THE ROLE OF CORPORATE GOVERNANCE IN THE EFFECT EARNINGS MANAGEMENT HAS ON FIRM VALUE
https://doi.org/10.22146/jieb.12793 Surifah .(1*)
(1) Faculty of Economics, Cokroaminoto University of Yogyakarta, Indonesia
(*) Corresponding Author
Abstract
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.
Keywords
Full Text:
PDFReferences
Abbas, Z., and M.F. Rizwan, 2007. "Abnormal Accruals and Firm Value, Panel Data Analysis of Banking Industry of Pakistan."European Journal of Scientific Research, 17(4), 445-454.
Abdolmohammadi, M., E. Kvaal, and J.C. Langli, 2010. "Earnings management priorities of private family firms."Centre for Corporate Governance Research, 3.
Achmad, T., Rusmin, J. Neilson, and G. Tower, 2009. "The Iniquitous Influence of Family Ownership Structures on Corporate Performance." The Journal of Global Business Issues, 3 (1), 41-48.
Aharony, J., J. Wang, and H. Yuan, 2010. "Tunneling as an Incentive for Earnings Management during the IPO Process in China."Journal of Accounting and Public Policy, 29(1), 1-20.
Almeida, H.V. and D. Wolfenzon, 2006. "A theory of Pyramidal Ownership." The Journal of Finance, 61 (6), 2637-2680.
Ananchotikul, N., 2007. "Does Foreign Direct Investment really Improve Corporate Governance? Evidence from Thailand." Working Paper. University of California, Berkeley.
Beaver, W. H. and E.E. Engel, 1996. "Discretionary Behavior with Respect to Allowances for Loan Losses and the Bahavior of Security Prices."Journal of Accounting and Economics, 22(1-3), 177-206.
Brown, L.D. and M.L. Caylor, 2006. "Corporate Governance and Firm Valuation. Journal of Accounting and Public Policy, 25 (4), 409-434.
Chang, R.D., Shen, W.H. and C.J. Fang, 2008. "Discretionary Loan Loss Provisions and Earnings Management for the Banking Industry."International Business and Economics Research Journal7(3), 9-18.
Claessens, S., S. Djankov, J. Fan, and L. Lang, 1999. "Expropriation of Minority Shareholders in East Asia." available at: http:// ssrn.com/abstract=202390 May 10, 2014.
Claessens, S., Djankov, S. and L. Lang, 2000. "East Asian corporations. Heroes or villains" World Bank Discussion Paper No. 409.
Cohen, D.A., A. Dey, and T.Z. Lys, 2008. "Real and Accrual-Based Earnings Management in the Pre and Post-Sarbanes-Oxley periods." The Accounting review, 83(3), 757–787.
Cohen, L.J., M. M. Cornett, A. J. Marcus and H. Tehranian, 2014. "Bank earnings management and tail Risk during the Financial Crisis." Journal of Money, Credit and Banking , 46(1), 171–197.Cornett, M.M., J.J. McNutt, and H. Tehranian, 2009. "Corporate governance and earnings management at large U.S. bank holding companies." Journal of Corporate Finance, 15(4), 412–430.
Crocker, K.J. and J. Slemrod, 2007. "The economics of earnings manipulation and managerial compensation." The Rand Journal of Economics, 38(3), 698–713.
Dechow, P., 1994. "Accounting earnings and cash flow as measures of firm peprformance: The role of accounting accruals." Journal of Accounting of economics, 18, 3–42.
Durnev, A. and E.H. Kim, 2005. "To steal or not to steal: Firm attributes, legal environment, and valuation". The Journal of Finance, 60(3).
Faccio, M. and L.H.P. Lang, 2002. "The ultimate ownership of Western European". Journal of Financial economics, 65, 365–395.
Fan, J.P.H. and T.J. Wong, 2000. "Corporate ownership structure and the informativeness of accounting earnings in East Asia". Journal of Accounting Research, 43(1), 35–72.
Filatotchev, I., Y.C. Lien, and J. Piesse, 2005. "Corporate governance and performance in publicly listed, family-controlled firms: Evidence from Taiwan". Asia Pacific Journal of Management, 22, 257–283.
Gilson, R.J. and J.N. Gordon, 2003. "Controlling-controlling shareholders". University of pennsulvania Law review, 152(2), 785–843.
Giovannini, R., 2010. "Corporate governance, family ownership and performance". Journal Management Governance, 14, 145–166.
Gompers, P., J. Ishii, and A. Metrick, 2003. "Corporate governance and equity prices". The Quarterly Journal of Economics, 107–155.
Gujarati, D.N. and D.C. Porter, 2009. "Basic econometrics". Fifth Edition McGraw-Hill. New York america.
Gunny, K.A., 2010. "The relation between earnings management using real activities manipulation and future performance: Evidence from meeting earnings benchmarks". Contemporary Accounting Research, 27(3), 855–888.
