EARNINGS MANAGEMENT THROUGH REAL ACTIVITIES
MANIPULATION
(Empirical Study of Manufacturing Companies Listed on Indonesia Stock
Exchange from 2009 – 2011)
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Institusion
Universitas Atma Jaya Yogyakarta
Author
Putra, Gerry Sutrisna
Subject
International Financial Management
Datestamp
2013-05-02 13:40:16
Abstract :
Earnings management is the way managers manipulate financial reports in order to meet certain target. Managers manage earnings through accrual-based manipulation or real activities or both of them, but managers prefer real activities manipulation than accrual-based manipulation. It?s happen because depends on accrual-based manipulation alone entails risks. In Indonesia, there are several studies on earnings management through real activities manipulation and these studies are success to prove the existence of real activities manipulation in manufacturing companies, but none of them use the same approach as Roychowdhury, the contributor to literature of earnings management who success to detect earnings management on companies? operational activities. This study aims to prove earnings management through real activities in Indonesia, especially the manufacturing companies. There are three things that companies use to manage earnings; sales manipulation, reduction of discretionary expense, and overproduction. An empirical study was carried out in this research. The instrument used was secondary data from Indonesia Stock Exchange website. Purposive sampling was employed to choose the samples. Samples are manufacturing companies which listed on Indonesia Stock Exchange from 2009 to 2011 and their financial reports must be available on www.idx.co.id. In relation to the estimation models, the manufacturing companies also must be listed, at least from 2007. The estimation models used in this study were from Roychowdhury (2006). Through the data analysis, it is concluded that all of hypotheses are rejected, means that earnings management through real activities in Indonesia cannot be proved using Roychowdhury?s estimation models. There is a possibility that the companies manage earnings not with real activities but discretionary accrual.
Earnings management is the way managers manipulate financial reports in order to meet certain target. Managers manage earnings through accrual-based manipulation or real activities or both of them, but managers prefer real activities manipulation than accrual-based manipulation. It?s happen because depends on accrual-based manipulation alone entails risks. In Indonesia, there are several studies on earnings management through real activities manipulation and these studies are success to prove the existence of real activities manipulation in manufacturing companies, but none of them use the same approach as Roychowdhury, the contributor to literature of earnings management who success to detect earnings management on companies? operational activities. This study aims to prove earnings management through real activities in Indonesia, especially the manufacturing companies. There are three things that companies use to manage earnings; sales manipulation, reduction of discretionary expense, and overproduction. An empirical study was carried out in this research. The instrument used was secondary data from Indonesia Stock Exchange website. Purposive sampling was employed to choose the samples. Samples are manufacturing companies which listed on Indonesia Stock Exchange from 2009 to 2011 and their financial reports must be available on www.idx.co.id. In relation to the estimation models, the manufacturing companies also must be listed, at least from 2007. The estimation models used in this study were from Roychowdhury (2006). Through the data analysis, it is concluded that all of hypotheses are rejected, means that earnings management through real activities in Indonesia cannot be proved using Roychowdhury?s estimation models. There is a possibility that the companies manage earnings not with real activities but discretionary accrual.
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