Corporate Governance and Real Earnings Management: The Role of the Audit Committee Characteristics

2022 ◽  
pp. 293-303
Author(s):  
Mohammad Hussein Rahahleh ◽  
Ahmad Husni Bin Hamzah ◽  
Norfadzilah Rashid
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Audit Committee ◽  
Real Earnings Management

scholarly journals CORPORATE GOVERNANCE DAN MANAJEMEN LABA RIIL PERBANKAN ISLAM INDONESIA DAN MALAYSIA

2018 ◽  
Vol 7 (4) ◽  
Author(s):  
M. Zubaedy Sy ◽  
Nuryati Nuryati ◽  
Surifah Surifah
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Audit Committee ◽  
Stock Exchange ◽  
Cash Flows ◽  
Profit Sharing ◽  
Least Square ◽  
Real Earnings Management ◽  
Annual Reports ◽  
Islamic Banks

 The main objective of this research is to create good corporate governance that is able to restrictopportunistic REM. The specific objectives of this study are 1) to provide evidence of difference inthe practices of CG and REM in Indonesian and Malaysian Islamic banks,and 2) to provide empirical evidence of the influence of CG on the REM of Indonesian and Malaysian Islamic banks.           The study was conducted on Indonesian and Malaysian Islamic banks from 2011 to 2016by using purposive samplingmethod. The research data is secondary data in the form of annual reports and financial reports originating from the Indonesian Banking Directory, the Indonesia Stock Exchange and the Malaysia Stock Exchange. The analysis method used to test the differences between CG and real earnings management is the Man Whitney test whilethe method used to test the effect of CG on the REM of Islamic Banks in Indonesia and Malaysia is the multiple regression analysiswithordinary least square.            The results show that the practices of corporate governance in Indonesia and Malaysia have their own strengths and weaknesses. CG mechanism of Indonesia and Malaysia shows lower level in some parts and higher level in other parts. Malaysia’s REM islower than Indonesia’sREM through operating cash flow, investment profit sharing, and discretionary costs. The experimental results show that CG generally does not affect real earnings management and only the independent audit committee who is able to restrictreal earnings management through operating cash flows.            Riset ini  menguji  hubungan antara corporate governance (CG) dan manajemen laba berdasar aktivitas riil  atau disebut real earnings management (REM) bank-bank Islam  di Indonesia dan Malaysia. Tujuan jangka panjang riset ini adalah terciptanya good corporate governace yang mampu membatasi REM oportunistik. Target khusus penelitian ini adalah 1) memberi bukti empiris perbedaan praktik CG dan REM bank Islam  Indonesia dan Malaysia. 2) memberi bukti empiris pengaruh CG terhadap REM bank Islam  Indonesia dan Malaysia.             Metode penelitian menggunakan metode ilmiah - kuantitatif, dengan membangun satu atau lebih hipotesis berdasarkan pada suatu struktur  atau kerangka teori dan kemudian menguji hipotesis-hipotesis tersebut secara empiris. Penelitian dilakukan pada bank Islam  Indonesia dan Malaysia periode waktu 2011 sampai 2016. Metode pengambilan sampel secara purposive sampling. Data penelitian merupakan data sekunder berupa  annual report dan laporan keuangan yang berasal dari Directory Perbankan Indonesia, Bursa Efek Indonesia  dan Bursa Efek Malaysia.  Teknik analisis untuk menguji perbedaan CG dan manajemen laba riil adalah uji beda Man Whitney, sedangkan untuk menguji pengaruh CG terhadap REM Bank Islam  Indonesia dan Malaysia menggunakan analisis regresi berganda ordinary least square.            Hasil menunjukkan bahwa praktik corporate governance Negara Indonesia dan Malaysia, masing masing memiliki kelebihan dan kelemahan. Mekanisme CG ada yang lebih rendah, maupun lebih tinggi antara Negara Indonesia dengan Malaysia. REM Malaysia lebih rendah signifikan dari pada Indonesia, baik melalui arus kas operasi, bagi hasil investasi, maupun biaya diskresioner. Hasil uji menunjukkan bahwa pada umumnya mekanisme CG tidak berpengaruh terhadap manajemen laba riil. Hanya Independensi komite audit yang mampu menekan manajemen laba riil melalui arus kas operasi.Keywords:Corporate governance, real earnings management, Islamic banking.

