Effect Of Family Ownership In The Relationship Between Corporate Governance Mechanism And Earning Management
Abstract
Financial statements are the basis for many parties' decision-making in describing the condition of a company, so companies must present the quality of the information therein. This study examines the relationship between corporate governance mechanisms and earning management and how family ownership influences this relationship. This empirical study uses companies on the Kompas 100 index from 2015 to 2019 to be tested using Generalized Least Squares(GLS). This study finds that the board of commissioners affects earnings management, and family ownership strengthens the role of the board of commissioners in suppressing earnings management. This study strengthens the literature on family ownership in companies. Internal auditors can consider the implication of increasing the effectiveness of internal audits to produce more accurate quality financial reports. In addition, the implications of this study also recommend restructuring the internal audit function, especially its role in management and governance, to be more objective and also impartial.
References
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Al-Homaidi, E. A., Almaqtari, F. A., Ahmad, A., & Tabash, M. I. (2018). Impact of corporate governance mechanisms on financial performance of hotel companies: Empirical evidence from India. African Journal of Hospitality, Tourism and Leisure, 8(2).
Al-Shaer, H., & Zaman, M. (2021). Audit committee disclosure tone and earnings management. Journal of Applied Accounting Research, 22(5), 780–799. https://doi.org/10.1108/JAAR-12-2020-0243
Alshirah, M. H., Abdul Rahman, A., & Mustapa, I. R. (2020). Board of directors’ characteristics and corporate risk disclosure: the moderating role of family ownership. EuroMed Journal of Business, 15(2), 219–252. https://doi.org/10.1108/EMJB-09-2019-0115
Amrah, M. R., & Obaid, M. M. (2019). Effective Corporate Governance Mechanisms, Ownership Structure and Financial Reporting Quality: Evidence from Oman. Asia-Pacific Management Accounting Journal, 14(3), 121–154. https://doi.org/10.24191/apmaj.v14i3-06
Anderson, R. C., Mansi, S. A., & Reeb, D. M. (2004). Board characteristics, accounting report integrity, and the cost of debt. Journal of Accounting and Economics, 37(3), 315–342. https://doi.org/10.1016/j.jacceco.2004.01.004
Bardhan, I., Lin, S., & Wu, S. L. (2015). The quality of internal control over financial reporting in family firms. Accounting Horizons, 29(1), 41–60. https://doi.org/10.2308/acch-50935
Baxter, P., & Cotter, J. (2009). Audit committees and earnings quality. Accounting and Finance, 49(2), 267–290. https://doi.org/10.1111/j.1467-629X.2008.00290.x
Bhojraj, S., & Sengupta, P. (2003). Effect of Corporate Governance on Bond Ratings and Yields: The Role of Institutional Investors and Outside Directors. Journal of Business, 76(3), 455–475. https://doi.org/10.1086/344114
BouÄková, M. (2015). Management Accounting and Agency Theory. Procedia Economics and Finance, 25(15), 5–13. https://doi.org/10.1016/s2212-5671(15)00707-8
Chen, F., Hope, O.-K., Li, Q., & Wang, X. (2011). Financial Reporting Quality and Investment Efficiency of Private Firms in Emerging Markets. The Accounting Review, 86(4), 1255–1288. http://www.jstor.org/stable/23045602
Ertugrul, M., & Hegde, S. (2008). Board compensation practices and agency costs of debt. Journal of Corporate Finance, 14(5), 512–531. https://doi.org/10.1016/j.jcorpfin.2008.09.004
Fama, E. F., & Jensen, M. C. (1983). Agency Problems and Residual Claims. SSRN Electronic Journal, XXVI(June), 327–349. https://doi.org/10.2139/ssrn.94032
Hapsari, R. A., Askandar, N. S., & Afifudin. (2021). Analisis Pengaruh Tata Kelola Perusahaan Terhadap Kualitas Laporan Keuangan Pada Perusahaan Manufaktur Yang Terdaftar Di Bei Periode 2016-2019. E-Jra, 10(07), 13–24.
