Earnings Management Practices In Companies Listed In Jakarta Islamic Index-Indonesian Stocks Exchange

Abstract

Earnings management existed because it was impacted from accrual basis. In practice, managers choose policies to maximize their utility and market value of the firm (Scott, 2006). Agency theory provides a view that earnings management issues can be minimized through monitoring mechanisms to align interest differences between owners and management and others, Based on agency theory, it was reduced by control itself from Corporate Governance (CG) mechanism. The purpose of this study is to analyze the earnings management practices in companies which listed in Jakarta Islamic Index. The sample is 153 companies which listed in Jakarta Islamic Index from 2004-2010 periods. The results indicate the earnings management (DACC) in Jakarta Islamic index are 0.0962 (2004), 0.11104 (2005), 0.03673 (2006), 0.20509 (2007), 0.087056 (2008), 0.045405 (2009) and 0.100421 in 2010. The results of this analysis also shows that during the period 2004 - 2010 companies listed in the Jakarta Islamic index in Indonesian stocks exchange follow the pattern of earnings management to maximize its profit (increasing their profit). The average value of accruals (DACC) is 0.098318. This finding supports research conducted by DeFond and Jiambalvo (1994), Sweeney (1994); PeltierRivest (1999); Jaggi and Lee (2001), Rosner (2003); Djakman (2003), Sham (2004); Andriyani ( 2004); and Kusumawati and Sasongko (2005), who provide empirical evidence regarding the pattern of earnings management in the form of increasing for earnings reported. Earnings management perspective used in this study is opportunistic perspective.

For further research, earnings management needs to be reviewed from the positive perspective.