FACTORS AFFECTING THE

MOTIVATION OF
EARNINGS MANAGEMENT
IN MANUFACTURING COMPANIES

Elizabeth Stecia
NIM: 201650095
NIRM: 20163366340350091

PROPOSAL Trisakti
PRESENTATION School of
Management
Research Background
The main purpose of a company is
to increase the profits or wealth of
the company owner and
shareholders of the company.

The reason why managers use

earnings management is for things
such as obtaning bonuses, political
motivation, taxation motivation, etc.

In 2010 PT Kimia Farma was

reported doing earnings
management by making two
different inventory price lists
Main Journal
 Research Differences
Current Research Prior Research
Variables Additional: 1. Managerial
1. Motivation Debt Contract Ownership
2. Board Independence 2. Institutional
3. Audit Quality Ownership
4. Motivation Bonus 3. Board Size
5. Profitability
Period 2016-2018 2019-2012
Object Indonesia Stock Exchange Instanbul Stock
Exchange
Research Problems
1.Does there any effect of institutional ownership on earnings management?
2.Does there any effect of board size on earnings management?
3.Does there any effect of motivation debt contract on earnings
management?
4.Does there any effect of board independence on earnings management?
5.Does there any effect of audit quality on earnings management?
6.Does there any effect of managerial ownership on earnings management?
7.Does there any effect of motivation bonus on earnings management?
8.Does there any effect of profitability on earnings management?
Research Objectives
1.There is an effect of institutional ownership on earnings management.
2.There is an effect of board size on earnings management.
3.There is an effect of motivation debt contract on earnings management.
4.There is an effect of board of directors on earnings management.
5.There is an effect of audit quality on earnings management.
6.There is an effect of managerial ownership on earnings management.
7.There is an effect of motivation bonus on earnings management.
8.There is an effect of profitability on earnings management.
 Research Benefits
Creditor 3
Future
to give a better 5
Researcher
understanding and
knowledge about EM usefull for the future
in the company and researchers as a
Investor 2 reference.
help creditor to
to give a better recognize if there are
understanding and Financial
any EM activities
knowledge about EM Services 4
in the company and Authority
help investor to
recognize if there are to give the government
any EM activities a better understanding
and knowledge about
EM in the company
Management 1 and help government
to give a better to recognize if there
understanding about are any EM activities.
earnings
management.
THEORETICAL FRAMEWORK AND HYPOTHESES
DEVELOPMENT
Agency Theory
Theoretical Framework And Hypotheses Development

Jensen and Meckling (1976)

Agency relationships as agency relations as
contracts under which one or more persons that are
called the principals, using the services of other
people, namely agents, these agents provide
services to delegate authority to make decisions on
their behalf.

Because ownership is owned by managers

only partially, they tend to act for personal
interests rather than maximizing the
company's ability. This will cause the agency
cost to emerge.
 Prior Research
Theoretical Framework And Hypotheses Development

Variable Positive Negative No Effect

Institutional Ownership  Trilestari and  Aygun et al. (2014)  Susanto (2013)

Yulimar (2010)  Guna and
Herawaty (2010)

Board Size  Aygun et al. (2014)  Susanto (2013)

 Sumanto et al.  Farida et al. (2010)
(2014)

Motivation Debt  Nurdiniah and  Bassiouny et al.

Contract Herlina (2015) (2016)
 Nekhili (2016)
 Prior Research
Theoretical Framework And Hypotheses Development

Variable Positive Negative No Effect

Board Independence  Reviani and  Guna and
Sudantoko Herawaty (2010)
(2012)  Agustia (2013)
Audit Quality  Gumanti et al.  Memis and  Yasar (2013)
(2015) Cetenak (2012)  Siregar and
 Alzoubi (2016) Utama (2008)
Managerial Ownership  Aygun et al. (2014)  Yang et al. (2009)  Susanto (2013)
 Cheng and  Guna and
Warfield (2005) Herawaty (2010)
 Farida et al. (2010)
and Pradipta
(2011)
 Prior Research
Theoretical Framework And Hypotheses Development

Variable Positive Negative No Effect

Motivation Bonus  Nurdiniah and
Herlinah (2015)
 Kusumawardhan
i and Dewi
(2016)

Profitability  Tala and Karamoy  Alexander and  Suhartanto (2015)

(2017) Hengky (2017)
 Yuliana and
Trisnawati (2017)
 Susanto (2017)
 Research Model
Institutional Ownership

Board Size

Motivation Debt Contract

Board Independence

Earnings
Audit Quality
Management
Managerial Ownership

Motivation Bonus

Profitability
 Hypothesis
Development
Ha1 Institutional ownership has effect on earnings management.