Hasan, A., & Butt, S. A. (2009). Impact of Ownership Structure and Corporate Governance on Capital Structure of Pakistan Listed Companies. International Journal of Business and Management, 4(2), 50–57.
Hashim, H. A., & Amrah, M. (2016). Corporate governance mechanisms and cost of debt: Evidence of family and non-family firms in Oman. Managerial Auditing Journal, 31(3), 314–336. https://doi.org/10.1108/MAJ-12-2014-1139
Herranz, C. Z., Alvarado, N. R., & López Iturriaga, F. J. (2022). Audit Committee Competence and Earnings Management in Europe. Revista de Contabilidad-Spanish Accounting Review, 25(1), 121–135. https://doi.org/10.6018/RCSAR.385331
Hussain, S., & Shah, S. M. A. (2017). Corporate Governance and Downside Systematic Risk with a Moderating Role of Socio-Political in Pakistan. Business & Economic Review, 9(4), 235–260. https://doi.org/10.22547/ber/9.4.11
Inaam, Z., & Khamoussi, H. (2016). Audit committee effectiveness, audit quality and earnings management: a meta-analysis. International Journal of Law and Management, 58(2), 179–196. https://doi.org/10.1108/IJLMA-01-2015-0006
Ismael, H. R., & Roberts, C. (2018). Factors affecting the voluntary use of internal audit: evidence from the UK. Managerial Auditing Journal, 33(3), 288–317. https://doi.org/10.1108/MAJ-08-2016-1425
Iswara, U. S. (2016). Pengaruh Mekanisme Corporate Governance Terhadap Kualitas Pelaporan Keuangan Pada Perusahaan Non Keuangan. JEAM, 15, 38–50.
Jensen, M., & Meckling, W. (1976). Theory of the firm: Managerial behavior, agency costs, and ownership structure. The Economic Nature of the Firm: A Reader, Third Edition, 283–303. https://doi.org/10.1017/CBO9780511817410.023
Kheng Soon, K. W. (2012). Earning Management: Is it Good or Bad? SSRN Electronic Journal, 1–13. https://doi.org/10.2139/ssrn.1775400
Klai, N., & Omri, A. (2010). Corporate Governance and Financial Reporting Quality: The Case of The Tunisian Firms. International Business Research, 4(1), 158–166. https://doi.org/10.5539/ibr.v4n1p158
Krishnan, J., Krishnan, J., & Liang, S. (2020). Internal control and financial reporting quality of small firms: A comparative analysis of regulatory regimes. Review of Accounting and Finance, 19(2), 221–246. https://doi.org/10.1108/RAF-05-2018-0107
Lari Dashtbayaz, M., Salehi, M., & Safdel, T. (2019). The effect of internal controls on financial reporting quality in Iranian family firms. Journal of Family Business Management, 9(3), 254–270. https://doi.org/10.1108/JFBM-09-2018-0047
Laudon, K. C., Laudon, J. P., & Schoder, D. (2015). Wirtschaftsinformatik (14th ed.). Pearson Education, Inc.
Lefort, F., & Urzúa, F. (2008). Board independence, firm performance and ownership concentration: Evidence from Chile. Journal of Business Research, 61(6), 615–622. https://doi.org/10.1016/j.jbusres.2007.06.036
Lois, P., Drogalas, G., Nerantzidis, M., Georgiou, I., & Gkampeta, E. (2020). Risk-based internal audit: factors related to its implementation. Corporate Governance (Bingley), 21(4), 645–662. https://doi.org/10.1108/CG-08-2020-0316
Mardjono, E. S., Chen, Y.-S., & He, L.-J. (2020). Earning management and the effect characteristics of audit committee, independent commissioners: Evidence from Indonesia. International Journal of Business and Society, 11(3), 108–123. https://doi.org/10.5430/rwe.v11n3p108
McIntyre, M. L., & Murphy, S. A. (2008). Board of director performance reporting. Corporate Governance, 8(2), 165–178. https://doi.org/10.1108/14720700810863797
Memili, E., Fang, H. C., Koç, B., Yildirim-Öktem, Ö., & Sonmez, S. (2018). Sustainability practices of family firms: the interplay between family ownership and long-term orientation. Journal of Sustainable Tourism, 26(1), 9–28. https://doi.org/10.1080/09669582.2017.1308371
Michael C. Jensen. (2000). Theory of the Firm : Governance , Residual Claims and Organizational Forms Preface and Introduction Michael C . Jensen.
