Corporate Governance Mechanism and Earning Management With Integrated Model

Abstract

Previous studies examining earnings management from accruals perspective even though this model can`t describe the earning management practices completely. It ignored the relationship between accrual and cash transaction. In contrast, this study measuring integrated earnings management proxies i.e. real and accruals earnings management. Real earnings management proxies are measured by abnormal cash flow of operation, abnormal production cost, and abnormal discretionary expenses .While accruals earnings management proxies are measured by short and long term discretionary accruals. The purpose of this study examines the relationship between Corporate Governance mechanism i.e institutional ownership, managerial ownership, the independence of board committee, audit committee, and the size of board committee. The sample are 123 companies listed in JII and 158 companies listed in LQ 45 during 2004-2010 periods. Descriptive qualitative used to measure the mean value of these proxies, then aggregate earning management measured by ranking of them. The regression analysis used to examine the relationship between EM (integrated model)and CG. The results showed that proportional independence board committee, the size of board committee and audit committee have significant effect on EM (prob. vale 0.044;0.046;0.000)but the institutional ownership and managerial ownership have not significant effect on EM. In the future, researcher will continue this model by looking for the relationship EM with other variables such as relevance of accounting information and the explanation power of this model. The mechanism CG should be used CG index.