Do corporate governance practices restrain earnings management in banking industry? Lessons from India

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Deepa Mangala ◽  
Neha Singla ◽  
Neha Singla
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Board Of Directors ◽  
Audit Committee ◽  
Least Square ◽  
Loan Loss ◽  
Content Type ◽  
Governance Practices ◽  
Indian Banks

Purpose This study aims to investigate the role of corporate governance practices in restraining earnings management in Indian commercial banks. Design/methodology/approach Estimation of earnings management is based on discretionary loan loss provision and discretionary realised security gains and losses using Beatty et al. (2002) model. The effect of corporate governance on earnings management is examined by performing two-way least square dummy variable regression. Data for a period of five years (2016–2020) is collected from the Centre for Monitoring Indian Economy ProwessIQ database, Reserve Bank of India website, annual report of banks, National Stock Exchange and bank’s website. Findings Regression results exhibit that number of board committees, size and independence of audit committee and joint audit are significantly effective in curbing earnings management. Other board-related variables (size, independence, meetings and diligence) and audit committee variables (meetings and diligence) are not effective in restraining earnings management in Indian banks. Practical implications The findings may prove to be helpful to regulators, board of directors and investors. It shows the weak area of corporate governance in India that is lack of autonomy to independent directors, which needs regulators attention and it also suggests that the number of independent auditors should be adequate for audit purposes. The board of directors must ensure the formulation of an adequate number of committees, which perform their own super specialised functions. This study brings an alarm to investors not to rely on reported earnings alone as they may be manipulated. Originality/value This paper substantiates the scant literature on the role of corporate governance practices in restraining earnings management in banks of emerging markets and to the best of the authors’ knowledge impact of joint audits on earnings management is previously unexplored in Indian banks, which are examined in this study.

The Effect of Board of Director Composition and Audit Committee Expertise on The Real Earnings Management in Indonesia

2020 ◽  
Vol 2 (1) ◽  
pp. 110-117
Author(s):  
Feby Astrid Kesaulya ◽  
Weny Putri ◽  
Dewi Sri
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Audit Committee ◽  
Good Governance ◽  
Real Earnings Management ◽  
The Real ◽  
Board Of Director ◽  
Good Corporate Governance ◽  
Board Director ◽  
Real Activities Manipulation

The Objective of this research was to prove that the implementation of good corporate governance will have an effect on the real activities manipulation which was done by the management. The implementations of good governance used by this research are board of director composition and audit committee expertise. This research was conducted in Indonesia by using 306 firm years’ observations. The result of this research showed a different result from previous researches. This research showed that the implementation of good corporate governance in the form of board director composition and audit committee expertise do not impact the practice of real activities manipulation. Or, in other words some of the good corporate governance tool could not mitigate the real activities manipulation in the company.

Audit committee effectiveness, audit quality and earnings management: a meta-analysis

2016 ◽  
Vol 58 (2) ◽  
pp. 179-196 ◽  
Author(s):  
Zgarni Inaam ◽  
Halioui Khamoussi
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Audit Committee ◽  
Audit Quality ◽  
Good Governance ◽  
Meta Analysis ◽  
Negative Relationship ◽  
Real Earnings Management ◽  
Institutional Setting ◽  
Content Type