Ha2 Board size has effect on earnings management.

Ha3 Motivation debt contract has effect on earnings

management.
Ha4 Board independence has effect on earnings management.

Ha5 Audit quality has effect on earnings management.

Ha6 Managerial ownership has effect on earnings management.

Ha7 Motivation bonus has effect on earnings management.

Ha8 Profitability has effect on earnings

management.
Research Method
 Research Method

Research
Design Sampling
Purposive sampling
Causality research
Research Criteria

Manufacturing companies that consistently listed in

Indonesia Stock Exchange from 2016 until 2018.

Manufacturing companies which consistently

published financial statements in Indonesian
currency (Rupiah) from 2016 until 2018.

Manufacturing companies that consistently

published financial statements as of December 31st
from 2016 until 2018.

Manufacturing companies that generate net income

from 2016 until 2018.
Measurement
Earnings Management

• TACCit = NIit – OCFit When financial reporting and

in structuring transactions by
• TACCit/Ait-1 = αt(1/Ait- managers are using
judgment to change financial
1)+α1(∆REVit-∆RECit)/Ait-
reports to mislead some
+α2(PPE
• 1NDACC it/A
it= âtit-1
(1/A)+eit-1) + stakeholders about the
company’s underlying
â1(∆REVit-∆RECit)/Ait-1 + economic performance, or to
â2(PPEit/Ait-1) affect contractual outcomes
which depend on reported
• accounting numbers, in that
time, earnings management
takes place (Healy and
Wahlen 1999)
 Measurement

Institurional Ownership Institutional ownership is the

amount of the company
shares own by institution like
insurance company, bank,
investment company, and
others (Mahariana and
Ramantha (2014)
Board Size Board size are measured by Board Size = total board of
the total members of commissioner
commissioner in the company
(Aygun et al. 2014)
 Measurement
Motivation Debt The motivation for company
Contract to manage the company’s
income will motivate
management in the amount of
debt measured by the
leverage ratio. (Nurdiniah and
Herlina (2015) )
Independent With the existence of
Commissioner independent commissioner in
a company, the level of
supervision of the company
will increase without any
outside parties that can affect
the independency of the
commissioners (Gonzalez
and Meca 2014)
 Measurement
Audit Quality Audit quality define as the Dummy variable:
ability or the probability to the companies that audited by big four
detect and report the client’s CPA firms with value 1 has the high
material error in its financial audit quality
statement (DeAngelo 1981) the companies that not audited by big
four CPA firms with value 0 has the
low audit quality
Managerial Ownership Managerial ownership is the
amount of company share
ownership that own by the
management (Adrianto and
Anis 2014)
 Measurement
Motivation Bonus Bonus motivation itself is one
of the principal ways that
agents improve good
performance in the companies
where they put their money to
invest. Principals think that this
method can improve the
performance of agents in the
company. ( Nurdiniah and
Herlina (2015) )
Profitability The greater the income because
the more efficient the use of
assets, the greater the
profitability. The way managers do
earnings management is by
manipulating the items reported in
the income statement.
 Hypotheses Test
ε (5)

Where:
DA Discretionary Accrual (Earnings Management)
α Intercept
Β1-β8 Variable coefficients
IO Institutional Ownership
Bsize Board Size
Leverage Leverage(Debt Contract Motivation)
Bind Board Independence
AQ Auditor Quality
ROAReturn On Asset (Motivation Bonus)
MO Managerial Ownership
PROF Profitability
ε Residual of Error