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The Influence of Global Financial Crisis and Good
Corporate Governance Mechanisms on Earning
Management (Study of Property and Real Estate
Companies listed on the Indonesia Stock Exchange for the
period 2008-2018)
Dyah Anggraeni Purnomo [email protected]
Student Faculty of Economy and Business, University of Muhammadiyah Purwokerto.
Abstract. This studi aims to analyze the effect of the Global Financial Crisis and Good Corporate Governance Mechanisms (which are proxided by managerial ownership, institusional ownership, board of
commissioners and audit committees) on the Earning Management of Property and Real Estate companies listed on the Indonesia Stock Exchange for the period 2008-2018. The sampling method used is purposive sampling. Based on the purposive sampling method, there were 77 samples obtained. The results showed that global financial crisis did not significantly influenece earnings management, and good corporate governance (which was proxided by managerial ownership had no significant effect on earnings management, while institutional ownership and the independent board of commissioners had a significant effect on earnings management, most recently the audit committee no significant effect on earning management).
Keywords: global financial crisis, good corporate governance, earning management
INTRODUCTION
The global financial crisis that took place in 2008 was the financial crisis caused by
housing credits in the United States. The global financial crisis itself is influential not only in the
United States, but also in other countries, including Indonesia. In addition to the global financial
crisis there is also a global economic throttling.
Such circumstances lead to a wide range of conditions faced by major financial institutions in the United States that affect the liquidity of other financial institutions, both in the
United States and outside of the country. This applies to countries investing through major
financial institutions in the United States.
The term Good Corporate Governance (GCG) is known as Cadbury report. Good
corporate governance is a means or mechanism to provide assurance to the investor in obtaining
the correct return for the invested investment [5].
[6] explained that the application of consistent corporate governance principles will
reduce the possibility of earning managements resulting in the fundamental value of the company
not being described in its financial statements.
In accordance with the problems that have been formulated above, the purpose of this
research is to analyze the influence of the Global financial crisis and the mechanism of Good Corporate Governance (which is proscribed by managerial ownership, institutional ownership,
BOC and Audit Committee) on Earning Management of Property and Real Estate companies listed
on the Indonesia Stock Exchange period 2008-2018.
In this study the Global financial crisis was measured using calculations on the financial
Stress Index, CG was seen from the mechanism using a managerial ownership proxy, institutional
ownership, BOC, and Audit committee while earning management was measured using
discretionary accrual (DAC). Research data is taken from the company's annual report property
and real estate period 2008-2018.
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LITERATURE REVIEW
Global Financial Crisis
The global financial crisis is a condition in which all countries experience instability in
the economy. As we know, the financial crisis that occurred in 2008 made economic growth in all countries run slowly. This crisis originated from the housing credit crisis in the United States
which affected global financial conditions in the United States, Europe, and Asia. The impact
received as a result of the global financial crisis is different for each country, depending on the
policies taken and the economic fundamentals of the country concerned, therefore the handling is
also different.
In 2008, Indonesia economic growth was 6.1 percent. The impact of the global financial
crisis on the Indonesia economy began to be felt in the fourth quarter of 2008, because during that
quarter economic growth decreased by minus 3.6 percent compared to the third quarter which
increased by 5.2 percent.
In Indonesia itself, the global financial crisis in 2008 also had an impact on the property
sector, in 2007 demand for apartments reached 13,400 units with a supply of 13,800 units. Then,
during the crisis, demand for apartments reached -39% which continued until 2010. Learning from the experience of the previous crisis, developers were careful to delay project launches until
conditions improved. With the declining GDP condition, high interest rates, the value of the
Rupiah exchange rate was at Rp. 11,000 certainly affects the property's performance, but it doesn't
last long.