Mihret, D. G. (2014). How can we explain internal auditing? The inadequacy of agency theory and a labor process alternative. Critical Perspectives on Accounting, 25(8), 771–782. https://doi.org/10.1016/j.cpa.2014.01.003
Minh Ha, N., Do, B. N., & Ngo, T. T. (2022). The impact of family ownership on firm performance: A study on Vietnam. Cogent Economics and Finance, 10(1). https://doi.org/10.1080/23322039.2022.2038417
Mohd Saleh, N., Mohd Iskandar, T., & Mohid Rahmat, M. (2007). Audit committee characteristics and earnings management: Evidence from Malaysia. Asian Review of Accounting, 15(2), 147–163. https://doi.org/10.1108/13217340710823369
Natsir, M., & Badera, I. D. N. (2020). Pengaruh Komite Audit dan Kualitas Auditor Terhadap Manajemen Laba Dengan Kepemilikan Keluarga Sebagai Variabel Pemoderasi. Molecules, 2(1), 1–12.
Pham, Q. T., Ho, X. T., Nguyen, T. P. L., Pham, T. H. Q., & Bui, A. T. (2021). Financial reporting quality in pandemic era: case analysis of Vietnamese enterprises. Journal of Sustainable Finance and Investment, 0(0), 1–23. https://doi.org/10.1080/20430795.2021.1905411
Putra, R. R. (2016). Analisis Pengaruh Ukuran Perusahaan, Umur Perusahaan, Laverage dan Profitabiitas Terhadap Earnings Management Pada Perusahaan Yang Melakukkan IPO di Bursa Efek Indonesia. 53(9), 1689–1699.
Rifani, D. R., & Astuti, C. D. (2019). Mekanisme Tata Kelola Perusahaan Dan Pengungkapan Risiko. Jurnal Informasi, Perpajakan, Akuntansi, Dan Keuangan Publik, 14(1), 1–18. https://doi.org/10.25105/jipak.v14i1.5010
Shah, S. F., Rashid, A., & Shahzad, F. (2019). Does board structure improve financial reporting quality? Evidence of real earnings manipulation among Pakistani firms. Abasyn Journal of Social Sciences, 12(2), 37–51. https://doi.org/10.34091/ajss.12.2.09
Sun, J., Lan, G., & Liu, G. (2014). Independent audit committee characteristics and real earnings management. Managerial Auditing Journal, 29(2), 153–172. https://doi.org/10.1108/MAJ-05-2013-0865
Tsoncheva, G. (2012). Measuring and assessing the quality. Journal of University of Economics-Varna, April, 52–64.
Wardani, D. K., & Kusuma, I. W. (2012). Is earnings management informational or opportunistic?: Evidence from asean countries. Gadjah Mada International Journal of Business, 14(1), 61–75. https://doi.org/10.22146/gamaijb.5437
Weiss, D. (2014). Internal controls in family-owned firms. European Accounting Review, 23(3), 463–482. https://doi.org/10.1080/09638180.2013.821814
www.acfe-indonesia.co.id. (2018). Association of Certified Fraud Examiners (ACFE). Auditor Essentials, 7–10. https://doi.org/10.1201/9781315178141-3
Yang, J. S., & Krishnan, J. (2005). Audit Committees and Quarterly Earning Management. International Journal of Auditing, 9(1), 201–219.
