Earning Management and the Effect Characteristics of Audit Committee, Independent Commissioners: Evidence From Indonesia

Eka Handriani

Abstract


This study examines whether companies listed Indonesia Stock Exchange conduct efficient or opportunistic earning management and to investigate the effect the Independent Commissioner and the Characteristics of the Audit Committee (measured by Auditor Size, Independence, Expertise, and Activities) on it. The sample consists of 186 observations of manufacturing companies in Indonesia Stock Exchange during the 2013-2018. Using Panel Regression Fixed Effect method, we find evidence that Independent Commissioners has a significant effect on reducing Earnings Management. The Positive Accounting Theory-the efficient perspective occurs when the compensation contract and internal control system, including monitoring by the board of commissioners, will limit the common view opportunistic manager and motivate the manager to choose the right accounting policy. The effective monitoring conducted by an independent commissioner can reduce agency costs because management prioritizes the best interest of shareholders by maximizing company resources. Furthermore, it was found that Audit Committee Size can reduce earning management. It is due to the wide range of skills of audit committee members in exercising oversight on management. Audit Committees with accounting and financial expertise can reduce earnings management. This finding indicates that the Audit Committee may tend to uphold conservative as accounting mechanism. Accounting conservatism has an important role in restricting opportunistic management behavior.

Full Text:

PDF


DOI: https://doi.org/10.5430/rwe.v11n3p108

Research in World Economy
ISSN 1923-3981(Print)ISSN 1923-399X(Online)

 

Copyright © Sciedu Press

To make sure that you can receive messages from us, please add the 'Sciedupress.com' domain to your e-mail 'safe list'. If you do not receive e-mail in your 'inbox', check your 'bulk mail' or 'junk mail' folders.