Suhardianto, Harymawan, A Decade Of Earnings Management Researches In Indonesia 90
Asia Pacific Journal of Accounting and Finance
Volume 2 (1), December 2011
A DECADE OF EARNINGS MANAGEMENT RESEARCHES
IN INDONESIA1
Novrys Suhardiantoa, Iman Harymawan
b
a Corresponding author, Airlangga University, Indonesia
Email: [email protected] b
Airlangga University, Indonesia
Abstract
In Indonesia, researches on Earnings Management (EM) are considered to be significant
since they contribute18% of all financial accounting papers submitted to annual National
Accounting Symposium (called as Simposium Nasional Akuntansi or SNA) between 2000
and 2009 that held by the Indonesian Institute of Accountant (called as Ikatan Akuntan
Indonesia or IAI). These 54 EM papers (representing 18% of financial accounting articles)
have been published in the Indonesian top five accounting journals within the same period.
However, almost none of the previous studies have portrayed the development of EM
researches. This study attempts to explain research methods used, variables observed,
between-variable relationship formed, research instruments, as well as units of analysis
employed in EM research in Indonesia in order to transfer data to be more meaningful,
indicate the potential research field in EM, and to provide the discussion basis of particular
problem in EM. This study uses descriptive modeling method (see Abdel-Khalik and Ajinkya
1979: 21) and mapping framework of Luftand Shields (2003) in order to map the findings of
EM articles published in Indonesian accounting scientific journals with (at least) B ranking
(ranked by the Indonesian Higher Degree Education Directorate or DIKTI) during 10
consecutive years. In total there are 653 article titles collected from 96 hardcopies of 5
selected journals. 14 keywords (either in English or in Indonesian) related to earnings
management were used. 54 EM articles were found, while 8 of the articles have to be omitted
as the studies are not based on empirical studies. Content analyses of 46 EM articles show
several findings of EM researches: (1) Good Corporate Governance becomes more important
in EM researches although its description power remains controversial, (2) Positive
accounting hypotheses are not consistently supported and none has been done in investigating
the reasons for inconsistency, (3) Discussions on inefficiency of the capital market or moral
hazard were not explored optimally, (4) However, Initial Public Offering (IPO) is
conclusively proven as an event that leads to income-increasing behavior, (5) Investors do
not take the existence of EM in making investment decision, and this indicates the existence
of market inefficiency in the Indonesian capital market, confirm with previous study
conducted by Healy and Wahlen (1999).
Keywords: earnings management, descriptive modeling, research map, GCG, meta-analysis
research, and positive accounting theory.
1 The authors would like to thank Dr. Elvia Shauki and Ron Mclver as the seminar participants at Centre of
Applied Finance Studies University of South Australia for their helpful comments. The financial support from
IMHERE B2C Airlanga University is gratefully acknowledged.
Suhardianto, Harymawan, A Decade Of Earnings Management Researches In Indonesia 91
1. INTRODUCTION
Healy and Wahlen (1999) describe earnings management (EM) as an action of
managers to adjust financial reports using their judgment in order to influence contractual
outcomes that based upon reported accounting data or to mislead stakeholder about firm’s
performance. Since EM plays crucial role in capital market (Dechow and Skinner 2000), the
research on it is significant in Indonesia. Table 1 provides the data of EM papers presented in
National Accounting Symposium (known as Simposium Nasional Akuntansi/SNA) in the
period between 1999 and 2009. It is shown that EM papers take 18% of the total financial
accounting papers and 45% out of 130 papers in market based accounting research (MBAR)2.
The development of EM researches become subject of several questions for instance
what stages of EM researches Indonesia has? What are the conflicting (inconclusive) findings
that should be investigated or are there conclusive issues that have been saturated (i.e. over
investigated)? Therefore, this research is conducted to answer those questions by describing
(1) research method used in EM, (2) variables observed, (3) between-variables relationship
formed, and (4) unit of analysis used.
Two contributions are expected from this research. Firstly, this research will be a
pedagogically valuable document (as also raised by Kothari, 2001) which gives guidance for
future researchers in avoiding ‘reinventing the wheel’ by providing research map that shows
the findings of EM research in Indonesia. Secondly, this research provides a comprehensive
evidence for meta-analysis research that aims to synthesize conflicting findings in
quantitative research (Ahmed and Courtis 1999).
By analyzing 46 EM articles from five Indonesian leading journals, the content
analyses show two different areas of EM research: (1) researches which determine EM
predictors, and (2) researches which investigate the economic consequences of EM. Firstly,
researches that investigate EM predictors show that Good Corporate Governance (GCG)
becomes more important in EM researches though description power of GCG remains
controversial. The maps also indicate that positive accounting hypotheses are not consistently
supported and no studies so far have been conducted in investigating the reasons for the
inconsistency results. Discussions on inefficiency of the capital market or moral hazard were
not explored optimally. However, Initial Public Offering (IPO) is conclusively proven as an
event that leads to income-increasing behavior. Secondly, findings on economic
consequences of EM also varied. Investors do not take the existence of EM in making
investment decision, and this indicates the existence of market inefficiency in the Indonesian
capital market.
2. LITERATURE REVIEW
2.1. Issues in EM research
Beaver (2002) said thatearnings is managedtorespondpressuressuch asavoiding lossor
income decreasing. However, researcher could not yet to determine the main motivation of
accrual management whether opportunistics or efficiency behavior. Instead, researcher
2 We use criteria established by the SNA committee to find financial papers and Lev and Ohlson (1982) and
Meek and Thomas (2004) definition to search market based accounting papers in the SNA proceedings.
