scholarly journals Free Cash Flow, Financial Distress and Debt Policy Toward Earnings Management in Indonesian Banking Sector

2021 ◽  
Author(s):  
Dendi Purnama ◽  
Amir Hamzah ◽  
Oktaviani Puspasari ◽  
Siti Nurfatimah ◽  
Enung Nurhayati
Keyword(s):  
Earnings Management ◽  
Cash Flow ◽  
Financial Distress ◽  
Banking Sector ◽  
Free Cash Flow ◽  
Debt Policy

scholarly journals PENGARUH FREE CASH FLOW, FINANCIAL DISTRESS, DAN INVESTMENT OPPORTUNITY SET TERHADAP MANAJEMEN LABA

2021 ◽  
Vol 14 (1) ◽  
Author(s):  
Sally Irawan ◽  
Prima Apriwenni
Keyword(s):  
Earnings Management ◽  
Cash Flow ◽  
Financial Distress ◽  
Stock Exchange ◽  
Total Sample ◽  
Free Cash Flow ◽  
Investment Opportunity ◽  
Purposive Sampling ◽  
Investment Opportunity Set ◽  
Positive Effect

<p><strong><em>ABSTRACT :  </em></strong><em>Stakeholders pay attention to the earnings report, thus encouraging company managers to plan strategies to produce reports expected by stakeholders. Earnings management is one way that can be done. Managers can intervene the earnings management by increasing or decreasing profit in order to achieve a certain level of profit which benefits himself or the company. This study aims to determine the influence of free cash flow, financial distress, and investment opportunity set on earnings management. </em><em>The research sample consisted of 11 infrastructure, utility, and transportation companies listed on the Indonesia Stock Exchange in 2014-2018 with the total sample of 55 data. This study used a purposive sampling method and was tested with SPSS 22.0 Software. The results show that the data have met the pooling test, classical assumptions and established criteria. The results of the F test show that the earnings management variable is affected simultaneously by free cash flow, financial distress, and investment opportunity set variables. The t test results show that the free cash flow and investment opportunity set have a significant positive effect on earnings management, whereas financial distress does not. In sum, there is enough evidence that free cash flow and investment opportunity set positively affect earnings management, but financial distress does not have enough evidence to influence earnings management.</em></p><p><strong><em>Keywords: </em></strong><em> Earnings Management, Free Cash Flow, Investment Opportunity Set, Financial Distress.</em></p><p><em> </em></p><p><strong>ABSTRAK:</strong> Laporan laba menjadi perhatian para <em>stakeholders</em> sehingga mendorong manajer perusahaan melakukan perencanaan strategi untuk menghasilkan laporan yang diharapkan <em>stakeholder</em>. Manajemen laba adalah salah satu cara yang dapat dilakukan. Intervensi manajer untuk melakukan manajemen laba dengan cara menaikkan atau menurunkan laba guna mencapai tingkat laba tertentu untuk menguntungkan dirinya sendiri atau perusahaan. Penelitian ini bertujuan untuk mengetahui pengaruh <em>free cash flow, financial distress, </em>dan <em>investment opportunity set </em>terhadap manajemen laba. Sampel penelitian ini adalah perusahaan infrastruktur, utilitas, dan transportasi yang terdaftar di Bursa Efek Indonesia periode 2014-2018. Total sampel yang digunakan adalah 11 perusahaan dengan data observasi yang diperoleh sebanyak 55. Teknik pengambilan sampel yang digunakan adalah <em>non-probability sampling</em> dengan menggunakan metode <em>purposive sampling</em> dan pengujian yang dilakukan dengan bantuan <em>software</em> SPSS 22.0. Hasil penelitian dari data yang digunakan,  untuk uji pooling dan asumsi klasik telah lulus uji dan sudah memenuhi kriteria yang ditetapkan. Hasil uji F menunjukkan bahwa variable manajemen laba dipengaruhi secara simultan oleh variable <em>free cash flow, financial distress, </em>dan <em>investment opportunity set. </em>Dari hasil uji t memperlihatkan hasil bahwa <em>free cash flow </em>dan<em> investment opportunity set </em>mempunyai nilai signifikan positif terhadap manajemen laba, tapi untuk <em>financial distress </em>tidak mempunyai nilai signifikan terhadap manajemen laba. Kesimpulan dari penelitian ini adalah<em> free cash flow </em>dan <em>investment opportunity set </em>berpengaruh positif terhadap manajemen laba, sedangkan <em>financial distress </em>tidak berpengaruh terhadap manajemen laba.</p><p><strong>Kata Kunci:</strong> Manajemen Laba,<em> Free Cash Flow,  Investment Opportunity Set, Financial Distress</em></p><p> </p>

