Role of earnings management in determining firm value: An emerging economy perspective

Purpose Corporate governance (CG) is an ongoing interesting topic getting the attention of market participant, business regulators and researchers in today’s business environment. The purpose of this study is to analyze the moderating role of earnings management on CG-value and CG-risk relationship in the emerging economy of Pakistan. Design/methodology/approach A panel data analysis is used in this study. A panel data of 71 non-financial listed companies of Pakistan for the 2008-2017 period is considered for this study. Secondary data is collected from the annual reports of non-financial firms listed on PSX. Seven econometric equations are developed to test the research hypothesis. Findings The results reveal that CG significantly enhances the firm value and performance measures. Moreover, CG mitigates the practices of earning management and eliminates the risk that develops opportunistic behavior among managers to commit frauds. Practical implications The results of this study suggest that the board of directors (BODs) should intensify their governance role and ensure that the executives perform their duties to maximize the wealth of the shareholders and not engage in any misrepresentation of accounts that may lower the company position and decrease the firm value. Moreover, the managers should be informed about their accountability and acknowledged that at the end of the year, they would be audited by an expert’s auditors for their responsibilities. Concerning regulatory bodies, regulatory authorities should ensure that there must be at least one independent member on the board. The better-governed system reduces both agency conflicts and enhances firm value. Originality/value A number of studies have already been undertaken by multiple investigators to build connection among CG with firm performance, but there is not even a single study in the literature that considers CG, firm value, firm Risk and discretionary earning management as a whole in one model to generalize its results in the emerging economy of Pakistan. A fundamental element of current analyzation process addresses that this is the very first graft of study conducted in Pakistan having combination of four variables together in one revision. There is minimal work that focuses on moderating effects of earning management on the CG-value and CG-risk relationships. This study uses two standard measures of firm performance (i.e. ROA and Tobin’s Q), one proxy of earning management (DEM) and three attributes of CG (board size, audit quality and ownership structure). Previously, researchers have not investigated a model that combines variables (CG as independent and Firm performance and Firm Risk as dependent along with DEM as moderator) in a single study.

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Effect of Earnings Management on Firm Value with Corporate Governance as a Moderating Variable

International Journal for Innovation Education and Research ◽

10.31686/ijier.vol9.iss2.2954 ◽

2021 ◽

Vol 9 (2) ◽

pp. 262-268

Author(s):

Jevri Afrizal ◽

Rindu Rika Gamayuni ◽

Usep Syaipudin

Keyword(s):

Corporate Governance ◽

Earnings Management ◽

Firm Value ◽

Management Practices ◽

Governance System ◽

Corporate Governance System ◽

And Performance ◽

Conceptual Study ◽

Positive Effect

This study aims to provide a conceptual study of the effect of earnings management on firm value by including corporate governance. as a moderating variable. This paper is a conceptual paper that discusses issues related to earnings management on firm value and the role of corporate governance in minimizing earnings management practices so as to increase firm value. Previous theoretical studies have shown that earnings management is effectively controlled by the corporate governance system and performance. In addition, the results of previous studies found empirical evidence that there is a positive relationship between earnings management and firm value. From the theoretical discussion and previous research, it is concluded that earnings management practices have a positive effect on firm value as moderated by corporate governance.

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

Journal of Indonesian Economy and Business ◽

10.22146/jieb.12793 ◽

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.