Suhardianto, Harymawan, A Decade Of Earnings Management Researches In Indonesia 92
seriously investigate the relationship between earnings management and firm’s
characteristics. The main issue of EM research is the measurementof EM that cantrace the
discretionary and nondiscretionary components of accrual (Beaver 2002). The other issue is
the achievement of EM when it is connected with its initial motivation (Kothari 2001).
Capital market response toward EM is also interesting issue in future according to Kothari
(2001).
EM in emerging markets is also interesting to be examined. By using Summon search
engine in University of South Australia library, we found 1164 articles in EM from a dozens
of business journal databases. There are 58 articles published in various journals that focus on
EM in South-East Asia and China. Those articles could be clustered into several topics, they
are:
1. Research on the predictors of EM, these researches investigate variables or timing that
can be used to detect accrual behavior or variables that might describe the variety of EM
practices such as corporate governance and culture (see Poitras et al. 2002; Kimbro 2005;
Liming et al. 2005)
2. Research on the market consequences of EM, they identify the consequences of EM on
capital market (for instance Chen and Yuan 2004; Haw et al. 2005)
3. EM for regulations incentives, these researches indicate the relationship between
regulations, such as tax and capital market regulations, and discretionary behavior
(Adhikari et al. 2005; Yu et al. 2006)
4. EM and auditing, these articles discuss the evidence of the effect of EM on auditing and
vice-versa such as EM and audit opinion (Shireenjit et al. 2007), auditor choosing (Yew
et al. 2007), and audit quality and EM (Chen et al. 2011).
5. EM and adoption of IFRS/IAS, this issue is becoming important as IFRS has been
adopted by more countries in emerging market (Haiyyan et al. 2009; Titas and Dipanjan
2011)
It is really important to compare Indonesian EM research with those in emerging
countries in order to evaluate the development academia issues. Moreover, regulator and
investor will be benefited through describing market consequences of EM in Indonesia.
2.2. Mapping EM Research
The development of a research field should be mapped to provide guidance for future
researcher in avoiding research repetition and redundancies. There are two approaches in
mapping research. First, researcher review and discuss the seminal researches, observe their
development, criticize them, and try to predict the direction of future research. This approach
is used by Lev and Ohlson (1982), Kothari (2001), Beaver (2002), and Dumontier and
Raffournier (2002). Second, researcher develops a graphic model that represent descriptive
structure of between-variables formed that derived from reviewed research papers. Luft and
Shield (2003) or Hesford et al. (2007) are the best example of this approach. However, none
of researcher in Indonesia has mapped the development of EM research.
2.3. The Mapping Framework
Luft and Shields (2003) mapped management accounting research by drawing maps
graphically through these steps:
Suhardianto, Harymawan, A Decade Of Earnings Management Researches In Indonesia 93
1. Identifying variable observed as Luft and Shields (2003) indicated i.e.: independent
variable, dependent variable, intervening variable, and moderating variable.
2. Identifying between-variable relationships formed into six models, according Luft and
Shields (2003), then classifying them based on three categories as indicated in Table 2.
3. Identifying unit of analysis into four i.e.: individual, sub unit organization, organization,
and beyond organization.
4. Creating guidelines of depictions between-variables relationship into a map.
Based on the gap between descriptive modeling research in Indonesia and overseas,
this research will provide an EM research map. To develop the map, this research employ
Luft and Shields’ (2003) framework as seen in Figure 1. The outputs of this research is a
descriptive model (map) which represents (i) observed variable in EM field, (ii) between-
variable relationship formed, (iii) research methods used, and (iv) unit of analysis.
3. RESEARCH METHOD
This research is considered as explorative study since it discusses EM research
findings which have not been explored before. Therefore, descriptive method is employed to
explain EM research characteristics, discuss issues related to EM researches,
andprovidefuture EM research ideas (Sekaran 2003: 122).
3.1. Subjects
This research analyze EM articles published in Indonesia in a decade time held
between 2000 and 2009 as we assumed that the development of a research field could be
observed during within this period of time. Moreover, the issue of EM during the Asia
Regional Economic Crisis (1998) and Global Financial Crisis (2008) could be captured and
published within this research period of time. The subjects of this research are EM research
articles published in Indonesian accounting journals, which could be described as follows
1. Have been accredited by government and received minimum B ranking for two
consecutive periods to control the quality of papers.
2. Focus on accounting only in order to have similar quality of review process.
In order to have similar and original sample from Indonesia, we do not take into account EM
articles published in conferences or international reviewed journals. The selected journals
shown in Table 3.
3.2. Data Analysis
This research uses qualitative procedure to analyze the data since it aims to describe
general conclusion of EM research. The procedures are:
1. Developing data-base from 96 hardcopies of the journals and 653 article titles.
2. Sorting the data-base to find EM articles using 14 keywords either in English or Indonesia
such as earnings management (manajemen laba/pengelolaan laba), income smoothing
(perataan laba/penghasilan), income increasing, income decreasing, accruals (akrual),
earnings manipulation (manipulasi laba), earnings quality, earnings persistence. We found
52 EM articles after sorting however, 8 of them have to be eliminated as these are not
empirical studies (literature studies).
Suhardianto, Harymawan, A Decade Of Earnings Management Researches In Indonesia 94
3. Analyzing descriptive statistics of EM market share and EM journal share.
4. Analyzing the content of article, to identify (i) research variable observed, (ii) between-
variable relationship formed, (iii) research method employed, (iv) EM measurements, (v)
unit of analysis used, and (vi) the summary of research conclusion/findings, limitations,
and potential issues.