Yasmeen, D., & Hermawati, S. (2015). Pengaruh Good Corporate Governance terhadap Kualitas Pelaporan Keuangan pada Perusahaan Manufaktur. Ekonomi Bisnis, 20(1), 25–31.
Yetman, R. J., & Yetman, M. (2011). The Effects of Governance on the Accuracy of Charitable Expenses Reported by Nonprofit Organizations. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.590961
Al-Homaidi, E. A., Almaqtari, F. A., Ahmad, A., & Tabash, M. I. (2018). Impact of corporate governance mechanisms on financial performance of hotel companies: Empirical evidence from India. African Journal of Hospitality, Tourism and Leisure, 8(2).
Al-Shaer, H., & Zaman, M. (2021). Audit committee disclosure tone and earnings management. Journal of Applied Accounting Research, 22(5), 780–799. https://doi.org/10.1108/JAAR-12-2020-0243
Alshirah, M. H., Abdul Rahman, A., & Mustapa, I. R. (2020). Board of directors’ characteristics and corporate risk disclosure: the moderating role of family ownership. EuroMed Journal of Business, 15(2), 219–252. https://doi.org/10.1108/EMJB-09-2019-0115
Amrah, M. R., & Obaid, M. M. (2019). Effective Corporate Governance Mechanisms, Ownership Structure and Financial Reporting Quality: Evidence from Oman. Asia-Pacific Management Accounting Journal, 14(3), 121–154. https://doi.org/10.24191/apmaj.v14i3-06
Anderson, R. C., Mansi, S. A., & Reeb, D. M. (2004). Board characteristics, accounting report integrity, and the cost of debt. Journal of Accounting and Economics, 37(3), 315–342. https://doi.org/10.1016/j.jacceco.2004.01.004
Bardhan, I., Lin, S., & Wu, S. L. (2015). The quality of internal control over financial reporting in family firms. Accounting Horizons, 29(1), 41–60. https://doi.org/10.2308/acch-50935
Baxter, P., & Cotter, J. (2009). Audit committees and earnings quality. Accounting and Finance, 49(2), 267–290. https://doi.org/10.1111/j.1467-629X.2008.00290.x
Bhojraj, S., & Sengupta, P. (2003). Effect of Corporate Governance on Bond Ratings and Yields: The Role of Institutional Investors and Outside Directors. Journal of Business, 76(3), 455–475. https://doi.org/10.1086/344114
BouÄková, M. (2015). Management Accounting and Agency Theory. Procedia Economics and Finance, 25(15), 5–13. https://doi.org/10.1016/s2212-5671(15)00707-8
Chen, F., Hope, O.-K., Li, Q., & Wang, X. (2011). Financial Reporting Quality and Investment Efficiency of Private Firms in Emerging Markets. The Accounting Review, 86(4), 1255–1288. http://www.jstor.org/stable/23045602
Ertugrul, M., & Hegde, S. (2008). Board compensation practices and agency costs of debt. Journal of Corporate Finance, 14(5), 512–531. https://doi.org/10.1016/j.jcorpfin.2008.09.004
Fama, E. F., & Jensen, M. C. (1983). Agency Problems and Residual Claims. SSRN Electronic Journal, XXVI(June), 327–349. https://doi.org/10.2139/ssrn.94032
Hapsari, R. A., Askandar, N. S., & Afifudin. (2021). Analisis Pengaruh Tata Kelola Perusahaan Terhadap Kualitas Laporan Keuangan Pada Perusahaan Manufaktur Yang Terdaftar Di Bei Periode 2016-2019. E-Jra, 10(07), 13–24.
Hasan, A., & Butt, S. A. (2009). Impact of Ownership Structure and Corporate Governance on Capital Structure of Pakistan Listed Companies. International Journal of Business and Management, 4(2), 50–57.