Hashemi, S.A. and H. Rabiee, 2011. "The role of corporate governance in real earnings management: Evidence from Iran". Interdisciplinary Journal of Contemporary research in Business, 3(6), 848–858.
Haw, I.M., B. Hu, L.S. Hwang, and W. Wu, 2004. "Ultimate Ownership, Income Management, and Legal and Extra-Legal Institutions". Journal of Accounting Research, 42(2), 423–462.
Heugens, P.P.M.A.R., M. Van Essen, and J.H. Van Oosterhout, 2009. "Meta-Analyzing Ownership Concentration And Firm Performance In Asia: Towards A More Fine-Grained Understanding". Asia Pacific Journal Management, 26, 481–512.
Ibrahim, H. and F.A. Samad, 2011. "Corporate governance mechanisms and performance of public-listed family-ownership in Malaysia". International Journal of Economics and Finance, 3(1), 105–116.
Jaggi, B., S. Leung, and F. Gul, 2009. "Family control, board independence and earnings management: Evidence based on Hong Kong firms". Journal Accounting & Public Policy, 28(4), 281–300.
Jara, M. and F.J. López, 2011. "Earnings management and contests for control: An analysis of European family firms". Journal of Centrum Cathedra, 4(1), 100–120.
Jones, J.J., 1991. "Earnings management during import relief investigations". Journal of Accounting Research, 29(2), 193–228.
Kim, Y. and M. Statman, 2012. "Do Corporations Invest Enough In Environmental Responsibility?". Journal Business Ethics, 105, 115–129.
Klapper, L.F. and I. Love, 2002. "Corporate Governance, Investor Protection, And Performance In Emerging Markets". available at: http://ssrn.com/abstract-id303979 June 10, 2013.
Laporan investigasi BPK No.64/LHP/XV/11, 2009. "Laporan hasil pemeriksaan investigasi atas kasus PT Bank Century, Tbk pada bank Indonesia, Lembaga Penjamin Simpanan, Komite Stabilitas Sistem Keuangan dan PT Bank Century Tbk. No. 64/LHP/XV/11/2009 (Investigation Report on Century Bank case, at Indonesia". Badan Pemeriksa Keuangan Republik Indonesia.
La Porta, R., F. Lopez-de-Silanes, A. Shleifer, and R Vishny, 2002. "Investor Protection And Corporate Valuation". The Journal of Finance, 57(3), 1147–1170.
La Porta, R., Lopez-de-silanes, and A.Shleifer, 1999. "Corporate Ownership Around The World". The Journal of Finance, 54(2), 471–517.
Leventis, S. and P. Dimitropoulos, 2012. "The role of corporate governance in earnings management : Experience from US banks". Journal of Applied Accounting, 13(2), 161–177.
Lukviarman, N., 2004. "Ownership Structure And Firm Performance: The Case of Indonesia". Thesis. Curtin University of Technology.
Maury, B., 2006. "Family Ownership And Firm Performance: Empirical Evidence From Western European Corporations". Journal of Corparate Finance, 12, 321–341.
McNichols, M. and G.P. Wilson, 1988. "Earnings Management From The Provision Of Bad Debts". Journal of Accounting Research, 26, 1–31.
Morck, R. and B. Yeung, 2003. "Agency Problem In Large Family Business Groups". Enterpreneurship: Theory and Practice, 27(4), 367–382.
Nasution, M. and D. Setiawan, 2007. "Pengaruh Corporate Governance Terhadap Manajemen Laba Di Industri Perbankan Indonesia (The influence of corporate governance on earnings management in the Indonesian banking industry)". Simposium Nasional Akuntansi X. Makasar, 1–26.
Oswald, S.L., L.A. Muse, and M.W. Rutherford, 2009. "The Influence Of Large Stake Family Control On Performance: Is It Agency Or Entrenchment?". Journal of Small Business management, 47(1), 116–135.
Peraturan_BI_No.14/6/PBI, 2012. "Peraturan Bank Indonesia tentang uji kemampuan dan kepatuhan bank syariah dan unit usaha syariah (Bank Indonesia Regulation concerning fit and proper test of sharia banks and sharia business units)". Bank Indonesia.
Peraturan_BI_No.7/3/PBI, 2005. Peraturan Bank Indonesia tentang batas maksimum pemberian kredit bank umum (Bank Indonesia Regulation concerning the maximum crediting limits for commercial banks)". Bank Indonesia.
Peraturan_BI_No.8/14/PBI, 2006. "Peraturan Bank Indonesia tentang pelaksanaan good corporate governance bagi bank umum (Bank Indonesia regulation concerning the implementation of good corporate governance for commercial banks)". Bank Indonesia.