5. Presentingt he data using text, tables, or charts.
3.3. Descriptive Framework
The output of this research is a descriptive model representing research variable
observed, between-variable relationship formed, research method employed, and unit of
analysis used. To develop this model, this research uses Luft and Shields’ (2003) framework
that they created to map the development of management accounting research (see Figure 2).
4. RESULTS
There are 46 selected EM articles out of 653 article titles published in selected
journals. Table 4 shows that EM articles take 16% of all financial accounting research that
mainly done in capital market setting. Moreover, EM articles are 7% of total article published
in five Indonesia leading accounting journals in 10 years period. JRAI as the ‘leader journal’
that published by the Indonesian Institute of Accountant (IAI) and Gadjah Mada University
provide majority portion of EM articles in Indonesia as it provides 45% of EM articles.
However, in term of market share, JAKI that is published by University of Indonesia has the
biggest EM publications compare to all of its published articles.
4.1. Research Methods and Models In EM
The profile of research methods and models used by EM researchers is shown in
Table 5. In panel A, it is shown that additive model is the most popular model. It confirms
with the number of linear-unidirectional relationship that has been tested by researchers
(panel B). In the other word, EM researchers tend to use association study in EM field (panel
C). It implies that there is no non-linear model in predictors-EM-market consequences
relationship in Indonesia regardless the finding of Koh (2003) in the non-linear association
between institutional ownership and EM.
We use the term ‘construct’ to describe events or factors that are used to explain the
variety of discretionary behavior such as company actions (IPO or merger and acquisition)
and company characteristics (e.g. firm’s size). The relationship between construct and
variable consider popular in Indonesia. This model is used by event study and difference
study to test the relationship between an event with EM or to find a factor that can identify
the actor of EM.
Moderator variable interaction model mainly used by researcher to test the
moderating effect of good corporate governance in the relationship between corporate
attributes and EM. The effect of moderating variables on the independent-dependent
variables relationship always monotonic or ordinal. This implies that corporate governance,
for instance, could only strengthen or weaken the effect of independent variables (firm’s
attributes) on the dependent (EM).
Suhardianto, Harymawan, A Decade Of Earnings Management Researches In Indonesia 95
4.2. EM Measurements
There are two types of EM measurement they are the measure of earnings
management through accruals, which may indicate income increasing and decreasing, and
income smoothing measurement (Table 6). To identify income smoother, almost all
Indonesian researchers use Eckel model(1981) although there are several proxies of income
smoothing such as Leuz et al. (2003) or Myers et al. (2007). Eckel model (1981) is easier to
use and the data needed to calculate this index are available in Indonesia because it only
needs income and sales data3.
EM researchers use accrual discretionary to be the proxy of EM as managers could
use their judgment and estimation in reporting this accrual for instance bad debt allowance
or contingent liability. There are 19 proxies of EM that is used by Indonesian researchers.
However, modified Jones model is the most popular measure especially Modified Jones in
Dechow et al. (1995). This is confirmed with Noguer and Munoz (2004) who said that
modified Jones model is by far more popular than standard Jones model.
4.3. EM Research Purposes, Methods, and Variables
The use of research method depends in its purpose and variables observed. In general,
EM research in Indonesia can be divided into two major themes they are research that
investigate the predictors of EM and such that search the economic consequences of EM.
There are three research methods used in these areas:
1. Association study is usually used to investigate the relationship between firm’s attribute
and EM. Therefore, financial ratios or firm’s characteristics are the independent variables
and discretionary accruals, or other proxy of EM, as the dependent. However, many EM
researchers use corporate governance as the moderating variables. On the other hand,
researchers who want to find the corporate governance effect on EM will use financial
ratios as the moderator. Researchers who try to find the value relevance of specific
accrual also employ association study. To achieve their purposes, they use value of stock
(price or return) as the dependent variable and discretionary accruals as the independent
by controlling the firm’s character. A common mistake done by Indonesian researchers is
to interpret the relationship between accruals and stock value from cause and effect view
by analyzing the regression coefficient. Indeed, the value relevance of accruals should be
concluded from the value of adjusted R2 or coefficient of determination (Dumontier and
Raffournier 2002).
2. Event study is applied when the researchers demonstrate the relationship of an
informative event and the management intention to disguise earnings. Moreover,
researchers can also take the advantage of this study when they test the market reaction to
EM information publication such as the investor reaction to the unusual positive income
surprise.
3. Difference test study broadly used to find the factors that can differentiate who manage
earnings or not or to show the different level of EM by comparing the level of particular
factor, for instance, the difference of big and small companies in manage their income.
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(Eckel, 1981)
Suhardianto, Harymawan, A Decade Of Earnings Management Researches In Indonesia 96
4.4. EM Predictors
Researches on EM apply the three hypothesis introduced by Watts and Zimmerman
(1978) in describing the discretionary behavior of the company. Therefore, we use these
hypotheses to organize the discussion:
1. Debt covenant hypothesis propose that the bigger the debt the bigger the management
intention to manage earnings because management is liable to keep particular ratios in
certain range to avoid breaching debt covenants. However, EM research in Indonesia
shows conflicting findings. Only a few of researchers who find supporting evidence. Most
researchers do not find conclusive results or, instead, negative relationship between EM
and debt ratio (see LEV, OpLev, and DEBT variables in Appendix 3, 4, and 5).
