Corporate Governance and Earnings Management: Empirical Evidence of the Distress and Non-Distress Companies

Reference to this paper should be made as follows: Theresia; Indrastuti, D. K; Alexander, N. (2021). Corporate Governance and Earnings Management: Empirical Evidence of the Distress and Non-Distress Companies, Accounting and Finance Review, 5(4): 23 – 30. https://doi.org/10.35609/afr.2021.5.4(3)

8 Pages Posted: 25 Jun 2021

See all articles by GATR Journals Submitter

GATR Journals Submitter

Global Academy of Training and Research (GATR)

Nico Alexander

Trisakti School of Management, Jakarta, Indonesia

Dewi Kurnia Indrastuti

affiliation not provided to SSRN

Theresia Theresia

Trisakti School of Management, Jakarta, Indonesia

Date Written: March 31, 2021

Abstract

Objective - The purpose of this research is to obtain empirical research on the effect of corporate governance on earnings management in distressed and non-distressed companies. Corporate governance in this research is measured by independent board, audit committee, board of commissioners, institutional ownership and number of board commissioner meetings. The research predicts that corporate governance has a negative effect on earnings management either both in distressed and non-distressed companies.

Methodology/Technique - This research uses 309 manufacturing companies listed on the Indonesian Stock Exchange and the data was obtained using purposive sampling method during 2016 until 2018. Of the 309 respondents in the sample, 287 are distressed companies and 22 are non-distressed companies. The data was analyzed using a multiple regression method.

Findings - The empirical results show that commissioner board and institutional ownership have a negative effect on earnings management in non-distressed companies but in distressed companies, corporate governance does not have an effect on earnings management. This research shows that distressed companies, corporate governance cannot minimize earnings management practices because to maintain the company as a going concern, management will do earnings management to ensure stakeholders' trust to encourage further investment in the company. In non-distressed companies, corporate governance can minimize earnings management practices because the company is in a good financial condition, so they don't need to do earnings management. Additionally, in order to ensure stakeholders' trust, the company will strengthen its' corporate governance mechanisms.

Keywords: Financial Distress; Earnings Management; Non-Financial Distress; Indonesia Stock Exchange.

JEL Classification: M41, M43, G34, J33, K22.

Suggested Citation

Submitter, GATR Journals and Alexander, Nico and Indrastuti, Dewi Kurnia and Theresia, Theresia, Corporate Governance and Earnings Management: Empirical Evidence of the Distress and Non-Distress Companies (March 31, 2021). Reference to this paper should be made as follows: Theresia; Indrastuti, D. K; Alexander, N. (2021). Corporate Governance and Earnings Management: Empirical Evidence of the Distress and Non-Distress Companies, Accounting and Finance Review, 5(4): 23 – 30. https://doi.org/10.35609/afr.2021.5.4(3), Available at SSRN: https://ssrn.com/abstract=3812439

GATR Journals Submitter (Contact Author)

Global Academy of Training and Research (GATR) ( email )

Suite 15
Taman Bukit Angkasa, Kuala Lumpur 59200
Malaysia

Nico Alexander

Trisakti School of Management, Jakarta, Indonesia ( email )

Jakarta
Indonesia

Dewi Kurnia Indrastuti

affiliation not provided to SSRN

Theresia Theresia

Trisakti School of Management, Jakarta, Indonesia ( email )

Jakarta
Indonesia

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