Analysis the Effect of Financial Distress, Leverage and Free Cash Flow on Earnings Management

2021 ◽  
Vol 6 (3) ◽  
pp. 111-119
Author(s):  
Rifka Aulia Inayah ◽  
Amiruddin Amiruddin ◽  
Grace T. Pontoh
Keyword(s):  
Earnings Management ◽  
Cash Flow ◽  
Financial Distress ◽  
Stock Exchange ◽  
Linear Regression Analysis ◽  
Total Sample ◽  
Multiple Linear Regression Analysis ◽  
Jel Classification ◽  
Free Cash Flow ◽  
Company Value

Objective - This study aims to determine and analyze the effect of financial distress, leverage, free cash flow on earnings management. Methodology/Technique – The object of this research is all companies listed on the Indonesia Stock Exchange with an observation period of 2019. The sample determination uses the purposive sampling method and a total sample of 124 companies is obtained. The analysis technique used is multiple linear regression analysis. Findings - The results show that financial distress has no significant effect on earnings management. Leverage and free cash flow have a negative and significant effect on earnings management. Novelty - This research contributes to signalling theory, which is used by company managers who have better information about their company will be encouraged to convey this information to potential investors where this is intended so that companies can increase company value by sending signals through financial statements of companies listed on the IDX. Type of Paper: Empirical. JEL Classification: G32, M21, M41, M42. Keywords: Financial Distress; Leverage; Free Cash Flow and earnings Management

scholarly journals Concealing Financial Distress With Earnings Management: A Perspective on Malaysian Public Listed Companies

2021 ◽  
Vol 12 (2) ◽  
pp. 341
Author(s):  
Mohamad Ezrien Bin Mohamad Kamal ◽  
Siti Sarah Binti Khazalle
Keyword(s):  
Earnings Management ◽  
Cash Flow ◽  
Firm Size ◽  
Financial Distress ◽  
Negative Relationship ◽  
Free Cash Flow ◽  
Share Price ◽  
Industrial Product ◽  
Financial Leverage ◽  
Financial Condition

Earnings Management is prevalent among corporations, resulting to misleading information disclosed on financial statements. By adopting agency theory argument, in line with fulfilling shareholders expectations on financial performance while securing their position and interest within the company, management may be influenced to engage earnings management when the actual financial outcome is in financial distress. Hence, this study attempts to identify whether companies listed on Industrial Product sector of Malaysian Bourse experienced financial distress condition and embark on earnings management. It also examines potential relationship between financial distress conditions and earnings management within the context of companies listed within Industrial Product sector of Malaysian Bourse in 2016 and 2017. Industrial Product sector was chosen as focus of this study due to its critical position in nation’s transformation to become developed country and as the main contributor to the nation’s GDP with largest market capitalization value in local bourse. Financial distress was proxied by Altman Z score and earnings management by discretionary accruals as per Kothari (2005). The study was conducted using the quantitative statistical method by running multiple regressions in SPSS version 23. The study also included three control variables, such as firm size, financial leverage and free cash flow from operation. The sample of this study comprised of 454 firms of Industrial Products Sector, listed on Malaysian Bourse from 2016 to 2017. The result revealed significant negative relationship between financial distress and earnings management by companies within Industrial Product sector. Financial leverage and free cash flow from operation have inverse relationship with earnings management, while firm size has a positive relationship with earnings management. This also means management of Industrial Product Sector companies engage earnings management when their financial condition is not in distress, hence they are not using earnings management to conceal financial distress condition. Instead they may use earnings management to leverage on their non-distress financial condition to attain better share price performance and financing arrangement.