Purpose – Many researchers, in several contexts, have investigated the influence of audit committee effectiveness and audit quality variables on reducing the extent of earnings management, and empirical evidence is rather inconsistent. Design/methodology/approach – The aim of this paper is to meta-analyze the results of 58 prior studies that examined whether differences in results are related to moderating effects associated with corporate governance mechanisms or measures of earnings management. Findings – The findings show that the meta-analysis identifies many significant relationships. The independence of the audit committee, its size, expertise and the number of meetings have a negative relationship with earnings management. Similar negative relationships exist between auditor size, specialization and earnings management. Research limitations/implications – This study contributes to the corporate governance literature. Further, recognizing the function of an audit committee and audit quality shows the value of considering an institutional setting in governance research. This study is significant to academic and practitioner literatures, policy makers and professional accounting bodies as it shows that governance reforms promote companies to adopt good governance practices. The results also give useful information to investors in examining the effect of audit committee characteristics and audit quality on earnings quality. Originality/value – This study extends existing research on audit committee and audit quality to oversee both accrual and real earnings management using meta-analysis. Thus, this study has the potential to help stakeholders, board of directors, regulators and auditors, who are related with enhancing the supervision of firms and reducing the opportunities given to managers, to engage in earnings management.

scholarly journals CORPORATE GOVERNANCE DAN MANAJEMEN LABA RIIL PERBANKAN ISLAM INDONESIA DAN MALAYSIA

2018 ◽  
Vol 7 (4) ◽  
Author(s):  
M. Zubaedy Sy ◽  
Nuryati Nuryati ◽  
Surifah Surifah
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Audit Committee ◽  
Stock Exchange ◽  
Cash Flows ◽  
Profit Sharing ◽  
Least Square ◽  
Real Earnings Management ◽  
Annual Reports ◽  
Islamic Banks

The main objective of this research is to create good corporate governance that is able to restrictopportunistic REM. The specific objectives of this study are 1) to provide evidence of difference inthe practices of CG and REM in Indonesian and Malaysian Islamic banks,and 2) to provide empirical evidence of the influence of CG on the REM of Indonesian and Malaysian Islamic banks.           The study was conducted on Indonesian and Malaysian Islamic banks from 2011 to 2016by using purposive samplingmethod. The research data is secondary data in the form of annual reports and financial reports originating from the Indonesian Banking Directory, the Indonesia Stock Exchange and the Malaysia Stock Exchange. The analysis method used to test the differences between CG and real earnings management is the Man Whitney test whilethe method used to test the effect of CG on the REM of Islamic Banks in Indonesia and Malaysia is the multiple regression analysiswithordinary least square.            The results show that the practices of corporate governance in Indonesia and Malaysia have their own strengths and weaknesses. CG mechanism of Indonesia and Malaysia shows lower level in some parts and higher level in other parts. Malaysia’s REM islower than Indonesia’sREM through operating cash flow, investment profit sharing, and discretionary costs. The experimental results show that CG generally does not affect real earnings management and only the independent audit committee who is able to restrictreal earnings management through operating cash flows.            Riset ini  menguji  hubungan antara corporate governance (CG) dan manajemen laba berdasar aktivitas riil  atau disebut real earnings management (REM) bank-bank Islam  di Indonesia dan Malaysia. Tujuan jangka panjang riset ini adalah terciptanya good corporate governace yang mampu membatasi REM oportunistik. Target khusus penelitian ini adalah 1) memberi bukti empiris perbedaan praktik CG dan REM bank Islam  Indonesia dan Malaysia. 2) memberi bukti empiris pengaruh CG terhadap REM bank Islam  Indonesia dan Malaysia.             Metode penelitian menggunakan metode ilmiah - kuantitatif, dengan membangun satu atau lebih hipotesis berdasarkan pada suatu struktur  atau kerangka teori dan kemudian menguji hipotesis-hipotesis tersebut secara empiris. Penelitian dilakukan pada bank Islam  Indonesia dan Malaysia periode waktu 2011 sampai 2016. Metode pengambilan sampel secara purposive sampling. Data penelitian merupakan data sekunder berupa  annual report dan laporan keuangan yang berasal dari Directory Perbankan Indonesia, Bursa Efek Indonesia  dan Bursa Efek Malaysia.  Teknik analisis untuk menguji perbedaan CG dan manajemen laba riil adalah uji beda Man Whitney, sedangkan untuk menguji pengaruh CG terhadap REM Bank Islam  Indonesia dan Malaysia menggunakan analisis regresi berganda ordinary least square.            Hasil menunjukkan bahwa praktik corporate governance Negara Indonesia dan Malaysia, masing masing memiliki kelebihan dan kelemahan. Mekanisme CG ada yang lebih rendah, maupun lebih tinggi antara Negara Indonesia dengan Malaysia. REM Malaysia lebih rendah signifikan dari pada Indonesia, baik melalui arus kas operasi, bagi hasil investasi, maupun biaya diskresioner. Hasil uji menunjukkan bahwa pada umumnya mekanisme CG tidak berpengaruh terhadap manajemen laba riil. Hanya Independensi komite audit yang mampu menekan manajemen laba riil melalui arus kas operasi.Keywords:Corporate governance, real earnings management, Islamic banking.