Hashim, H. A., & Amrah, M. (2016). Corporate governance mechanisms and cost of debt: Evidence of family and non-family firms in Oman. Managerial Auditing Journal, 31(3), 314–336. https://doi.org/10.1108/MAJ-12-2014-1139
Herranz, C. Z., Alvarado, N. R., & López Iturriaga, F. J. (2022). Audit Committee Competence and Earnings Management in Europe. Revista de Contabilidad-Spanish Accounting Review, 25(1), 121–135. https://doi.org/10.6018/RCSAR.385331
Hussain, S., & Shah, S. M. A. (2017). Corporate Governance and Downside Systematic Risk with a Moderating Role of Socio-Political in Pakistan. Business & Economic Review, 9(4), 235–260. https://doi.org/10.22547/ber/9.4.11
Inaam, Z., & Khamoussi, H. (2016). Audit committee effectiveness, audit quality and earnings management: a meta-analysis. International Journal of Law and Management, 58(2), 179–196. https://doi.org/10.1108/IJLMA-01-2015-0006
Ismael, H. R., & Roberts, C. (2018). Factors affecting the voluntary use of internal audit: evidence from the UK. Managerial Auditing Journal, 33(3), 288–317. https://doi.org/10.1108/MAJ-08-2016-1425
Iswara, U. S. (2016). Pengaruh Mekanisme Corporate Governance Terhadap Kualitas Pelaporan Keuangan Pada Perusahaan Non Keuangan. JEAM, 15, 38–50.
Jensen, M., & Meckling, W. (1976). Theory of the firm: Managerial behavior, agency costs, and ownership structure. The Economic Nature of the Firm: A Reader, Third Edition, 283–303. https://doi.org/10.1017/CBO9780511817410.023
Kheng Soon, K. W. (2012). Earning Management: Is it Good or Bad? SSRN Electronic Journal, 1–13. https://doi.org/10.2139/ssrn.1775400
Klai, N., & Omri, A. (2010). Corporate Governance and Financial Reporting Quality: The Case of The Tunisian Firms. International Business Research, 4(1), 158–166. https://doi.org/10.5539/ibr.v4n1p158
Krishnan, J., Krishnan, J., & Liang, S. (2020). Internal control and financial reporting quality of small firms: A comparative analysis of regulatory regimes. Review of Accounting and Finance, 19(2), 221–246. https://doi.org/10.1108/RAF-05-2018-0107
Lari Dashtbayaz, M., Salehi, M., & Safdel, T. (2019). The effect of internal controls on financial reporting quality in Iranian family firms. Journal of Family Business Management, 9(3), 254–270. https://doi.org/10.1108/JFBM-09-2018-0047
Laudon, K. C., Laudon, J. P., & Schoder, D. (2015). Wirtschaftsinformatik (14th ed.). Pearson Education, Inc.
Lefort, F., & Urzúa, F. (2008). Board independence, firm performance and ownership concentration: Evidence from Chile. Journal of Business Research, 61(6), 615–622. https://doi.org/10.1016/j.jbusres.2007.06.036
Lois, P., Drogalas, G., Nerantzidis, M., Georgiou, I., & Gkampeta, E. (2020). Risk-based internal audit: factors related to its implementation. Corporate Governance (Bingley), 21(4), 645–662. https://doi.org/10.1108/CG-08-2020-0316
Mardjono, E. S., Chen, Y.-S., & He, L.-J. (2020). Earning management and the effect characteristics of audit committee, independent commissioners: Evidence from Indonesia. International Journal of Business and Society, 11(3), 108–123. https://doi.org/10.5430/rwe.v11n3p108
McIntyre, M. L., & Murphy, S. A. (2008). Board of director performance reporting. Corporate Governance, 8(2), 165–178. https://doi.org/10.1108/14720700810863797
Memili, E., Fang, H. C., Koç, B., Yildirim-Öktem, Ö., & Sonmez, S. (2018). Sustainability practices of family firms: the interplay between family ownership and long-term orientation. Journal of Sustainable Tourism, 26(1), 9–28. https://doi.org/10.1080/09669582.2017.1308371
Michael C. Jensen. (2000). Theory of the Firm : Governance , Residual Claims and Organizational Forms Preface and Introduction Michael C . Jensen.
