Earnings Management in the Public Banks

Abstract

Earnings management is the company’s potential or management behavior to gain profits by managing earnings according to their wishes. This study examines the effect of the board of commissioners size, independent commissioners, audit committee, leverage, and financial performance on earnings management practices in banking companies listed on the Indonesia Stock Exchange. The data used are company data for 80 firm-years, 2015-2018, with specific criteria. Five research hypotheses were analyzed using linear regression. The data shows that banking companies listed on the Indonesia Stock Exchange in the research year on average have met the Central Bank of Indonesia requirements. The test results show that financial performance variables affect earnings management. Managers tend to do earnings management by increasing their income if the value of financial performance is small or decreases. Unexpectedly, the board size, the proportion of independent boards, audit committees, and leverage do not influence earnings management. The company financially performs earnings management to increase earnings to meet the prescribed regulations and attract investors. Regulators should establish robust monitoring mechanisms to reduce the possibility of earnings management