2. Political cost hypothesis argue that companies that are exposed in public interest (politic)
tend to manage earnings to avoid public (politic) pressure. Generally, firm size is used as
the proxy of firm’s scrutiny. The maps show that more findings support the hypothesis
rather than reject it (see SIZE variable in Appendix 3, 4, and 5). However, none of EM
research in Indonesia exclusively tests political hypothesis like Godfrey and Jones (1999),
Han and Shing-Wu (1998), or Key (1997). Nevertheless, Indonesian researchers always
use firm’s scrutiny in most research to control political influence in business.
3. Bonus scheme hypothesis suggest that accounting based bonus will lead managers to
manage the output of accounting. There is only one research test this hypothesis in
Indonesia. Mayangsari and Wilopo (2002) show that discretionary accruals that are
related with accounting based bonus negatively affect firm’s value. It is difficult to get
bonus data in Indonesia because companies are not compulsory to disclose it in financial
reports. Therefore, Mayangsari and Wilopo (2002) use dummy variable to indicate
whether the bonus scheme is based on accounting performance or not (see Appendix 3
line code 5). Other form of incentives such as stock option have not been explored.
4. Good corporate governance implementation (GCG) becomes alternative hypothesis to
control discretionary behavior. However, the maps show that some GCG variables do not
consistently control EM. For instance audit quality (AUDTR) is proven can mitigate EM
by four researchers however seven articles do not support the hypothesis (see AUDTR
variable in Appendix 3, 4, and 5). The composition of board of director is also mapped
cannot consistently reduce EM (see BOD, AUDCOM, INDBO variable in Appendix 3
and 4) even a lot of international studies show that GCG might control EM effectively.
Indonesian researchers might face classic problems in measuring GCG implementation
such as the availability of data (e.g.: BOD tenure, independent executives, GCG Index)
and the comprehensiveness of measurement. GCG implementation could not be measured
by the composition of organization structure only but also the implementation of the
structure and organization system.
5. Some corporate actions have been researched in order to find the timing of EM. IPO is
conclusively found as the best time to detect EM (see Appendix 5). It confirms many
international studies (see Li 2011; DuCharme 2001) that managers tend to increase firm’s
earnings before IPO to induce positive market reaction but it will be corrected by market
after IPO.
These results imply that meta-analysis is needed to find the best predictor of EM due
to a substantial number of conflicting results. Meta-analysis is a systematic approach in
Suhardianto, Harymawan, A Decade Of Earnings Management Researches In Indonesia 97
identifying, appraising, synthesizing and (if appropriate) combining the results of relevant
studies to arrive at conclusions about a body of research (Wild 2002). Moreover, disclosures
related to GCG implementation should be enhanced to enable assessment process of GCG
implementation in reducing opportunistic behavior.
4.5. Economic Consequences Of EM
To test market reaction on EM, researchers might employ either event study,
difference study or value relevance study. In Appendix 2 we see that capital market (CAR)
does not consistently respond the income smoothing, as a sample divider factor (see line code
1, 2, 6, 25, and 44). It means that income smoothing is not consistently priced by investors or
Indonesia capital market players are less sophisticated or the market itself is not efficient.
Further research is needed to answer these propositions.
The value relevance of accruals information remains questionable in Indonesia.
Appendix 2 line code 29 and 12, Appendix 4 line code 11, and Appendix 5 line 17 show that
discretionary accruals related with positive value of stock. EM also might increase cost of
capital. Appendix 4 line code 27 confirms this hypothesis. EM also found positively increase
earnings response coefficient. In the other word, EM might increase information content of
unexpected earnings. Again, it indicates the inefficiency of Indonesia capital market.
However, many researchers justify their conflicting findings as the result of dualism of EM
(opportunistic or efficiency). All the findings of EM research in Indonesia confirm Healy and
Wahlen (1999).
Overpricing of accruals is generally called accrual anomaly. This phenomenon has
been documented by Sloan (1996) and explored by many researchers thereafter. Several
hypothesis are developed and tested such as law system (Pincus et al. 2007), investment
growth (Zhang 2007), accounting standard (Kaserer and Klingler 2008), and transaction cost
(Mashruwala et al. 2006). However, this research does not find any paper that investigate
accrual anomaly in Indonesia.
5. CONCLUSION, IMPLICATION AND LIMITATION
The purpose of this research is to describe the development of EM in Indonesia
including the variables observed, between-variables relationship, research method employed,
and unit of analysis used. EM research variables consisted of several groups: the
characteristics of company, corporate governance, and investor reaction. The relationship
between EM with these variables generally studied using association studies (additive-linear-
unidirectional), construct-variables relationship model (events study and difference test), as
well as moderating variable interaction models (especially the relationship between corporate
governance with the reaction of investors to EM).The relationship is examined with data
taken from the company and beyond the company. In addition, researchers often use Eckel
(1981) model to detect income smoothing and modified Jones model of Dechow et al. (1995)
to indicate EM practices.
The economic consequences of EM are still not consistently proven due to ambiguous
motivations of EM (opportunistic or efficiency) and the contingent effects of other variables
(accrual anomaly predictors). Nevertheless, none of the researches uses qualitative and
Suhardianto, Harymawan, A Decade Of Earnings Management Researches In Indonesia 98
behavioral approaches to uncover EM motivation. The relationships between GCG and EM
show that the ability of GCG to mitigate EM is still volatile. Moreover, researchers have not
consistently validated the hypothesis of positive accounting theory.