The global financial crisis had 3 main impacts on housing and settlements, namely (1)
drying up of liquidity, which not only affected world businesses, but also government financing of
development; (2) a decrease in the level of demand and Indonesia's main export commodities
without a significant reduction in the rate of imports which causes a trade deficit: and (3) a
decrease in the level of consumer, investor and market confidence in various existing financial
institutions (Handbook 2009). The financial crisis is one of the variables that has an influence on
earnings management. Previous studies have found that companies engage in earnings management in response to financial crises to deal with poor corporate financial conditions (eg [9];
[14]; [33]). There are various indicators of the impact of the American crisis on the Indonesian
nation, including the decline in the stock price index on the IDX sharp, the decline in the rupiah
exchange rate against the US dollar which has already crossed the psychological threshold, so that
the banking sector is experiencing liquidity difficulties and even the Government has difficulty
finding loans on the financial market [28]. In this study, it was measured using calculations on the
financial stress index with the following formula:
FSI = [$ / TL Variation in Nominal Exchange Rate (%)] + [Variation in Interest Rate of TL (%)] -
[Variation in Gross Reserves (%)].
Agency Theory
Agency theory is the theoretical basis used by companies to understand corporate
governance. In this theory, it is explained that there is a contractual relationship between the
principal (owner and shareholder) and the agent (management) (Jensen and Meckling, 1976). This
means that there is a separation between ownership and management of the company. Principals
and agents make work contracts through mutual consent as a form of principal authority and
responsibility to the agent. Contracts that have been made refer to net income, so this agency
theory has an influence on accounting.
In agency theory, this states that earnings management practices are influenced by
conflicts of interest between agents and principals, because each party strives to achieve the desired level of prosperity. The owner (the principal) agrees to carry out the cooperation contract
with the agent because he wants to make himself prosperous increased profitability, while the
manager (agent) wants to carry out a cooperation contract with the principal because it is to fulfill
their economic and psychological needs to the fullest, whether it is obtaining investment, loans or
compensation contracts. Therefore, there are two different interests in the company where each
party tries to achieve or maintain the desired level of prosperity.
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Problems that arise because of differences in the interests of principals and agents are
called agency problems. One of the causes of agency problems is the presence of asymmetric
information. Asymmetric information is the imbalance of information held by principals and
agents, when principals do not have sufficient information about the agent's performance and vice
versa, and agents have more information about their capacity, work environment and the company
as a whole[28].
Financial Report
The financial report is a process of recording financial transactions that occur in a certain
accounting period. Financial reports according to PSAK No. 1 (2005: 1), financial statements are a
structured presentation of the financial position and financial performance of an entity. This
financial report is prepared by management as the responsibility for the duties assigned to it by the
owner of the company and as a report to parties outside the company. According to [12] financial statements prepared by management consist of:
a. Balance sheet
Balance sheet is a financial report that systematically presents the company's
financial position at a certain date. This report is prepared to present financial
information regarding the company's assets, liabilities and capital. The balance sheet
is presented based on the company's liquidity and financial flexibility, which can be
used as a basis for making estimates of the company's financial conditions in the
future. Liquidity is the company's ability to pay its obligations on time according to a
predetermined time. Meanwhile, flexibility is the company's ability to obtain funds.
b. Income statement
Profit / Loss Report is a financial report that systematically results from the company's operations within a certain period of time. In this case, the profit / loss
statement provides information regarding the determination of profitability,
investment value and creditworthiness or the ability of the company to repay the
loans required by investors and creditors to help them predict the amount, timing and
certainty of future cash flows.
c. Cash flow statement
The cash flow statement is a report that can provide information about the company's
ability to generate cash and cash equivalents during a certain period. This report
presents information systematically about cash receipts and payments during a
certain period based on operating, investing and financing activities.
d. Statement of Changes in Equity
The change in equity report is a financial report that systematically presents information about changes in the company's equity as a result of company operations
and transactions with owners during a certain accounting period.
