The Real Earnings Management Practices (The comparative studies between shariah index (JII) and conventional index (LQ-45) in Indonesian stock exchange during 2004-2010 period)

Abstract

Earnings management is a phenomenon that is difficult to avoid because the impact of using the accrual basis for preparation of financial statements. The previous studies of earning management focus on accrual-based earnings management (Cohen and Zarowin, 2010;Gul and Tsui, 2001; Louis and Robinson, 2005;Aljifri, 2007; Hastuti dan Hutama, 2010). The recent studies of earning management indicate the important of manipulate real activities more than accrual basis (Roychowdhury, 2006; Gunny, 2005; Cohen et al., 2008; Cohen dan Zarowin, 2010). The survey byGraham, Harvey dan Rajgopal (2005) found the top managements more involve in earning management than accrual to reach earning target. The purpose of this study is to analyze the difference of real earnings management between the shariah index (JII) and conventional index (LQ45).

These samples are 130 and 165 companies listed in Indonesian stocks exchange from 2004-2010 periods. The analysisused Mann Whitney U test. The result shows the mean value of real management on the companies listed in the LQ 45 is 0.000000006921with average

value of CFO is 0.1575 Discr is 0.1306, Prod is 0.5718. The mean value of real management on the companies in the JII index is 0.00000000001538 with average value of CFO is 0.1763, Discr is 0.1461, Prod is 0.6220. Statistical test shows that there is not significant differences in real earnings management between companies in the shariah index and conventional index (prob.value = 0.558). It means that earnings management practices which tend to decrease the profit made by the companies in the conventional index and to increase the profit made by the companies in the shariah index.