Effect of Financial Leverage and Investment Diversification on Income-Increasing Earnings Management (original) (raw)
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One component of financial statements that describes the performance of issuers is the profit component. In general, the amount of profit can be a decision maker for investors. Any changes related to earnings information will affect the actions of investors. The accrual basis in financial statements provides an opportunity for managers to modify financial statements to produce the desired amount of profit. The choice of accounting method that is deliberately chosen by management for certain purposes is known as earnings management. The population of this study are all banking companies listed on the Indonesia Stock Exchange (IDX) in the 2016-2020 period, which amount to 43 banking companies. The sampling method was carried out by purposive sampling, so that 10 samples were obtained during 2016 to 2020 and a total of 50 observations were obtained. The results showed that the variables of information asymmetry and leverage had a positive and significant effect on earnings management practices. Meanwhile, the profitability variable has a negative effect on earnings management practices.
A Study of the Factors Affecting Earnings Management: Iranian Overview
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The Influence of Leverage and Its Size on the Earnings Management
Research Journal of Finance and Accounting, 2015
This study aimed to determine the effect of leverage and firm size on earnings management. Sampling was done by purposive sampling method with the criteria listed in the Indonesia Stock Exchange and has a complete set of financial statements. The study sample consisted of 30 manufacturing companies, used multiple regression analysis techniques and to test the research hypothesis, F test and t test.From the results of calculations using SPSS for Windows version 20, showed that: 1) The value of operating leverage coefficient of 0.215, significant operating leverage affect earnings management by 21.5%; 2) financial leverage coefficient of 0.505, meaning financial leverage affect earnings management by 50.5%; 3) The size of the company coefficient of 0.417, meaning the size of the company affect earnings management of 41.7%.Rated R square (R2) of 0.603, illustrates that earnings management (Y), can be explained by the operating leverage, financial leverage, and the size of the company amounted to 60.3%, while the remaining 39.7%, can be explained by other factors, which are not included in this study.From the results of hypothesis testing F, obtained value of F (2,082) <F table (2.769), this means that there is no effect of operating leverage, financial leverage, and the size of the companies jointly to earnings management. While the results of hypothesis testing t, obtained the following results: 1) tcount (-0.537) <t table (1.672) which means that there is no effect of operating leverage on earnings management; 2) tcount (-0.153) <t table (1.672) which means that there is no financial leverage effect on earnings management; 3) tcount (0.686) <t table (1.672) which means that there is no effect of firm size on earnings management.
Debt, diversification and earnings management
Journal of Accounting and Public …, 2010
In this article we use panel-estimation techniques to calculate discretionary accruals (DAC) and to produce a better understanding of the nature of the relation between debt and earnings management. Consistent with the transparency hypothesis (which suggests that diversification increases the complexity of firms' activities and reduces their transparency to outsiders), we find that for less-diversified (more transparent) firms, debt reduces positive discretionary accruals, whereas in relatively more-diversified (less transparent) firms the impact of debt becomes positive. Our paper shows that marginal increases in debt provide the incentives for managers to manipulate earnings, and diversification provides the needed context for this accounting practice to be possible. We have also found that only in the sub-sample of aggressive firms, those that manage discretionary accruals with enough magnitude to increase income, do lenders exert their control. Some firms, however, take advantage of diversification to avoid this control. Our findings are robust to several earnings-management measures and methodologies.
Effect of Firm Size and Leverage on Earning Management
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Financial reports provide all the information needed for stakeholders, especially investors, and what investors pay attention to is profit as a proxy for management performance and performance. The more professional the company management is, the more investors' perception is that the more profit is generated. Investors rarely analyze the issuer's condition more fundamentally. Because profit is often the center of attention of investors, thus encouraging management to do things that are not appropriate, namely making the entity look good financially or known as Earnings Management. This study aims to analyze the effect of firm size and leverage on earnings management. The samples of this study were companies in the food and beverage sub-sector on the Indonesia Stock Exchange that published their financial reports in 2014-2018. Data were analyzed using the multiple regression method with the SPSS 23.00 analysis tool. The results showed that firm size and leverage had no signi...
International Journal of Economics and Financial Issues, 2019
The purpose of this study is to investigate the association between earnings management, measured by the absolute unexpected accruals and the firm's capital structure. The study sample consists of 44 manufacturing Jordanian firms listed in the Amman Stock Exchange during the 5 years (2008-2012), a total of 220 (firm-year) observations. The study provides evidence supporting the hypothesized association between capital structure and the absolute unexpected accruals. Consistent with most prior related studies' results, findings indicate a statistically positive association between earnings management and a firm's financial leverage which is used as a proxy of the firm capital structure. This result hold for one measure of financial leverage (long-term-debt to equity ratio). However, when we use alternative leverage measure (total debt to assets ratio) as a capital structure proxy, the association between earnings management and leverage remains positive but statistically insignificant at the conventional level. Consistent with most related prior studies' findings, the empirical evidence also shows that capital structure is negatively associated with profitability return on equity and positively related to firm size. The regression coefficients on both variables are statistically significant at the conventional level. Also, both external financing and investment opportunities, are positively and significantly associated with capital structure.
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The Effect of Profitability, Leverage, and Managerial Ownership on Earnings Management
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This study aims to determine the effect of profitability, leverage, and managerial ownership on earnings management in manufacturing companies listed on the Indonesia Stock Exchange in 2017-2019. This study used 30 manufacturing companies as a sample with the purposive sampling method. In this research, Microsoft Excel and EViews 12 was used to assist in data processing. The results of this study show that profitability has positive and significant effect on earnings management, leverage and managerial ownership has no effect on earnings management. This research can be useful for company management, investors, and creditors in dealing with factors that affect earnings management.