Financial reports are one of the main sources of financial information that is
important for a number of users for making economic decisions. According to SFAC
No. 2 financial information will be useful if it meets the following quality
characteristics:
1) Relevant
2) Reliability
3) Appealability and Consistency
4) Cost-Benefit Considerations
5) Materiality
Profits
According to [18], it is stated that profit is accounting profit which is the difference
between income and cost measurements. According to SFAC No. 1, earnings information has the
benefit of assessing management performance, helping to estimate the long-term representative
earnings capacity, predicting earnings and assessing risk in investment.
Profits can show the profits earned by the company and are listed in the income
statement. The income statement is a report that shows the revenues and expenses of a business
unit for a certain period. The difference between revenues and expenses is the profit earned or lost
by the company.
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The benefit of financial information contained in the income statement is to (1) assess the
success or failure of the company's operations and management efficiency, (2) estimate the amount
of future profit, (3) assess the profitability or profitability of capital invested by owners.
Corporate Governance
Definition and Objectives of Corporate Governance
In the Cadbury Report, the first time the term Good Corporate Governance (GCG) was
introduced in 1992 by the Cadbury Committee in its report. Corporate governance is the principle
of directly controlling the company in order to achieve a balance between the strength and authority of the company in providing accountability to shareholders in particular and
stakeholders. Good corporate governance is a means or mechanism to provide assurance to
investors in getting the right return for the investment that has been invested [5].
Meanwhile, [16] argues that corporate governance is a set of regulations that regulate the
relationship (in other words as a system that controls the company) between shareholders,
company managers, creditors, government, employees and shareholders. other internal and
external interests relating to their rights and obligations. So that it can be concluded that the
definition of good corporate governance is a system, process, and regulatory tools that regulate the relationship between shareholders, the board of commissioners, and the board of directors in order
to achieve company goals. While the goal of good corporate governance is to create added value
(value added) for all interested parties (stakeholders).
Benefits of Corporate Governance
According to the Forum for Corporate Governance in Indonesia [15] are:
a. Improve company performance through the creation of a better decision-making
process, increase the company's operational efficiency and further improve services to
stakeholders.
b. Make it easier to obtain cheaper financing funds so as to increase corporate value.
c. Restoring investor confidence to invest in Indonesia.
d. Shareholders will be satisfied with the company's performance because at the same
time it will increase shareholder value and dividends.
Principles of Corporate Governance
The basic principles of implementing good corporate governance put forward by the
Forum for Corporate Governance in Indonesia [16] are as follows: a. Fairness (justice). Ensure fair and equal treatment in fulfilling rights shareholders who
arise under the agreement and the prevailing laws and regulations. This principle
emphasizes that all parties, namely both minority and foreign shareholders, must be
treated equally.
b. Transparency (transparency). Requires open, accurate and timely information about all
matters that are important to company performance, ownership and stakeholders.
c. Accountability (accountability). Describe the functions, structures, systems and
responsibilities of company organs so that company management is carried out
effectively. This principle confirms the accountability of management to the company
and its shareholders.
d. Respobsibility (responsibility). Ensuring conformity (compliance) in the management of the company to a healthy corporation and applicable laws and regulations. In this case
the company has a social responsibility towards the community or stakeholders and
avoids abuse of power and upholds ethics business while maintaining a healthy business
environment.
Corporate Governance Mechanism
Mechanism is a systemic way of working something to meet certain requirements. The
corporate governance mechanism is a clear process and relationship between those who make
decisions and those who control or supervise a decision. According to [19] and [21], the
mechanisms for monitoring corporate governance are divided into two groups, namely internal and
external mechanisms. Internal mechanisms are ways to control a company using internal structures
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and processes such as general meetings of shareholders (GMS), composition of the board of
directors, composition of the board of commissioners and meetings with the board of directors.
Meanwhile external mechanisms are ways of influencing the company other than by using internal
mechanisms, such as control by the company and market control.