Due to a substantial number of inconclusive and conflicting results, a meta-analysis is
needed to find the best predictor of EM. Meta-analysis is a systematic approach in
identifying, appraising, synthesizing and (if appropriate) combining the results of relevant
studies to arrive at conclusions about a body of research (Wild 2002). Moreover, managers’
background becomes more important to be included in EM research such as religion and
culture (see Callen et al. 2011) and national culture (Nabar and Bonlert-U-Thai 2007),
however none of EM researches in Indonesia address this issue yet. This study has several
limitations: (1)The analysis was done manually and subject to human error. Using analysis
software such as NVIVO will empower the results, (2) The maps were not drawn by
considering timeline to demonstrate the development of EM research by year, sample, and
other research design issues.
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Sekaran, U. Research Methods for Business: A Skill Building Approach 4th
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Suhardianto, Harymawan, A Decade Of Earnings Management Researches In Indonesia 101
APPENDICES
Table 1. EM Papers in National Accounting Symposium
Period EM MBAR Financial Acc. Total Papers
Papers ∑ % ∑ % ∑ %
1999 2 9 22% 18 11% 34 6%
2000 2 15 13% 28 7% 41 5%
2001 2 18 11% 30 7% 52 4%
2002 2 10 20% 23 9% 53 4%
2003 8 18 44% 41 20% 91 9%
2004 11 18 61% 42 26% 76 14%
2005 7 9 78% 37 19% 69 10%
2006 4 12 33% 39 10% 84 5%
2007 6 3 200% 20 30% 80 8%
2008 6 9 67% 32 19% 78 8%
2009 9 9 100% 25 36% 64 14%
Total 59 130 45% 335 18% 722 8% Sources: SNA Proceedings 1999 – 2009
Table 2. Between-Variable Relationship Models
No Simple Model Based on X1
Condition
Based on
Linearity
Based on Independent
Variable Interaction
1. Additive Unidirectional Linier Ordinal
2. Intervening Bidirectional Curvilinear Dis-ordinal
3. Independent variable
interaction − − −
4. Moderating variable
interaction − − −
5. Cyclical recursive − − − 6. Reciprocal non-recursive − − −
Table 3. Selected Journals List
Panel A
No Name ISSN Institution
1 Jurnal Akuntansi dan Auditing Indonesia
(JAAI).
1410-2420 Indonesia Islamic University
2 Jurnal Akuntansi (JA) 1410-3591 Tarumanegara University
3 Jurnal Riset Akuntansi Indonesia (JRAI) 1410-6817 Indonesian Institute of Accountant
and Gadjah Mada University
4 Akuntabilitas (AK) 1412-0240 Pancasila University
5 Jurnal Akuntansi dan Keuangan
Indonesia (JAKI)
1829-8494 University of Indonesia
Suhardianto, Harymawan, A Decade Of Earnings Management Researches In Indonesia 102
Panel B
Year JRAI JAKI JA AK JAAI
2000 Vol. 3 No. 1-2 � NA � Vol.4 No.1-2
2001 Vol. 4 No.1-3 � NA Vol.1 No.1-2 Vol.5 No.1-2
2002 Vol. 5 No.1-3 � Vol.6 No.1-2 Vol.2 No.1-2 Vol.6 No.1-2
2003 Vol. 6 No.1-3 � NA Vol.3 No.1-2 Vol.7 No.1-2
2004 Vol. 7 No.1-3 Vol.1 No.1-2 Vol.8 No.1-2 Vol.4 No.1-2 Vol.8 No.1-2
2005 Vol. 8 No.1-3 Vol.2 No.1-2 Vol.9 No.1-3 Vol.5 No.1-2 Vol.9 No.1-2
2006 Vol. 9 No.1-3 Vol.3 No.1-2 Vol.10 No.1-3 Vol.6 No.1-2 Vol.10 No.1-2
2007 Vol. 10 No.1-3 Vol.4 No.1-2 Vol.11 No.1-3 Vol.7 No.1-2 Vol.11 No.1-2
2008 Vol. 11 No.1-3 Vol.5 No.1-2 Vol.12 No.1-3 Vol.8 No.1-2 Vol.12 No.1-2
2009 Vol. 12 No.1-3 Vol.6 No.1 Vol.13 No.1-3 Vol.9 No.1 Vol.13 No.1-2
Table 4. EM in Number
Category JRAI JAKI JA AK JAAI Total Panel A EM 21 8 6 6 5 46 Financial Accounting (incl. EM) 108 37 53 51 47 296 Other theme 72 31 112 73 69 357 Total 180 68 165 124 116 653 Panel B EM Market Share 11,7% 11,8% 3,6% 4,8% 4,3% 7,0% EM Journal Share 45,7% 17,4% 13,0% 13,0% 10,9% 100%
Market share of EM = (∑ EM article in journal i) ÷ (Total publication in journal i)
Journal share of EM = (∑ EM article in journal i) ÷ (Total EM publication)
Table 5. EM Research Methods and Models
Description Frequency
JRAI JAKI JA AK JAAI Total Panel A: Research Model Additive (Add) 13 7 4 5 3 32 Intervening Variable (IV) − − − − − 0
Independent Variable Interaction (IVI) − − − − − 0
Moderator Variable Interaction (MVI) 3 1 − − − 4
Cyclical Recursive − − − − − 0
Reciprocal Non-recursive − − − − − 0
Distributed-Lag − − − − − 0
Autoregressive − − − − − 0 Construct-Variable Relationship 10 3 3 3 4 23
Panel B: Classification of Model Unidirectional 16 8 4 5 3 36 Bidirectional − − − − − 0 Linear 16 8 4 5 3 36 Curvilinear (Nonlinear) − − − − − 0 Ordinal (monotonic) 3 1 − − − 4 Dis-ordinal (non-monotonic) − − − − − 0 Construct-Variable Relationship 10 3 3 3 4 23
Panel C: Research Method Association study 16 8 4 5 3 36 Event Study 2 2 1 1 − 6 Difference study 8 1 2 2 4 17
Suhardianto, Harymawan, A Decade Of Earnings Management Researches In Indonesia 103
