The Effect Of Managerial Ownership, Institutional Ownership, Independent Commissioner, Audit Committee And Board Of Directors On Earnings Management In The Property And Real Estate Sector Companies Listed On The Indonesia Stock Exchange For The 2016-2020 Period

by ADMIN 262 views

The Effect of Managerial Ownership, Institutional Ownership, Independent Commissioners, Audit Committees, and Board of Directors on Earnings Management in the Property and Real Estate Sector Companies Listed on the Indonesia Stock Exchange for the 2016-2020 Period

Introduction

The property and real estate sector is one of the most significant sectors in the Indonesian economy, with a substantial impact on the country's economic growth. The sector is characterized by a high level of competition, and companies in this sector are constantly seeking ways to improve their financial performance and stay ahead of their competitors. One of the key strategies used by companies in this sector is earnings management, which involves manipulating financial reports to present a more favorable picture of the company's performance. However, earnings management can have serious consequences, including a loss of investor confidence and damage to the company's reputation.

Background

Earnings management is a complex issue that has been studied extensively in the context of corporate governance. Research has shown that earnings management is often associated with poor corporate governance practices, including a lack of transparency and accountability in financial reporting. In the property and real estate sector, earnings management can be particularly problematic, as companies in this sector often have complex financial structures and are subject to a range of regulatory requirements.

Methodology

This study examines the effect of managerial ownership, institutional ownership, independent commissioners, audit committees, and board of directors on earnings management in property and real estate sector companies listed on the Indonesia Stock Exchange (IDX) during the 2016-2020 period. The study uses secondary data obtained from the IDX website and the company's website. The sampling method used is purposive sampling, and the data analysis was carried out using data panel regression with the help of EViews software version 12.

Results

The results of this study show that the institutional ownership variable has a significant negative effect on earnings management. This means that the higher the institutional ownership, the lower the company's tendency to carry out earnings management. On the other hand, independent commissioner variables have an insignificant negative effect on earnings management. That is, the presence of independent commissioners does not have a significant impact in suppressing the practice of earnings management.

Managerial ownership variables, audit committees, and board of directors have no significant influence on earnings management. This shows that these factors do not have a strong role in influencing earnings management practices in the property and real estate sectors.

Deeper Analysis

Institutional ownership has a significant impact on earnings management in the property and real estate sector. Institutional investors such as pension funds, insurance companies, and investment funds generally have a long-term focus and are more concerned with sustainable company performance. Their existence can suppress management not to do short-term earnings management that can harm the company in the long run.

Independent commissioners are expected to act as independent and objective supervisors of management performance. However, the results showed that the independent commissioners in the property and real estate sector had not shown significant effectiveness in preventing earnings management practices.

Audit committees and board of directors have an important role in overseeing and assessing the internal control system, including the accounting process and financial reporting. The results showed that these factors did not have a significant effect on earnings management.

Implications

The results of this study provide some important implications for stakeholders, especially investors, regulators, and company management.

Investors

Investors need to pay attention to the role and influence of institutional ownership in suppressing earnings management. Investors can consider investing in companies with high institutional ownership as an indication of the low potential of earnings management.

Regulator

Regulator needs to consider the results of this study in order to increase the effectiveness of corporate governance and existing supervision mechanisms.

Company Management

Company management needs to pay attention to the role and influence of independent commissioners, audit committees, and board of directors in corporate governance. They need to ensure that a strong corporate governance structure is implemented to increase transparency and accountability in financial reporting.

Limitations and Further Research

This study uses secondary data and has limitations in examining the company's internal factors that can affect earnings management. Further research can be done by considering the internal factors of the company, such as organizational culture, internal control systems, and business complexity levels. Research can also be done by analyzing the effect of earnings management on long-term company performance.

Conclusion

In conclusion, this study provides evidence that institutional ownership has a significant negative effect on earnings management in the property and real estate sector. The study also highlights the importance of corporate governance in preventing earnings management practices. The results of this study have important implications for stakeholders, including investors, regulators, and company management.

References

Keywords

  • Earnings management
  • Managerial ownership
  • Institutional ownership
  • Independent commissioners
  • Audit committees
  • Board of directors
  • Corporate governance
  • Property and real estate sector
  • Indonesia Stock Exchange
    Frequently Asked Questions (FAQs) on Earnings Management in the Property and Real Estate Sector

Q: What is earnings management?

A: Earnings management is the practice of manipulating financial reports to present a more favorable picture of a company's performance. This can include inflating revenue, reducing expenses, or using other accounting techniques to make the company's financial performance appear better than it actually is.

Q: Why is earnings management a problem in the property and real estate sector?

A: Earnings management can be particularly problematic in the property and real estate sector because companies in this sector often have complex financial structures and are subject to a range of regulatory requirements. Additionally, the sector is highly competitive, and companies may feel pressure to manipulate their financial reports to stay ahead of their competitors.

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

A: Institutional ownership, such as pension funds, insurance companies, and investment funds, can play a significant role in preventing earnings management. These investors typically have a long-term focus and are more concerned with sustainable company performance. Their existence can suppress management from engaging in short-term earnings management that can harm the company in the long run.

Q: What is the role of independent commissioners in preventing earnings management?

A: Independent commissioners are expected to act as independent and objective supervisors of management performance. However, the results of this study showed that the independent commissioners in the property and real estate sector had not shown significant effectiveness in preventing earnings management practices.

Q: What is the role of audit committees and board of directors in preventing earnings management?

A: Audit committees and board of directors have an important role in overseeing and assessing the internal control system, including the accounting process and financial reporting. However, the results of this study showed that these factors did not have a significant effect on earnings management.

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

A: Investors need to pay attention to the role and influence of institutional ownership in suppressing earnings management. Investors can consider investing in companies with high institutional ownership as an indication of the low potential of earnings management.

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

A: Regulators need to consider the results of this study in order to increase the effectiveness of corporate governance and existing supervision mechanisms.

Q: What are the implications of this study for company management?

A: Company management needs to pay attention to the role and influence of independent commissioners, audit committees, and board of directors in corporate governance. They need to ensure that a strong corporate governance structure is implemented to increase transparency and accountability in financial reporting.

Q: What are the limitations of this study?

A: This study uses secondary data and has limitations in examining the company's internal factors that can affect earnings management. Further research can be done by considering the internal factors of the company, such as organizational culture, internal control systems, and business complexity levels.

Q: What are the future research directions?

A: Further research can be done by analyzing the effect of earnings management on long-term company performance. Additionally, research can be done by examining the impact of earnings management on the property and real estate sector in other countries.

Q: What are the practical implications of this study?

A: The results of this study have important practical implications for stakeholders, including investors, regulators, and company management. The study highlights the importance of corporate governance in preventing earnings management practices and the need for a strong corporate governance structure to increase transparency and accountability in financial reporting.

Q: What are the policy implications of this study?

A: The results of this study have important policy implications for regulators and policymakers. The study highlights the need for regulators to increase the effectiveness of corporate governance and existing supervision mechanisms to prevent earnings management practices.

Q: What are the future policy directions?

A: Future policy directions can include strengthening corporate governance regulations, increasing transparency and accountability in financial reporting, and improving the effectiveness of supervision mechanisms to prevent earnings management practices.