There are several corporate governance mechanisms that are often used in research to
determine their effects on earnings management, including managerial ownership, institutional
ownership, the board of commissioners and the audit committee. The concentration of ownership
in the company will put the shareholders in a strong position. Due to the holder stocks hold control
over management to demand that they report finances accurately. Similar to the role of the board
of commissioners in carrying out the supervisory function, the composition of the board can
influence management in preparing financial reports so that a quality earnings report can be
obtained [3]. Meanwhile, the audit committee has an important and strategic role in maintaining the
credibility of the financial report preparation process, maintaining the creation of an adequate
company supervision system and implementing good corporate governance. With the function of
the audit committee running effectively, the control of the company will be better so that agency
conflicts that occur due to management's desire to improve their own welfare can be minimized
[2]. This proves that the corporate governance mechanism is able to reduce the manipulation of
financial reports by managers. The practice of manipulation is commonly known as earnings
management.
Earning Management
Earnings management is a process carried out by financial management on purpose, in
accordance with accounting practices so that profits are what the company wants. Earnings management is a condition in which management intervenes in the process of preparing financial
reports for external parties so that it can even, increase, and decrease earnings (Schipper, 1989).
The concept of earnings management according to Salno and Baridwan (2000) which uses the
agency theory approach states that: "Earnings management practices are influenced by conflicts of
interest of management (agent) and shareholders (principals) that arise because each party tries to
achieve or consider the level of prosperity it wants.
Previous Research Results Some of the test results from previous studies can be seen from table 1 as follows:
Tabel 1
Previous Research
No Author and
year Tittle Variable Result
1.
DeFond &
Jiambalv
(1994)
Debt covenant
violation and
manipulations
of accruals
Contracting,
accounting
choice, debt
covenant
violation,
accruals
manipulation
Implications regarding
the discussion
relationship between
debt restriction and
options accounting
implications regarding
the discussion
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2. Healy &
Wahlen (1999)
A review of
the earnings
management
literature and
its
implications
for standard setting
Earning
management,
earning reported
and accruals
Believe that
contribution will come
from documentation
level and magnitude
for certain accruals of
reconciliation findings
were each other
conflicted on influence
profit management at
the stock price and
allocation resource in
economy and from identifying which
factors
limit earnings
management.
.
3. Chtourou
(2001)
Corporate
Governance
and Earnings Management
Audit committee
board of director
characteristics
The audit committee
and the independent
board of
commissioners have a significant effect on
EM
4. Widyaningdyah
(2001)
Analisis
faktor-faktor
yang
berpengaruh
terhadap
earning management
pada
perusahaan go
public di
Indonesia
Profit
management,
discretionary
accrual, initial public offering
(IPO), leverage
leverage has a
significant effect on earning management
5.
Darmawati
(2003)
Corporate
governance
dan
manajemen laba: suatu
studi empiris
Corporate
governance,
earning
management, accrual
discretioner
No negative
relationship was found
between corporate
governance variables and earnings
management through
discretionary accruals
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6. Wedari (2004)
Analisis
pengaruh
proporsi
dewan
komisaris dan keberadaan
komite audit
terhadap
manajemen
Audit committee,
board of
commissioners
proportion, big 4
public accountants,
managerial and
institutional
ownership
The audit committee
and the board of
commissioners have a
significant effect on
earnings management, managerial and
institutional ownership
have an effect on
earnings management
positive on earnings
management
7. Cornett et al
(2006)
Earnings
management,
corporate
gpvernance
and true
financial performance
Institutional
ownership of
share, comittee
audit,
characteristic of
BOC (CEO
duality size of
the board directors, CEO's
age, CEO's
tenture)
concentration of
institutional ownership
is not able to reduce
earnings management
activities in the
company
8. Chia, Lapsey &
Lee (2007)
Choice of
auditors and
earnings
management
during the Asian
financial
crisis
Auditing, asian
studies, financial
performance,
earnings, corporate
governance
auditors as an external
governance
mechanism in
influencing earnings
oriented corporate
management in a highly regulated
environment during
the economic financial
crisis
9. Moreira &
Pope (2007)
Earnings
management,
to avoid
losses: A cost of debt
explanation
Earnings
management,
earnings
thresolds, earning discontinuities.