Table 6. Earnings Management Measures
No Measures Earnings
Management Income
Smoothing 1 Working capital accrual scaled by sales 1
2 Current Accrual Model (Teoh et al. 1998; DuCharme et al.
2000) 1
3 DA and NDA Model Rangan (1998) 1
4 Healy (1985), Modified Jones Model (1991) in Dechow et al.
(1995), and Dechow et al. (2003) Model 1
5 Instrumental Variable Model (Kang and Sivaramakrishnan
1995) 1
6 Linear Performance-Matching Jones Model by Kothari et al.
(2005) 1
7 Loan Losses Provision 1
8 The significant difference between operating cash flow and its
mean 1
9 Modified Aharony et al. (1993) Model by DeAngelo (1986) 1
10 Modified Healy (1985) and Jones (1991) Models to capture
special features of bank 1
11 Jones (1991) Model 3
12 Modified Jones (1991) Model in Dechow et al. (1995) 10 13 Modified Jones (1991) Model in Dechow et al. (1995)
and Teoh et al. (1998) 1
14 Modified Jones (1991) Model in Kasznik (1999) 3 15 Sankar (1994) Model in Chan et al. (2001) 1 16 Modified Healy and Jones (1991) model in Dechow et al.
(1995) 1
17 Accounting Method Choice 1 18 Scaled Earning Changes (Phillip et al. (2003), Burgstahler et al.
(2002), Yulianti (2004)) 1
19 Total accrual in Aharony et al. (1993), and DAC by Healy
(1985) and DeAngelo (1986) 1
20 Not specified 2 21 Eckel Index (1981) 11
Suhardianto, Harymawan, A Decade Of Earnings Management Researches In Indonesia 104
Figure 1. Research Framework
Figure 2. Descriptive Modeling Framework
Sources: Luft & Shields (2003)
Suhardianto, Harymawan, A Decade Of Earnings Management Researches In Indonesia 105
Appendix 1. Map Notation
The map notation used by this research is adopted from Luft and Shields (2003).
Association study
1. Additive, linear, and unidirectional:
2. Intervening model, for example:
3. Interaction Model,
a. Ordinal (monotonic) model with general sign:
i. IV2 or MV strengthen positive relationship of IV1 – DV
IV1
IV2
DV
IV DV
MV
ii. IV2 or MV strengthen negative relationship of IV1 – DV
b. Ordinal Model with mixed-sign:
i. IV2 or MV negatively influence the positive relationship of IV1 – DV
ii. IV2 or MV positively influence the negative relationship IV1 – DV
4. Nonlinear unidirectional relationship:
a. U relation:
b. Inverted U relation:
Construct-Variable relationship
1. Construct: informative event, sample divider factor (immeasurable)
2. Variable (measurable)
3. The relationship between construct and variable
IV DV Not Specific:
IV DV Negative:
IV DV Not Related
IV DV Positive:
IV ITV DV
IV DV
IV DV
X
Y
Positive: Y X
Negative: Y X
Unspecific: Y X
Not related: Y X
Suhardianto, Harymawan, A Decade Of Earnings Management Researches In Indonesia 106
Appendix 2. Earnings Management and Market Reaction
VolumeEarning
surprise
Own
Sign.
Depreciation
Method
Inventory
Method
Underp
ricingIPO
Unit of Analysis: Organization
Underwriter
Rep.AUDTR
8
8
8
8 8
STDRET
SIZE
INDBO
IOwn
LEV
BIDASK
CAR
21
212129 21
21
21
42
21
29
DA
29,
42
42
21
21
CFO
AUDCO
M
BMR
EPR
21
21
21
21
21
21
Industry
29
21
NDA21
21
21 21
MgOwn
29
Return
3232
32
32
32
ROA 32
CR
AUDTR
16
16
1616
Income
Smoothing 25,1
6
2
2525
25
1
21
44
Unit of Analysis: Beyond Organization
DCA
DLA
NDCA
NDLA
LogAGE
IPO
IR
OFF
LogMV
D_BCP
D_ACP
CARt+1th
CARt+2th
CARt+3th
BHRt+1th
BHRt+2th
BHRt+3th
∆ROA
36
3636 36
3636
3636
36
3636
36
12
12 12
36
3636
363636
363636
3636
36
36
36 36
36
3636
3636
36
3636
36
3636
36
IR
OFF
LogMV
D_BCP
D_ACP
36
3636 36
3636
36
36
36
3636
363636
363636
36
12
21
Suhardianto, Harymawan, A Decade Of Earnings Management Researches In Indonesia 107
Unit of Analysis: Subunit of organization
−
Constructs:
1. AUDTR: Sample dividing factor based on audit quality (big-five and nonbig-
five)
2. Earning surprise: Sample dividing factor, based on the difference between expected
earnings with actual earnings (positive and negative)
3. Income smoothing: Sample dividing factor, smoother and non-smoother classified use
Eckel (1981) index.
