Effect Of Good Corporate Governance And Bonus Compensation On Profit Management With Company Size As Moderating Variables In Consumer Goods Companies Listed On The Indonesia Stock Exchange

Effect of Good Corporate Governance and Bonus Compensation on Profit Management

Introduction

In today's business world, Good Corporate Governance (GCG) plays a vital role in maintaining the confidence of stakeholders and ensuring transparency and accountability in company management. The importance of GCG cannot be overstated, as it directly impacts the financial performance and sustainability of a company. This study focuses on the influence of GCG, which consists of managerial ownership, institutional ownership, audit committee, and bonus compensation for earnings management. The size of the company is also considered as a moderating variable, especially in consumer goods companies listed on the Indonesia Stock Exchange (IDX) during the 2014 to 2016 period.

The Role of Good Corporate Governance in Earnings Management

Good Corporate Governance (GCG) is a set of principles and practices that ensure the effective management of a company. It involves the establishment of a strong board of directors, transparent financial reporting, and a robust audit committee. GCG is essential in maintaining the confidence of stakeholders, including investors, customers, and employees. In this study, we examine the influence of GCG on earnings management in consumer goods companies listed on the IDX.

Research Methodology

This study uses a causal associative approach, where secondary data is taken from financial statements available on the official website of the Indonesia Stock Exchange. The research population includes 35 consumer goods companies listed on the IDX, and the entire population is chosen as a sample using the census method. With a three-year observation period, the total observation made reached 105 data. To analyze data, multiple linear regression methods are used and interaction tests to test moderating variables.

Research Result

The results of the analysis showed that simultaneously, GCG which included managerial ownership, institutional ownership, audit committee, and bonus compensation had a significant influence on earnings management. However, partial testing gives different results. Only institutional ownership and audit committee showed a significant effect on earnings management, while managerial ownership and bonus compensation do not have a significant effect.

On the other hand, when the company's size is tested as a moderating variable, the results show that the company's size is unable to moderate the effect of GCG on earnings management. This shows that GCG factors can function independently in influencing earnings management, without being influenced by the size of the company.

Analysis and Discussion

The findings that institutional ownership and audit committee have a significant effect show that strict supervision and involvement of institutional investors can encourage more ethical earnings management practices. Institutional ownership often brings hope for better transparency and accountability, which in turn can affect managerial decisions.

Conversely, the lack of influence of managerial ownership and bonus compensation may indicate that bonus-based incentives do not always guarantee appropriate accounting behavior. In some cases, managers may be more likely to do earnings management to achieve bonus targets, but this is not enough to have a significant influence in the context of the Consumer Goods company in Indonesia.

The Moderating Effect of Company Size

The results of this study also show that the company's size is unable to moderate the effect of GCG on earnings management. This suggests that large and small companies have the same challenges in applying effective GCG principles. The company's size may not be a significant factor in determining the effectiveness of GCG in earnings management.

Conclusion

This study shows that GCG plays an important role in managing earnings in the Consumer Goods company listed on the Indonesia Stock Exchange. Institutional ownership and the existence of the audit committee are key factors that contribute to better profit management. However, the size of the company is unable to moderate this relationship, which shows that large and small companies have the same challenges in applying effective GCG principles. Further research is needed to dig deeper about other factors that might affect earnings management in a broader context.

Recommendations

Based on the findings of this study, we recommend that companies listed on the IDX should prioritize the implementation of GCG principles, particularly institutional ownership and the existence of an audit committee. Additionally, companies should consider the use of bonus compensation as a means of motivating managers to achieve better earnings management practices. However, companies should also be aware of the potential risks associated with bonus-based incentives, such as the possibility of earnings management to achieve bonus targets.

Limitations of the Study

This study has several limitations. Firstly, the study only focuses on consumer goods companies listed on the IDX, which may not be representative of all companies listed on the exchange. Secondly, the study only examines the influence of GCG on earnings management, and does not consider other factors that may affect earnings management. Finally, the study only uses secondary data, which may not be as accurate as primary data.

Future Research Directions

Future research should aim to explore other factors that may affect earnings management in a broader context. Additionally, research should be conducted to examine the effectiveness of GCG in other industries and countries. Furthermore, research should be conducted to examine the impact of company size on the effectiveness of GCG in earnings management.

References

• [List of references cited in the study]

Appendix

• [Appendix containing additional information, such as tables and figures]

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Frequently Asked Questions (FAQs) about the Effect of Good Corporate Governance and Bonus Compensation on Profit Management

Q: What is Good Corporate Governance (GCG)?

A: Good Corporate Governance (GCG) refers to a set of principles and practices that ensure the effective management of a company. It involves the establishment of a strong board of directors, transparent financial reporting, and a robust audit committee.

Q: What are the key factors of GCG that influence earnings management?

A: The key factors of GCG that influence earnings management are managerial ownership, institutional ownership, audit committee, and bonus compensation.

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

A: Institutional ownership often brings hope for better transparency and accountability, which in turn can affect managerial decisions. It can encourage more ethical earnings management practices.

Q: What is the role of the audit committee in earnings management?

A: The audit committee plays a crucial role in ensuring the accuracy and transparency of financial reporting. It can detect and prevent earnings management practices.

Q: What is the impact of company size on the effectiveness of GCG in earnings management?

A: The results of this study show that the company's size is unable to moderate the effect of GCG on earnings management. This suggests that large and small companies have the same challenges in applying effective GCG principles.

Q: What are the limitations of this study?

A: This study has several limitations. Firstly, the study only focuses on consumer goods companies listed on the IDX, which may not be representative of all companies listed on the exchange. Secondly, the study only examines the influence of GCG on earnings management, and does not consider other factors that may affect earnings management. Finally, the study only uses secondary data, which may not be as accurate as primary data.

Q: What are the recommendations for companies listed on the IDX?

A: Based on the findings of this study, we recommend that companies listed on the IDX should prioritize the implementation of GCG principles, particularly institutional ownership and the existence of an audit committee. Additionally, companies should consider the use of bonus compensation as a means of motivating managers to achieve better earnings management practices.

Q: What are the future research directions?

A: Future research should aim to explore other factors that may affect earnings management in a broader context. Additionally, research should be conducted to examine the effectiveness of GCG in other industries and countries. Furthermore, research should be conducted to examine the impact of company size on the effectiveness of GCG in earnings management.

Q: What are the implications of this study for policymakers and regulators?

A: The findings of this study have implications for policymakers and regulators. They should consider the importance of GCG in ensuring the effective management of companies and the prevention of earnings management practices. They should also consider the need for more stringent regulations and enforcement mechanisms to ensure the implementation of GCG principles.

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

A: The findings of this study have implications for investors and stakeholders. They should consider the importance of GCG in ensuring the transparency and accountability of companies. They should also consider the need for more effective monitoring and evaluation of companies' financial performance and governance practices.

Q: What are the implications of this study for companies and their management?

A: The findings of this study have implications for companies and their management. They should consider the importance of GCG in ensuring the effective management of companies and the prevention of earnings management practices. They should also consider the need for more effective implementation of GCG principles and the use of bonus compensation as a means of motivating managers to achieve better earnings management practices.