Cost of debt
income distribution is
a shared effect and a
set of firms with
different incentives manipulate earnings
10. Cheng, Johnson
& Liu (2013)
The
supplemental
role of
operating cash
flows on
explaining share returns:
Effects of
earnings
quality
Accounting
earnings, cash
flow, returns,
financial
accounting,
operating
cashflow, earnings quality,
firm valuation,
united satates of
America
Better earnings quality
further increases the
value relevance of operating cash flows
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11. Difa Dini
Asfari (2015)
Analisis
financial
stress
indicator
sebagai alat
ukur stabilitas
sektor
keuangan
Indonesia
Financial
stability,
financial stress,
financial sub-
sector
FSI 1 components
(banking subsector,
bond market and
financial sector) are
sensitive to
fluctuations in the
financial crisis
12. Dutzi &
Rausch (2016)
Earnings
management
before
bankruptcy: a review of the
literature
Earnings
management,
bankruptcy, pemeriksaan
stress levels and audit
opinion are consistent results
13. Xu & Ji, 2016
Earnings
management
by top
Chinese listed
firms in
response to the global
financial
crisis
Discretionary
accruals, cash
flow-based
earnings
management,
income direction management, the
global financial
crisis, Chinese
enterprises
Leading Chinese
companies analyzed
did not engage
earnings management
during the GFC period or its characteristic
earnings behavior
14. Ines Lisboa
(2017)
Impact of
financial
crisis and
family control
on earning management
of
Portuguesed
listed firms
Earnings
management,
family control, financial crisis,
accrual, real
activities
There is a negative
correlation between
operating cash flow / leverage and
discretionary accruals
Source: Developed for this research
FRAMEWORK OF THEORETICAL THINKING AND HYPOTHESIS
FORMULATION
The financial crisis is one variable that affects profit management. Previous studies found
that the company was involved in profit management in response to the financial crisis to address
poor corporate financial conditions e.g. [9]; [14]; [33].
To understand corporate governance using agency theory which is the foundation of the
theory that is usually used by the company. In theory it is explained that there is a contractual
relationship between the principal (owner and shareholder) and the Agent (management) (Jensen
and Meckling, 1976).
The Influence of Global Financial Crisis on Earning Management
Over the last 80 years the worst financial crisis is the global financial crisis that occurred in the year 2008, called the mother of all crises by the world's economists. This crisis was due to
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the issuance of housing credits in the United States. Not only in the United States, but also
influential in other countries including Indonesia. Previous studies found that the company was
involved in profit management in response to the financial crisis to address poor corporate
financial conditions e.g. [9]; [14]; [33].
H1: Global financial crisis has a significant impact on earning management.
The Influence of Managerial Ownership on Earning Management
The managerial ownership is the shareholder who means the owner in the company of the
management that is actively in the decision making in the company concerned [13]. According to
[4], managerial ownership is the level of shareholding by management who is actively involved in
decision making. So, the shares owned by the management either personally or shares owned by
the subsidiary is a managerial ownership (KM).
H2: Managerial ownership has significant impact on earning management.
The Influenece of Institutional Ownership on Earning Management
Institutional ownership relates to better monitoring of management activities, to reduce
the ability of opportunistic managers to manipulate profits (Kazemian & Sanusi, 2015).
H3: Institutional ownership has significant impact on earning management.
The Influence of Board of Commissioners on Earning Management
The Board of Commissioners is the culmination of internal management system of the
company has a very important role in the company, especially in the implementation of good
corporate governance.
H4: Board of Commissioners has significant impact on Earning Management.