4. IPO: An event, Initial public offering.
Dependent variables:
1. BHRt+n: Buy and hold return after IPO
2. BIDASK: Bid-ask spread, the difference of maximum price that buyer asks and
minimum price that seller offer.
3. CAR: Cumulative abnormal return
4. CARt+n: Cumulative abnormal return after IPO
5. CR: Cumulative return for several periods.
6. Return: Stock Return
7. VOLUME: Stock trading volume
8. Underpricing: The difference of first closing price in secondary market and opening price
in primary market.
Independent variables:
1. ∆ROA: The difference of return on asset before and after IPO.
2. AUDCOM: Dummy the existence of audit committee
3. AUDTR: Audit quality, measure usingdummy(big-five/fourandother).
4. BMR: Book-to-market ratio
5. CFO: Operating cash flow
6. D_BCP: Dummy IPO after Indonesian monetary crisis
7. D_ACP: Dummy IPO before Indonesian monetary crisis
8. DA: Discretionary accrual
9. DCA: Current discretionary accrual
10. DLA: Long-term discretionary accrual
11. EPR: Earning-to-price ratio
12. INDBO: Independent BOD proportion
13. Industry: Dummy for industry
14. IOwn: Institutional ownership
15. IR: Initial return
16. LEV: Leverage
17. LogAGE: Natural logarithm of companies’ age
18. LogMV: Natural logarithmcompanies’ market value.
19. Depreciation
Method:
Fixed asset depreciation method, measured using dummy between
conservative method and others.
Suhardianto, Harymawan, A Decade Of Earnings Management Researches In Indonesia 108
20. Inventory
Method:
Inventory valuation method, measured using dummy between
conservative method and others.
21. MgOwn: Managerial ownership
22. NDA: Non-discretionary accrual
23. NDCA: Current non-discretionary accrual
24. NDLA: Long-term non-discretionary accrual
25. OFF: Offer price in primary market
26. Underwriter
Rep.:
Underwriter reputation, usually measured using Johnson-Miller model.
27. ROA: Return on asset
28. Own Sign.: Ownership Signal measured using natural logarithm of percentage of
share retained by company.
29. SIZE: Firm size
30. STDRET: Standard deviation ofdaily stock returnduring the test period
31. VOLUME Stock trading volume
Moderating variables:
1. DA: Discretionary behavior
Sources:
Code Authors Code Author
1 Assih and Gudono (2000) 25 Juniar, Meiden, and Sitinjak (2006)
2 Salno and Baridwan (2000) 29 Sukartha (2007)
6 Prasetio, Astuti, and Wirawan
(2002)
32 Widyastuti (2007)
8 Ali and Hartono (2003) 36 Rahman and Hutagaol (2008)
12 Saiful (2004) 42 Joni and Hartono (2009)
16 Ardiati (2005) 44 Oktorina and Hutagaol (2009)
21 Siregar and Bachtiar (2005)
Suhardianto, Harymawan, A Decade Of Earnings Management Researches In Indonesia 109
Appendix 3. Earnings Management Predictors
Suhardianto, Harymawan, A Decade Of Earnings Management Researches In Indonesia 110
Construct:
1
G/P
Perform Sample dividing factorbased on firm performance
Dependent variables:
1 LN EM/1-EM Scaled Earning Changes
2 CSRDisc Corporate Social Responsibility Disclosure
3 DA Discretionary accrual
4 Value Firm value
5 LLP Loan loss provision
Independent variables – unit of analysis: organization
1 AbsNI Net Income (Absolute)
2 AbsTAC Total Accrual (Absolute)
3 ADJSPREAD Adjusted bid-ask spread
4 Bonus Bonus schememeasured by dummy(accounting based or not)
5 SYB Dummy forSyariah bankorSyariah unit link
6 Cap.AR Capital Adequacy Ratio
7 DTA Deferred tax asset
8 CFO Operating cash flow
9 CFVar The varianceof operating cash flow data
10 CGI Corporate Governance Index
11 CHLOAN The changes ofbanking loanscaled by beginning balance of loan
12 CHNPL The changes of nonperforming loan
13 Cscore Accounting conservatism score
14 DA discretionary accrual
15 DCP Dummy Cost politic
16 DEBT Interest bearing debt to total asset ratio
17 DFAM Dummy forfamily ownership(high or low)
18 GRWTH Growth
19 HFLG Dummy for high cash flow and low growth
20 IOS Investment Opportunity Set
21 IOwn Institutional ownership
22 AUDCOM Audit committee
23 INDBO Independent BOD proportion
24 LDR Loan to Deposit Ratio
25 LEV Leverage
26 LOWMON Dummy for corporate monitoring (low or high)
27 MgOwn Managerial ownership
28 MTB Market To Book value
29 NDA Non Discretional Accrual
30 NPL Nonperforming loan
31 NPM Net Profit Margin
32 RGLASS Realized gain or loss from held for sale securities
Suhardianto, Harymawan, A Decade Of Earnings Management Researches In Indonesia 111
33 ROA Return on Asset Ratio
34 RORA return on Risk Asset
35 SDRET Daily Return
36 SIZE Firm size
37 TAS Total Asset
38 BOD Board of director size
Independent variables – Unit of analysis: beyond organization
1 AUDTR Audit quality, measure usingdummy(big-five/fourandother)
2 Quotes Average bid ask spread in closing date
3 VOLUME Stock trading volume
Moderating variables:
1 DEBT Debt level
2 INDBO Independent BOD proportion
3 AUDTR Audit quality, measure usingdummy(big-five/fourandother)
4 DA discretionary accrual
Sources:
Code Authors Code Authors
5 Mayangsari and Wilopo (2002) 32 Widyastuti (2007)
18 Boediono (2005) 33 Bangun and Vincent (2008)
20 Permatasari (2005) 37 Sugiartha (2008)
21 Siregar and Bachtiar (2005) 38 Tresnaningsih (2008)
22 Wasilah (2005)
40 Handajani, Sutrisno, and Chandrarin
(2009)
23 Yulianti (2005) 41 Herusetya (2009)
26 Siregar and Utama (2006) 43 Nazir and Herwiyanti (2009)
29 Sukartha (2007) 45 Tobing and Ika (2009)
30 Suparno and Qomariyah (2007) 46 Zahara and Siregar (2009)
31 Suranggane (2007)
Suhardianto, Harymawan, A Decade Of Earnings Management Researches In Indonesia 112
Appendix 4. Income Smoothing Detectors
Suhardianto, Harymawan, A Decade Of Earnings Management Researches In Indonesia 113
Dependent variables:
1 ERC Earnings response coefficient,the slope of regression function
ofcumulative abnormal return(CAR) and Unexpected Earnings (UE).