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Peran Mekanisme Corporate Governance sebagai Pemoderasi Praktik Earning Management terhadap Nilai Perusahaan

TRIKONOMIKA ◽

10.23969/trikonomika.v12i1.459 ◽

2013 ◽

Vol 12 (1) ◽

pp. 49

Author(s):

Mochammad Ridwan ◽

Ardi Gunardi

Keyword(s):

Corporate Governance ◽

Earnings Management ◽

Firm Value ◽

Institutional Ownership ◽

Audit Committees ◽

Managerial Ownership ◽

Governance Mechanisms ◽

Corporate Governance Mechanisms

This study aims to determine how the effect of earnings management on firm value is moderated by the role of corporate governance mechanisms consisting of an outside independent director, institutional ownership , managerial ownership , audit committees , and the classification of public accounting firms ( KAP ) . In this study, the population of the entire company is listed on the Indonesia Stock Exchange totaling 111 companies , but only 103 of the 111 companies that companies used in this study . To find out how the effect of earnings management on firm value is moderated by the role of corporate governance mechanisms using Moderated Regression Analysis . The results prove that the earnings management significantly influence the value of the company . Institutional ownership , managerial ownership , and the classification of KAP is moderating variables influence earnings management relations while independent directors and audit committees is not a moderating variable.

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The determinants of firm value: The role of earnings management and good corporate governance

Corporate Ownership and Control ◽

10.22495/cocv13i4c4p10 ◽

2016 ◽

Vol 13 (4) ◽

pp. 609-615 ◽

Cited By ~ 1

Author(s):

Steph Subanidja ◽

Aiaz Rajasa ◽

Eduardus Suharto ◽

Jalu Dwi Atmanto

Keyword(s):

Corporate Governance ◽

Earnings Management ◽

Firm Value ◽

Audit Quality ◽

Stock Exchange ◽

Manufacturing Companies ◽

Moderating Variables ◽

Good Corporate Governance ◽

Antecedent Variable

The conflict of interest between managers (agents) and the owner (principals) occurs all the time, although the level of the conflict is not always similar. This is because there are separation roles or a difference of interests. In many Indonesian banks, the implementation of Good Corporate Governance (GCG) is mandatory. But, in manufacturing companies in Indonesia, GCG is still not a must. So, what is the role of GCG in conjunction with firm value in manufacturing companies? In addition, many manufacturing companies use earnings management as a benchmark of firm value. It is clear that earnings management can be placed as an antecedent of firm value. The purpose of this research is to analyze the determinants of firm value in relation to earnings management and the mechanism of GCG as a moderating variable. The GCG is not viewed as an antecedent variable. The research sample is 46 companies in the entire industry of consumer goods of manufacturing companies in the Indonesia Stock Exchange. By specific considerations, the number of the sample is reduced to 39 out of 46 companies. The method used is a moderated regression analysis (MRA). The results show that the earnings management and the mechanism of GCG have an impact on the firm value. The dimension of GCG, namely, independent commissioner, managerial ownership, and audit quality can be placed as moderating variables and as determinants of firm value. In order to increase the firm value, it is advisable that this industry should strictly apply the mechanism of GCG as mandatory. However, the issue of GCG as an independent or moderating variable still remains debatable.

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Peran kepemilikan institusional, perencanaan pajak dan dewan komisaris asing terhadap nilai perusahaan

Jurnal Kajian Manajemen Bisnis ◽

10.24036/jkmb.10885400 ◽

2019 ◽

Vol 8 (2) ◽

Author(s):

Anita Ade Rahma ◽

Lisa Nabawi ◽

Ronni Andri Wijaya

Keyword(s):

Significant Influence ◽

Firm Value ◽

Stock Exchange ◽

Investment Decisions ◽

Total Sample ◽

Tax Planning ◽

Purposive Sampling ◽

Institutional Leadership ◽

Company Value

The purpose of this study is to analyze the role of institutional leadership, tax planning and foreign board of commissioners on firm value. The population in this study were 615 companies listed on the Indonesia Stock Exchange in 2015-2017. The sample was chosen using purposive sampling to get a total sample of 325 companies with a total of 975 observations of company data. The results of this study indicate that institutional leadership and tax planning have no role in increasing company value. While the foreign board of commissioners showed a significant influence on the value of the company. This proves that there is a need for diversity in the structure of the board that can trigger an increase in the value of the company. In addition, the presence of a foreign board is needed for the progress of the companyKeywords: Investment decisions; funding decisions; dividend policy; company value

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