The Influence of the Audit Committee on Earning Management
According to OJK Regulation 55/POJK/. 04/2015, stated that in order to support the effectiveness of the implementation of its duties and responsibilities, the Board of Commissioners
must form the Audit Committee board. The role of the Audit Committee is to examine, advise and
supervise the financial information that will be published regarding adherence to statutory
regulations. Therefore, the role is expected to minimize profit management.
H5: The Audit Committee has significant effect on Earning Management.
RESEARCH METHODS
Research Variables
The global financial crisis is measured using computation on the financial Stress Index,
CG is seen from the mechanism using a managerial ownership proxy, institutional ownership,
BOC, and Audit committee while earning management is measured using discretionary accrual
(DAC).
Sampling The population used in this study were all companies listed on the Indonesia Stock
Exchange and published financial statements during the year 2008-2018. The sample
determination in this study uses purposive sampling. With the method found 7 companies, so the
total sample in the study amounted to 77 samples.
Method of Analysis
Method used in this research is using multiple regression model. This is done because the
independent variables that are applied in the research are more than one. Equation regression with
the following formula:
Description:
Y = earning management
X1 = global financial crisis
X2 = managerial ownership
X3 = institusional ownership
X4 = board of commissioners
X5 = audit comittee
β1 = coefficient global financial crisis
β2 = coefficient managerial ownership β3 = coefficient institutional ownership
Y = α+ β1X1 + β2X2 + β3X3 + β4X4 + β5X5 + e
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β4 = coefficient board of commisioners
β5 = coefficient audit comittee
α = constant
e = error term
RESULTS OF RESEARCH AND DISCUSSION
Description of Sample Research
The population used in this research is the entire Property and Real Estate company listed
on the Indonesia Stock Exchange and publishes financial statements during the year 2008-2018.
The sample determination in this study uses purposive sampling. With the method found 7
companies, so the total sample in the study amounted to 77 samples.
Table 2
Property and Real Estate Companies Listed on the Indonesia Stock Exchange that
Meet the Sample Criteria
Number Company Name Code
1. Sentul City Tbk BKSL
2. Bumi Serpong Damai Tbk BSDE
3. Cowell Development Tbk COWL
4. Intiland Development Tbk DILD
5. Duta Pertiwi Tbk DUTI
6. Perdana Gapuraprima Tbk GPRA
7. Lippo Karawaci Tbk LPKR
Research Results
Table 3
Normality Test
One-Sample Kolmogorov-Smirnov Test
Unstandardized Residual
N 74
Normal Parametersa Mean .0000000
Std. Deviation .06580598
Most Extreme Differences Absolute .095
Positive .095
Negative -.059
Kolmogorov-Smirnov Z .817
Asymp. Sig. (2-tailed) .517
a. Test distribution is Normal.
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Table 4
Multicolinearity Test
Table 5
Heteroskedasticity Test
Coefficientsa
Model
Unstandardized
Coefficients
Standardized
Coefficients
t Sig.
Collinearity Statistics
B Std. Error Beta Tolerance VIF
1 (Constant) .057 .038 1.496 .139
Global Financial Crisis 2.193E-6 .000 .039 .319 .750 .923 1.084
Managerial Ownership -.002 .002 -.149 -1.267 .210 .985 1.016
Institutional Ownership 5.720E-5 .000 .029 .232 .817 .844 1.185
Board of Commisioners .000 .000 .126 .961 .340 .792 1.263
Audit Committee .000 .000 -.193 -1.639 .106 .983 1.017
a. Dependent Variable: ABS_RES
Coefficientsa
Model
Unstandardized Coefficients
Standardized Coefficients
t Sig.
