976). Theory of the Firm : Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics, 3, 305-360.
12. Jiraporn, P., Sang, Y. & Mathur, I. (2008). Does Corporate Diversification Exacerbate or Mitigate Earnings Management ?: An Empirical Analysis. International Review of Financial Analysis, 17(5), 1087-1109. https://doi.org/10.1016/j.irfa.2007.10.001.
13. Klein, A. (2002). Audit Committee, Board of Director Characteristics and Earnings Management. Journal of Accounting and Economics, 33, 375-400.
14. Larastomo, J., Perdana, H. D., Triatmoki, H. & Sudaryono, E. A. (2016). Pengaruh Tata Kelola Perusahaan dan Penghindaran Pajak terhadap Manajemen Laba pada Perusahaan Manufaktur di Indonesia. Jurnal Bisnis Dan Manajemen, 6, 63–74. https://doi.org/10.15408/ess.v6i1.3121.
15. Masud, M. H., Anees, F. & Ahmed, H. (2017). Impact of Corporate Diversification on Earnings Management. Journal of Indian Business Research, 9(2). https://doi.org/10.1108/JIBR-06-2015-0070.
16. Mehdi, I. K. El. & Seboui, S. (2011). Corporate Diversification and Earnings Management. Review of Accounting and Finance, 11(2), 176-196. https://doi.org/10.1108/14757701111129634.
17. Perwitasari, D. (2013). Struktur Kepemilikan, Karakteristik Perusahaan dan Manajemen Laba. Jurnal Akuntansi Multiparadigma, 5(3), 345-510.
18. Pujiati, E. J. & Arfan, M. (2013). Struktur Kepemilikan dan Kompensasi Bonus serta Pengaruhnya Terhadap Manajemen LAba Pada Perusahaan Manufaktur yang Terdaftar di Bursa Efek Indonesia Tahun 2006-2010. Jurnal Telaah & Riset Akuntansi, 6(2), 123-139.
19. Putra, D. A., Kristanti, F. T. & Aminah, W. (2018). Pengaruh Kepemilikan Manajerial, Komite Audit dan Dewan Komisaris Independen terhadap Manajemen Laba. E-Proceeding of Management, 5(2), 2193-2203.
20. Rahmawati, H. I. (2013). Pengaruh Good Corporate Governance (GCG) terhadap Manajemen Laba pada Perusahaan Perbankan. Accounting Analysis Journal, 2(1), 9-18.
21. Rahmawati, M., Khikmah, S. N. & Dewi, V. S. (2017). Pengaruh Kualitas Auditor dan Corporate Governance terhadap Manajemen Laba (Studi Empiris pada Perusahaan Manufaktur yang Terdaftar di Bursa Efek Indonesia Periode 2011-2016). University Research Colloquium, 6, 459–474.
22. Vasilescu, C. & Millo, Y. (2016). Do Industrial and Geographic Diversifications have Different Effects on Earnings Management ? Evidence from UK Mergers and Acquisitions. International Review of Financial Analysis, 46, 33–45. https://doi.org/10.1016/j.irfa.2016.04.009.
23. Watts, R. L. & Zimerman, J. L. (1986). Positive Accounting Theory : A Ten Year Perspective. The Accounting Review, 65(1), 131-156.