scholarly journals PENGARUH OPPORTUNISTIC BEHAVIOUR, LEVERAGE, FINANCIAL DISTRESS TERHADAP EARNINGS MANAGEMENT

2021 ◽  
Vol 13 (1) ◽  
pp. 60-74
Author(s):  
Claudy Alfina ◽  
Elfina Astrella Sambuaga
Keyword(s):  
Earnings Management ◽  
Cash Flow ◽  
Financial Distress ◽  
Sampling Method ◽  
Free Cash Flow ◽  
Opportunistic Behavior ◽  
Return On Assets ◽  
Financial Reports ◽  
Opportunistic Behaviour ◽  
Period Data

Abstract— The purpose of this study is to examine the effect of opportunistic behavior, leverage, financial distress on earnings management. Samples were obtained from non-financial companies that reported financial reports in a row from 2010-2019 with a purposive sampling method, so as to obtain data as much as 232 observations. Earnings management is measured using the Kothari (2005) model, opportunistic behavior consisting of free cash flow (FCF) as measured by the Lehn & Poulsen method (1989) and profitability as measured by Return on Assets (ROA), leverage is measured by Debt Ratio and financial distress. measured by Zmijewski's (1984) model during the study period. Data were tested using multiple linear regression through the STATA program. The results showed that opportunistic behavior as proxied by profitability can increase managers' motivation towards earnings management, as well as leverage. However, opportunistic behavior as proxied by free cash flow is not in accordance with predictions, while financial distress has no significant effect on earnings management.   Keywords: Earnings Management; Opportunistic Behaviour; Leverage; Financial Distress; Zmijewski Model

scholarly journals Earnings Management Incentives and the Pricing of Discretionary Accruals

2019 ◽  
Vol 14 (7) ◽  
pp. 77
Author(s):  
Sondes Draief
Keyword(s):  
Earnings Management ◽  
Stock Returns ◽  
Cash Flow ◽  
Insider Trading ◽  
Financial Distress ◽  
Negative Relationship ◽  
High Growth ◽  
Discretionary Accruals ◽  
Free Cash Flow ◽  
Management Incentives

The objective of this research is to investigate whether earnings management incentives influence the pricing of discretionary accruals. Specifically, we verify if growth opportunity, leverage, free cash flow, insider trading and financial distress are useful to investors to discriminate between opportunistic and informative earnings management. Using a sample of 486 American firms for the period 2002-2010, we find that discretionary accruals are positively related to stock returns. This relation is more intensive in high growth firms and high levered firms. Indeed, these firms use more informative earnings management to communicate future prospects and good financial situation to external investors. However, discretionary accruals are negatively priced by investors in distressed firms. These firms have a greater incentive to manage earnings opportunistically to hide any financial problem. Likewise, we detect a negative relationship between discretionary accruals and stock returns in firms with excessive free cash flow revealing the opportunistic perspective of earnings management. Finally, we demonstrate that investors award positive (negative) value to discretionary accruals in case of insider buying (selling).

scholarly journals The Effect of Investment, Free Cash Flow, Earnings Management, and Interest Coverage Ratio on Financial Distress

2021 ◽  
Vol 2 (1) ◽  
pp. 67-73
Author(s):  
Meryana ◽  
Erna Setiany
Keyword(s):  
Earnings Management ◽  
Cash Flow ◽  
Financial Distress ◽  
Cash Flows ◽  
Free Cash Flow ◽  
Coverage Ratio ◽  
Financial Difficulties ◽  
Score Method ◽  
Free Cash Flows ◽  
Retained Earnings

The purpose of this research is to test investments, free cash flow, earnings management, and interest coverage ratio are affecting the risk of financial distress in healthy enterprises.. Healthy companies can be seen from how large the value of working capital, retained earnings, income before tax, market value and sales implemented in the measurement of the financial difficulties model with the Altman Z-score method. Collection of data by purposive sampling and number of samples as many as 33 companies in the category of healthy companies. The results show that free cash flows and interest coverage ratio significant effect on the financial difficulties of healthy companies whereas investment and earnings management had no significant effect on the financial difficulties of healthy companies

scholarly journals Surplus Free Cash Flow, Stock Market Segmentations and Earnings Management: The Moderating Role of Independent Audit Committee