Collinearity Statistics
B Std. Error Beta Tolerance VIF
1 (Constant) .198 .057 3.450 .001
Global Financial Crisis 3.498E-6 .000 .037 .338 .736 .923 1.084
Managerial Ownership -.002 .003 -.092 -.868 .389 .985 1.016
Institusional Ownership -.002 .000 -.485 -4.230 .000 .844 1.185
Board of Commisioners -.002 .001 -.382 -3.231 .002 .792 1.263
Audit Committee .000 .001 .053 .502 .617 .983 1.017
a. Dependent Variable: Earning Management
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Table 6
Autocorrelation Test
Model Summaryb
Model R R Square
Adjusted R
Square
Std. Error of the
Estimate Durbin-Watson
1 .497a .247 .191 .06818 1.856
a. Predictors: (Constant), Audit Committee, Board of Commisioners, Managerial
Ownership, Global Financial Crisis, Institutional Ownership
b. Dependent Variable: Earning Management
Table 7
Determination Coefficient
Model Summaryb
Model R R Square
Adjusted R
Square
Std. Error of the
Estimate Durbin-Watson
1 .497a .247 .191 .06818 1.856
a. Predictors: (Constant), Audit Committee, Board of Commisioners, Managerial
Ownership, Global Financial Crisis, Institutional Ownership
b. Dependent Variable: Earning Management
Table 8
Partial Test (t Test)
Coefficientsa
Model
Unstandardized Coefficients
Standardized Coefficients
t Sig. B Std. Error Beta
1 (Constant) .198 .057 3.450 .001
Global Financial Crisis 3.498E-6 .000 .037 .338 .736
Managerial Ownership -.002 .003 -.092 -.868 .389
Institusional Ownership -.002 .000 -.485 -4.230 .000
Board of Commisioners -.002 .001 -.382 -3.231 .002
Audit Committee .000 .001 .053 .502 .617
a. Dependent Variable: Earning Management
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Table 9
F Test
ANOVAb
Model Sum of Squares df Mean Square F Sig.
1 Regression .104 5 .021 4.455 .001a
Residual .316 68 .005
Total .420 73
a. Predictors: (Constant), Audit Committee, Board of Commisioners, Managerial Ownership, Global
Financial Crisis, Institusional Ownership
b. Dependent Variable: Earning Management
Based on the test results normality obtained significance value of Kolmogorov Smirnov Z
is 0.517, greater than significance level 0.05. Thus the processed data fulfills the normality
assumption. Multicolinearity testing was conducted to test whether the regression model found
correlation between independent variables. In case of correlation, there is a symptom of
multicolinearity. A good regression Model should not occur intercorrelation between independent
variables. Testing there is no symptom of multicolinearity is performed by observing the value of
the correlation matrix produced during the data processing as well as the value of VIF (Variance
Inflation Factor) and its Tolerance. The values of VIF < 10 and Tolerance > 0.1 indicate there is no
symptom of multicolinearity. From the results of independent variables are eligible. Result of
calculation of the variable VIF of global financial crisis 1,084 < 10, variable of managerial
ownership 1,016 < 10, Institutional ownership variables 1,016 < 10, Variable Board of
commissioners independent 1,185 < 10 Audit Committee variables 1,263 < 10 and the Global financial crisis variable with a value of tolerance 0923 > 0.1, managerial-ownership variables with
a tolerance value of 0985 > 0.1, a variable of institutional ownership with a tolerance value of
0.844 > 0.1, an independent board of Commissioners variable with a tolerance value of 0.792 > 0.1
and an audit committee variable with a tolerance value of 0.983 > 0.1, thus concluded that the
regression model in the study did not occur any symptoms of multicolinearity. The results of
heteroskedastisity testing based on significance values using the Glejser test obtained the value of
each variable greater than the significance level 0.05, with the following details as the global
financial crisis variable has significance value 0.750 > 0.05, the managerial ownership variable has
a significance value of 0.210 > 0.05, the institutional ownership variable has a significance value
of 0.817 > 0.05, the independent Board of Commissioners variable has a significance value of
0.817 > 0.05 and the audit committee variables have significance values 0.106 > 0.05. It can thus be concluded that in this regression model does not occur heteroskedastisity. Autocorrelation test
is performed with Durbin Watson test (DW). From the research results obtained DW results of
1.856 can be explained that if DW = 1.856 located before Du and after 4-Du, based on Durbin