scholarly journals PENGARUH GOOD CORPORATE GOVERNANCE TERHADAP EARNINGS MANAGEMENT

2019 ◽  
Vol 8 (1) ◽  
pp. 35
Author(s):  
Hexana Lastanti
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Audit Committee ◽  
Financial Statements ◽  
Managerial Ownership ◽  
Management Problem ◽  
Good Corporate Governance ◽  
The Difference

<p class="Style2">To be able to achieve good corporate governance, in addition to managerial ownership, institutional ownership and board of directors, the role of the audit committee also needed to further enhance the quality of information contained in the financial statements in accordance with his duties. Good corporate governance is one way to address the practice of earnings management. Study to examine the effect of the mechanisms of good corporate governance on earnings management that uses the data in the Indonesian capital market, still very little is done. Earnings management is a management action in the process of preparing financial statements to influence the level of profit that is displayed. The goal is to improve the welfare of certain parties, which can be identified as an advantage. Earnings management problem is the agency problem that is often triggered by a separation of the role or the difference between the interests of the owners (shareholders) with managing the company's management.</p>

scholarly journals THE ROLE OF CORPORATE GOVERNANCE IN THE EFFECT EARNINGS MANAGEMENT HAS ON FIRM VALUE

2017 ◽  
Vol 31 (1) ◽  
pp. 51
Author(s):  
Surifah .
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Firm Value ◽  
Stock Exchange ◽  
Market Price ◽  
Positive Influence ◽  
Real Earnings Management ◽  
Positive Effects ◽  
Governance Practices

Previous researchers found that managers have conducted opportunistic earnings management (Abdolmohammadi et al., 2010; Crocker and Slemrod, 2007;Cornett et al., 2009; Jaggi et al., 2009). Corporate Governance (CG) is one of the instruments to overcome, or at least to minimize, earnings management. This research aims to provide empirical evidence about the effect of CG and earnings management on firm value, and the role of CG in the effect earnings management has on firm value. This research is needed, to explain the effectiveness of CG’s implementation by influencing earnings management, in order to lead to more efficient earnings management.This study uses national commercial banks’ data listed on the Indonesian Stock Exchange for the period 2006-2013. The research sample consists of 29 banks over an 8 year period, with a total of232 observations. The research variable consists of the value of the firm, measured by Tobin’s Q as the dependent variable, real activity-based earnings management and accrual-based earnings management as the independent variables and corporate governance, measured by the CG index, as a moderating variable.The results show that the CG index has a robust relationship with performance, controlled by both the ownership concentration’s level and the size of the bank. Corporate governance has positive effects on firm value. The bigger the corporate governance disclosure score is, the higher the market value of the bank becomes. These results indicate that markets respond to the corporate governance’s disclosure, so the company’s market price increases. The results show that the CG index reinforces the positive influence of Accrual-based Earnings Management (AEM) and Real Earnings Management (REM) on the performance. These results indicate that corporate governance practices are able to steer earnings management away from the opportunistic and into the efficiency spectrum.