Mihret, D. G. (2014). How can we explain internal auditing? The inadequacy of agency theory and a labor process alternative. Critical Perspectives on Accounting, 25(8), 771–782. https://doi.org/10.1016/j.cpa.2014.01.003
Minh Ha, N., Do, B. N., & Ngo, T. T. (2022). The impact of family ownership on firm performance: A study on Vietnam. Cogent Economics and Finance, 10(1). https://doi.org/10.1080/23322039.2022.2038417
Mohd Saleh, N., Mohd Iskandar, T., & Mohid Rahmat, M. (2007). Audit committee characteristics and earnings management: Evidence from Malaysia. Asian Review of Accounting, 15(2), 147–163. https://doi.org/10.1108/13217340710823369
Natsir, M., & Badera, I. D. N. (2020). Pengaruh Komite Audit dan Kualitas Auditor Terhadap Manajemen Laba Dengan Kepemilikan Keluarga Sebagai Variabel Pemoderasi. Molecules, 2(1), 1–12.
Pham, Q. T., Ho, X. T., Nguyen, T. P. L., Pham, T. H. Q., & Bui, A. T. (2021). Financial reporting quality in pandemic era: case analysis of Vietnamese enterprises. Journal of Sustainable Finance and Investment, 0(0), 1–23. https://doi.org/10.1080/20430795.2021.1905411
Putra, R. R. (2016). Analisis Pengaruh Ukuran Perusahaan, Umur Perusahaan, Laverage dan Profitabiitas Terhadap Earnings Management Pada Perusahaan Yang Melakukkan IPO di Bursa Efek Indonesia. 53(9), 1689–1699.
Rifani, D. R., & Astuti, C. D. (2019). Mekanisme Tata Kelola Perusahaan Dan Pengungkapan Risiko. Jurnal Informasi, Perpajakan, Akuntansi, Dan Keuangan Publik, 14(1), 1–18. https://doi.org/10.25105/jipak.v14i1.5010
Shah, S. F., Rashid, A., & Shahzad, F. (2019). Does board structure improve financial reporting quality? Evidence of real earnings manipulation among Pakistani firms. Abasyn Journal of Social Sciences, 12(2), 37–51. https://doi.org/10.34091/ajss.12.2.09
Sun, J., Lan, G., & Liu, G. (2014). Independent audit committee characteristics and real earnings management. Managerial Auditing Journal, 29(2), 153–172. https://doi.org/10.1108/MAJ-05-2013-0865
Tsoncheva, G. (2012). Measuring and assessing the quality. Journal of University of Economics-Varna, April, 52–64.
Wardani, D. K., & Kusuma, I. W. (2012). Is earnings management informational or opportunistic?: Evidence from asean countries. Gadjah Mada International Journal of Business, 14(1), 61–75. https://doi.org/10.22146/gamaijb.5437
Weiss, D. (2014). Internal controls in family-owned firms. European Accounting Review, 23(3), 463–482. https://doi.org/10.1080/09638180.2013.821814
www.acfe-indonesia.co.id. (2018). Association of Certified Fraud Examiners (ACFE). Auditor Essentials, 7–10. https://doi.org/10.1201/9781315178141-3
Yang, J. S., & Krishnan, J. (2005). Audit Committees and Quarterly Earning Management. International Journal of Auditing, 9(1), 201–219.
Yasmeen, D., & Hermawati, S. (2015). Pengaruh Good Corporate Governance terhadap Kualitas Pelaporan Keuangan pada Perusahaan Manufaktur. Ekonomi Bisnis, 20(1), 25–31.
Yetman, R. J., & Yetman, M. (2011). The Effects of Governance on the Accuracy of Charitable Expenses Reported by Nonprofit Organizations. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.590961
Published
2023-06-29
Section
Articles