Watson du value of 1.769 and 4-du value of 2,203, then the proposed regression equation model
there is no autocorrelation. Test test of simultaneous significance (test F) is conducted to know
whether the global financial crisis, managerial ownership, institutional ownership, independent
Board of Commissioners and Audit committees influence the earning management. The test result
of regression model obtained significance value of 0.001. Then the sig F (0.001) < α (0.05). So it
can be concluded that collectively the variables of the global financial crisis, managerial
ownership, institutional ownership, independent Board Commissioners and audit committees have
an effect on earning management. Thus the regression model is good and can be used in this
research. The value of the coefficient of determination indicated by the adjusted value of R Square is 0.191. It can be interpreted that independent variables (global financial crisis, managerial
ownership, institutional ownership, independent Board of Commissioners and Audit committees)
can explain the earning management of 19%, while the remainder is described by other variables
not observed in this study.
ISBN: 978-602-6697-54-7
14
Hypothesis Testing
Multiple regression hypothesis testing can be performed by looking at the T-test result
table, coefficient t in a significant column compared to the significance value used (α = 5%). When
the significance level is < 0.05, the H1 cannot be rejected or accepted. If the significance rate is >
0.05, then the H1 is rejected.
Table 10
Hypothesis test Results
Sig. Coef(t)
Global Financial Crisis 0.736* 0.338
Managerial Ownership 0.389* -0.868
Institutional Ownership 0.000 -4.230
Board of Commisioners 0.002 -3.231
Audit Comittee 0.617* 0.502
Description: *) Insignificant
Source: Processed secondary data, 2020.
Based on the results in the table 2 T-count and SIG-T, it can be explained as follows:
The hypothesis testing on the influence of the global financial crisis variable on earning
management showed a T value of 0.338 with a significance value of 0.736. The value of
significance is greater than 0.05 then the 1st hypothesis is rejected.
The hypothesized testing of the influence of the managerial ownership variable on
earning management showed a T value of-0.868 with significance value of 0.389. The value of
significance is greater than 0.05 then the 2nd hypothesis is rejected.
The hypothesis testing on the influence of institutional ownership variables on earning
management showed a T value of-4,230 with significance values of 0.000. The value of such
significance is smaller than 0.05 then the 3rd hypothesis is received.
The hypothesis testing of the influence of the variable board of Commissioners
independent of earning management showed a T value of-3,231 with significance value of 0.002. The value of that significance is less than 0.05 then the 4th hypothesis is received.
The hypothesis testing of the influence of the audit committee variable on earning
management showed a T value of 0.502 with a significance value of 0.617. The value of
significance is greater than 0.05 then the 5th hypothesis is rejected.
CONCLUSIONS, LIMITATIONS, AND SUGGESTIONS CONCLUSIONS
Based on the data analysis in the previous chapter, it can be concluded that:
1. the variables of the global financial crisis did not significantly affect the earning
management. 2. the mechanism of good corporate governance (which was proscribed by managerial
ownership did not significantly affect the earning management, while the institutional
ownership and the independent Board of Commissioners significantly influenced the
earning management).
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LIMITATIONS
This research has some limitations. First, this study can only explain profit management
by 19% so that there are other factors that are more influential. Secondly, based on the 5
hypotheses previously formulated, there are three rejected hypotheses that are H1: Gobal H2
financial crisis: Managerial and H5 Holdings: Audit committees.
SUGGESTIONS
From the conclusion and limitation of this research, the advice that can be given to the
next study is to add other variables that affect profit management. Further research is also expected
to use samples of companies in different industries so that they can be compared.
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