Reveals the relationship between corporate governance and earnings management in Indonesian banking

Oct 13, 2025 by windailys.com 21 views

Discussion category: Undergraduate Theses, Education, Journal, Thesis, University, Student, Campus

Reveals the relationship between corporate governance and earnings management in Indonesian banking

In recent years, the importance of corporate governance in ensuring the transparency and accountability of companies has become increasingly evident. This is particularly true in the banking sector, where the failure to manage earnings can have severe consequences for investors and the overall economy. This study aims to reveal the effect of good corporate governance mechanisms (TKP) on earnings management in banking companies in Indonesia. The independent variables studied include institutional ownership, the size of the board of commissioners, independent commissioners, and audit committees. Profit management, as a dependent variable, is measured by the accrual working capital ratio.

Background and Literature Review

Corporate governance refers to the system of rules, practices, and processes by which a company is directed and controlled. It is essential for ensuring that companies are managed in a responsible and transparent manner, and that the interests of shareholders are protected. In the banking sector, corporate governance is particularly important, as banks play a critical role in the economy and are subject to strict regulations.

Previous studies have shown that corporate governance mechanisms can have a significant impact on earnings management. For example, a study by Jensen and Meckling (1976) found that institutional ownership can have a positive impact on earnings management, as institutional investors are more focused on the long-term performance and transparency of the company. Similarly, a study by Fama and Jensen (1983) found that the size of the board of commissioners and the presence of independent commissioners can also have a positive impact on earnings management.

Methodology

This study used a sample of banking companies listed on the Indonesia Stock Exchange (IDX) during the period 2006 to 2010. The sampling method used was purposive sampling, which produced 125 companies for five years of observation. Data analysis was carried out using multiple regression models and descriptive statistics.

Results

The results of this study showed that only institutional ownership had a significant effect on earnings management. Other crime scenes such as the size of the Board of Commissioners, Independent Commissioners, and Audit Committees do not have a partial significant effect. Simultaneously, a good crime scene does not have a significant effect on earnings management.

Deeper Analysis

These findings give some important points that need to be underlined:

The Dominant Role of Institutional Ownership

Institutional ownership, such as pension funds or insurance companies, has a significant influence in suppressing earnings management practices. This shows that institutional investors are more focused on the long-term performance and transparency of the company, so it tends to oversee and oppose the practice of earnings management.

TKP is Not Optimal

The success of other crime scenes (the size of the Board of Commissioners, Independent Commissioners, and Audit Committee) in suppressing earnings management shows that the TKP mechanism in the Indonesian banking sector still needs to be strengthened.

Future Challenges

This research shows that good crime scenes are not always a guarantee to suppress earnings management. Other factors such as corporate culture, pressure from management, and the business environment can also play an important role in encouraging these practices.

Practical Implications

The findings of this study have practical implications that are important for stakeholders, such as:

Financial Services Authority (OJK)

OJK needs to continue to encourage the improvement of the quality of the crime scene in the banking sector through a tighter regulation and more effective supervision.

Banking Companies

Banking companies need to realize the importance of the crime scene in building investor confidence and increasing company value.

Investor

Investors must be observant in choosing companies that have strong crime scenes to minimize investment risk.

Conclusion

This study provides empirical evidence of the effect of crime scenes on earnings management in the Indonesian banking sector. Although institutional ownership has proven effective in suppressing these practices, more structured efforts are still needed to improve the quality of the TKP as a whole. This is important to create a more transparent, accountable, and sustainable financial system.

Limitations and Future Research Directions

This study has some limitations that need to be addressed in future research. Firstly, the study only focused on the Indonesian banking sector, and it would be interesting to see if the findings can be generalized to other countries. Secondly, the study only used a sample of banking companies listed on the IDX, and it would be interesting to see if the findings can be replicated using a sample of non-listed companies.

References

Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. Journal of Law and Economics, 26(2), 301-325.

Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360.

Discussion category: Undergraduate Theses, Education, Journal, Thesis, University, Student, Campus

Reveals the relationship between corporate governance and earnings management in Indonesian banking

In our previous article, we discussed the analysis of the effect of corporate governance mechanisms on profit management in banking companies listed on the IDX. In this article, we will answer some of the frequently asked questions related to this topic.

Q: What is corporate governance, and why is it important in the banking sector?

A: Corporate governance refers to the system of rules, practices, and processes by which a company is directed and controlled. It is essential for ensuring that companies are managed in a responsible and transparent manner, and that the interests of shareholders are protected. In the banking sector, corporate governance is particularly important, as banks play a critical role in the economy and are subject to strict regulations.

Q: What are the key corporate governance mechanisms that affect earnings management in the banking sector?

A: The key corporate governance mechanisms that affect earnings management in the banking sector include institutional ownership, the size of the board of commissioners, independent commissioners, and audit committees.

Q: What is the role of institutional ownership in earnings management?

A: Institutional ownership, such as pension funds or insurance companies, has a significant influence in suppressing earnings management practices. This shows that institutional investors are more focused on the long-term performance and transparency of the company, so it tends to oversee and oppose the practice of earnings management.

Q: What are the implications of this study for the Financial Services Authority (OJK)?

A: The OJK needs to continue to encourage the improvement of the quality of the crime scene in the banking sector through a tighter regulation and more effective supervision.

Q: What are the implications of this study for banking companies?

A: Banking companies need to realize the importance of the crime scene in building investor confidence and increasing company value.

Q: What are the implications of this study for investors?

A: Investors must be observant in choosing companies that have strong crime scenes to minimize investment risk.

Q: What are the limitations of this study?

A: This study has some limitations that need to be addressed in future research. Firstly, the study only focused on the Indonesian banking sector, and it would be interesting to see if the findings can be generalized to other countries. Secondly, the study only used a sample of banking companies listed on the IDX, and it would be interesting to see if the findings can be replicated using a sample of non-listed companies.

Q: What are the future research directions?

A: Future research directions include:

Generalizing the findings to other countries
Replicating the study using a sample of non-listed companies
Investigating the impact of other corporate governance mechanisms on earnings management
Examining the relationship between corporate governance and other financial performance metrics

Q: What are the practical implications of this study?

A: The practical implications of this study are:

The OJK needs to continue to encourage the improvement of the quality of the crime scene in the banking sector through a tighter regulation and more effective supervision.
Banking companies need to realize the importance of the crime scene in building investor confidence and increasing company value.
Investors must be observant in choosing companies that have strong crime scenes to minimize investment risk.

Q: What are the conclusions of this study?

A: This study provides empirical evidence of the effect of crime scenes on earnings management in the Indonesian banking sector. Although institutional ownership has proven effective in suppressing these practices, more structured efforts are still needed to improve the quality of the TKP as a whole. This is important to create a more transparent, accountable, and sustainable financial system.