The impact of audit committee on real earnings management: Evidence from Netherlands

2020 ◽  
Vol 4 (1) ◽  
pp. 33-46 ◽  
Author(s):  
Sana Masmoudi Mardessi ◽  
Yosra Makni Fourati
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Audit Committee ◽  
Stock Exchange ◽  
Gender Diversity ◽  
Real Earnings Management ◽  
Financial Expertise ◽  
Relevant Topic ◽  
And Gender ◽  
The Impact

This paper aims to examine the effect of the characteristics of an audit committee on real earnings management in the Dutch context. Our sample is composed of 80 non-financial companies listed on the Amsterdam Stock Exchange during the period between 2010 and 2017. Four proxies are used to measure audit committee characteristics, namely, audit committee independence, financial expertise, gender diversity, and audit committee meetings. To test our hypotheses, we use a regression model to identify the influence of a set of audit committee characteristics on real earnings management after controlling for firm audit committee size, leverage, size, loss, growth and board size. Our analyses provide evidence that audit committee independence and gender diversity constrain real earnings management. Our findings also suggest that audit committee financial expertise reduces to some extent the likelihood of engaging in real earnings management. To the best of our knowledge, the Dutch context is not yet explored especially following the issue of the long-awaited new Dutch Corporate Governance Code in 2016 which has been updated for a long period in 2008. Therefore, corporate governance is a relevant topic in the Netherlands. This study contributes geographically to the Audit Committee and earnings management literature that examines another possible method, specifically, real earnings management.

The Sarbanes-Oxley Act, Earnings Management, and Post-Buyback Performance of Open-Market Repurchasing Firms

2013 ◽  
Vol 48 (6) ◽  
pp. 1847-1876 ◽  
Author(s):  
Sheng-Syan Chen ◽  
Chia-Wei Huang
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Earnings Management ◽  
Audit Committee ◽  
Negative Association ◽  
Real Earnings Management ◽  
Open Market ◽  
Sarbanes Oxley ◽  
Repurchase Announcements ◽  
Management Audit

AbstractWe examine how the Sarbanes-Oxley Act (SOX) affects pre-repurchase earnings management and its association with post-repurchase firm performance. Unlike prior pre-SOX studies, our post-SOX results indicate that open-market repurchasers do not engage in pre-buyback downward accrual-based earnings management. Audit committee independence, reforms in corporate governance structures, and changes in executives’ equity holdings prompted by SOX may explain the findings. Post-SOX, the significant negative association between pre-repurchase abnormal accruals and post-repurchase performance disappears, the market reaction to repurchase announcements becomes significantly less favorable, and there is no evidence of any shift away from accrual-based to real earnings management.

scholarly journals Pengaruh Corporate Governance, Profitabilitas, Leverage, dan Kualitas Audit Terhadap Real Earnings Management

2018 ◽  
Vol 2 (1) ◽  
pp. 35
Author(s):  
Clarissa Maya Devi
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Audit Committee ◽  
Audit Quality ◽  
Stock Exchange ◽  
Total Sample ◽  
Real Earnings Management ◽  
Manufacturing Company ◽  
Corporate Governace

 Abstract :The purpose of this study is to examine the affects of corporate governace, profitability, leverage and audit quality on real earnings management in manufacturing company  listed in Indonesia Stock Exchange during period 2014 until 2016. The total sample of this research was 63 manufacture companies. The result of this research shows that   profitability and audit quality has positive and significant affects on real earnings management, but corporate governance   and leverage has no effect on real earnings management. Keywords :Real Earnings Management, Corporate Governance, Audit Committee Meetings, Audit Committee of Accounting Experts, Profitability, Leverage, Audit Quality.

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