2020 ◽  
pp. 097215092093406
Author(s):  
Ahmad A. Toumeh ◽  
Sofri Yahya ◽  
Azlan Amran
Keyword(s):  
Stock Market ◽  
Earnings Management ◽  
Cash Flow ◽  
Audit Committee ◽  
Management Practices ◽  
Free Cash Flow ◽  
The Body ◽  
Moderating Role ◽  
Independent Audit

Management engages in earnings manipulation for different reasons. This article argues that low-growth firms with high free cash flow will opt for income-increasing earnings management in order to obscure the low profits derived from their investments in negative net present value (NPV) projects. On the other hand, we argue that the listed companies might be interested in being listed in the first market due to its privileges and to preserve the competitiveness, through managing their earnings upwardly, so that they can satisfy the condition of achieving a particular earnings limit. This article should advance the body of earnings management literature in the Jordanian context by examining the effect of the moderating role of an independent audit committee (IAC) in the association between surplus free cash flow (SFCF) and income-increasing discretionary accruals (DAC). Further, this is the initial empirical attempt to investigate the moderation effect of IAC between stock market segmentations (SMS) and positive DAC. The results of this current study offer original and beneficial information for the Jordanian government and other countries with a similar institutional environment because the study promotes the application of applying IAC as an efficient tool to constrain management behaviour towards manipulation of the accruals. On top of that, this research offers information concerning the prevailing situation of earnings management practices and corporate governance in Jordan, in which shareholders, local and international investors, policymakers, regulators and academic researchers are interested. Finally, panel data analyses and various statistical techniques are employed to derive conclusions.

scholarly journals Opportunistic Behavior, External Monitoring Mechanisms, Corporate Governance, and Earnings Management

2018 ◽  
Vol 3 (1) ◽  
pp. 44-52
Author(s):  
Linda Wimelda ◽  
Agustina Chandra
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Cash Flow ◽  
Firm Size ◽  
Management Practices ◽  
Free Cash Flow ◽  
Managerial Ownership ◽  
Opportunistic Behavior ◽  
Manufacturing Companies ◽  
External Monitoring

Objective - The purpose of this research is to analyze the effect of motivational bonus, leverage, firm size, corporate governance (audit committee's size, the proportion of independent commissioners, institutional ownership, managerial ownership) and free cash flow on earnings management. Methodology/Technique - Earnings management is analyzed in this research using the modified Jones model. The population for the research consists of manufacturing companies listed on the Indonesian Stock Exchange (IDX) between 2013-2015. The final sample includes 60 manufacturing companies. Findings - The result of this study indicate that motivational bonus, leverage, firm size and free cash flow have an influence on earnings management practices. Motivational bonuses and free cash flow as opportunistic behavior also influence earnings management. In addition, leverage and firm size as external monitoring mechanism influence earnings management practices while audit committee size, the proportion of independent commissioners, institutional ownership and managerial ownership as corporate governance practices in companies has no significant effect on earnings management practices. Hence, it is concluded that corporate governance has no effect on earnings management practices in Indonesia. Type of Paper: Empirical Keywords: Opportunistic Behavior; External Monitoring Mechanisms; Corporate Governance; Earnings Management. JEL Classification: G34, G02.

scholarly journals Determinan Manajemen Laba Perusahaan di Sektor Konsumsi

2019 ◽  
Vol 3 (2) ◽  
pp. 96
Author(s):  
Muhammad Fajri
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Cash Flow ◽  
Institutional Ownership ◽  
Free Cash Flow ◽  
Earning Management ◽  
Managerial Ownership ◽  
Leverage Ratio ◽  
Good Corporate Governance ◽  
The Impact

The aim of this research is to provide empirical evidence on the impact of good corporate governance, free cash flow, and leverage ratio on earnings management. Good corporate governance is measured by audit committee’s size, the proportion of independent commissioners, institutional ownership, and managerial ownership. Discretionary accrual is the proxy of earning management. This research used 28 consumer goods companies listed in Indonesia Stock Exchange from 2016 to 2018. Data were analyzed using panel data with random effect model. Based on the result of analysis concluded that all components of good corporate governance (audit committee’s size, the proportion of independent commissioners, institutional ownership, and managerial ownership), have no significant effect on earnings management, on other hand leverage ratio has a negative effect and no significant on earning management, and free cash flow has a positve and no significant effect on earnings management

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