Rahmawati, 2006. "Pengaruh Asimetri Informasi Pada Hubungan Antara Regulasi Perbankan Dan Manajemen Laba Serta Dampaknya Terhadap Kinerja Saham (The Influence of Information Asymmetry on The Relationship Between Banking Regulation And Earnings Management And Its Impact on" . Unpublished Dissertation, Post-Graduate Programme. Yogyakarta: UGM.
Rahmawati, H.I., 2013. "Pengaruh Good Corporate Governance Terhadap Manajemen Laba Pada Perusahaan Perbankan (The Influence of Good Corporate Governance on Earnings Management In Banking Companies)". Accounting Analysis Journal, 2(1), 9–18.
Rehman, R.U. and I.U Mangla, 2012. "Does Corporate Governance Influence Banking Performance?". Journal of Leadership, Accountability and Ethical, 9(3), 86–93.
Roychowdhury, S., 2006. "Earnings Management Through Real Activities Manipulation". Journal of Accounting and Economics, 42, 335–370.
Sanjaya, I.P.S., 2010. "Efek Entrenchment Dan Alignment Pada Manajemen Laba (The Effects Of Entrenchment And Alignment On Earnings Management)". Unpublished Dissertation, Post-Graduate Programme. Yogyakarta: UGM.
Scott, W.R., 2012. "Financial Accounting Theory". Prentice Hall Canada, p.424.
SE_No.9/12/DPNP, 2007. "Surat Edaran Tentang Pelaksanaan Good Corporate Governance Bagi Bank Umum (Regulations On The Implementation Of Good Corporate Governance For Commercial Banks)". Bank Indonesia.
Shen, C.-H. and Y.L. Huang, 2013. "Effects Of Earnings Management On Bank Cost Of Debt". Accounting and Finance, 53(1), 265–300.
Siregar, B., 2006. "Pemisahan Hak Aliran Kas Dan Hak Kontrol Dalam Struktur Kepemilikan Ultimat (Separation Of Cash Flow Rights And Control Rights In The Structure Of Ultimate Ownership)". Unpublished Dissertation, Post-Graduate Programme. Yogyakarta: UGM.
Siregar, B., 2008. "Pengaruh Pemisahan Hak Aliran Kas dan Hak Kontrol Terhadap Dividen (The Effect of Separation of Cash Flow Rights and Control Right on Dividends". Jurnal Riset Akuntansi indonesia, 11(2), 158–185.
Surifah, 2011. "Corporate Governance dan Manajemen Laba: Pengaruh Presiden Komisaris Independen dan Komite Audit Independen (Corporate Governance and Earnings Management: the Influence of the Chairman of The Board of Directors And an Independent Audit Committee)". Kinerja, 12(2), 145–159.
Surifah, 2014. "Konsentrasi Kepemilikan, Manajemen Laba dan Kinerja Perbankan Indonesia (Concentration Of Ownership, Earnings Management and Performance of Indonesian Banking)". Unpublished Dissertation, Post-Graduate Programme. Surakarta: UNS.
Turnbull, S., 2000. "Corporate governance: Theoris, challenges, and paradigms". Gouvernement D’enterprise: Theories, Enjeux et paradigmes or available at: ssrn id=220954 May 15, 2010, 1(1), 11–43.
Villalonga, B. and Amit, R., 2006. "How Do Family Ownership, Control and Management Affect Firm Value?." Journal of Financial Economics, 80, 385–417.
Vivanews.com, 2008. "Robert Tantular Kendalikan Antaboga – Bersama Kerabatnya Robert Menguasai 82,18% Persen Saham Antaboga". Vivanews.Com, Selasa 2 Desember 2008. available at: (http://www.vavanews.com December 2, 2008.
Watts, R.L. and J.L. Zimmerman, 1986. "Positive Accounting Theory". Englewood Cliffs, NJ: Prentice Hall.
Wu, Y.C., W.K.T. Irene, L. Wen-Min, N. Mohammad, and L.K. Qian, 2016. "The Impact Of Earnings Management On The Performance Of Asean Banks". Economic Modelling, 53, 156–165.
Zhu, Z. and H. Ma, 2009. "Multiple Principal-Agent Relationships, Corporate-Control Mechanisms And Expropriation Through Related Party Transactions: Evidence from China". International Research Journal of Finance and Economics, 31, 141–163.
DOI: https://doi.org/10.22146/jieb.12793
Article Metrics
Abstract views : 13668
| 
views : 8371
Refbacks
- There are currently no refbacks.
Copyright (c) 2017 Journal of Indonesian Economy and Business
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
| Journal of Indonesian Economy and Business |
| The Journal of Indonesian Economy and Business (print ISSN 2085-8272; online ISSN 2338-5847) is published by the Faculty of Economics and Business Universitas Gadjah Mada, Indonesia. The content of this website is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License |
| © 2019 Journal of Indonesian Economy and Business | Visitor Statistics |