2 FERC Future ERC, coefficient regression of CARt+1andUEt
3 CWC Cost of working capital
4 IS Dummy for Income Smoothing.
Independent variables – Unit of analysis: organization
1 OpLev Operating Leverage
2 NPM Net Profit Margin
3 NPS Market value of share
4 OPM Operating Profit Margin
5 ROA Return on Asset Ratio
6 SIZE Firm size
7 Beta Beta of stock (risk)
8 ErnPrd Earnings predictability
9 ErnPrt Earnings persistence
10 IOwn Institutional ownership
11 BOD Board of director size
12 INDBO Independent BOD proportion
13 DEBT Ratio interest bearing Debt to total asset
14 LEV Leverage
15 St.Invest Investor Status (dummy)
16 Profit Corporate profits
17 Value Value of firm
18 AMK/SALE(EM)
Working capital accrual scaled by sales(the proxy of earning
management)
Independent variables – Unit of analysis: beyond organization
1 AUDTR Audit quality, measure usingdummy(big-five/fourandother).
2 Industry Dummy industry
3 DWLS Dummy for Winner/Loser Stock
Sources:
Code Authors Code Authors
2 Salno and Baridwan (2002) 24 Budhijono (2006)
6 Prasetio, Astuti, and Wiryawan (2002) 27 Utami (2006)
11 Bonny, Meiden, and Sitinjak (2004) 34 Dewi and Carina (2008)
15 Yusuf and Soraya (2004) 35 Kustono (2008)
Suhardianto, Harymawan, A Decade Of Earnings Management Researches In Indonesia 114
Appendix 5. Construct-Variable Relationshipin Income Smoothing Research
Suhardianto, Harymawan, A Decade Of Earnings Management Researches In Indonesia 115
Constructs:
1 AUDTR Sample dividing factor based on audit quality (big-five and
nonbig-five)
2 EM (Operating
method/Accounting)
Sample dividing factor based on earnings management case
given: earnings management through operating or
accounting method
3 EM (EOQ/EOY) Sample dividing factor based on earnings management case
given: earnings management in end of quarter or end of year
4 EM (company /individual
interest)
Sample dividing factor based on earnings management case
given: earnings management for company interest or
individual interest.
5 EM(earnings materiality) Sample dividing factor based on earnings management case
given: earnings management considered material or not.
6 EM (income
increasing/decreasing)
Sample dividing factor based on earnings management case
given: income increasing or decreasing
7 EM (GAAP/not) Sample dividing factor based on earnings management case
given: use GAAP or not
8 Income Smoothing Sample dividing factor: Smoother and Not-smoother
9 IPO An event: IPO
10 AUDCOM Sample dividing factor: the existence of audit committee
11 Publication delay Sample dividing factor: delay or not
12 Perform (+/-) Sample dividing factor: positive or negative income
13 Merger and acquisition An event: Merger and acquisition
14 SIZE Sample dividing factor based on firm size: small or large
15 TAX Sample dividing factorbasedontax rate reform (1994)
Dependent variables:
1 CFO Operating cash flow
2 DA discretionary accrual
3 DTE Deferred tax Expense
4 EM Dummy for earnings management (a little of loss or a little of income)
5 OE Operating Earnings
6 ROA Return on Asset Ratio
7 TAC Total accrual
8 Value Value of firm
Independent variables – unit of analysis: organization
1 Beta Beta of stock (risk)
2 DCA Current discretionary accrual
3 DEBT Interest bearing debt to total asset ratio
4 DLA Long-term discretionary accrual
5 EAc Expected Accrual
6 EthichJudgment Ethical Judgment
7 GRWTH Growth
8 IOS Investment Opportunity Set
Suhardianto, Harymawan, A Decade Of Earnings Management Researches In Indonesia 116
9 LEV Leverage
10 NPM Net Profit Margin
11 OpLev Operating Leverage
12 Profit Corporate profits
13 RAMCFO Real activity manipulation throughOperating Cash Flow
14 RAMCOGS Real activity manipulationthrough cost of goods sold
15 SIZE Firm size
16 TCF Total cash flow
Independent variables – unit of analysis: beyond organization
1 AUDTR Audit quality, measure usingdummy(big-five/fourandother).
2 Industry Dummy industry
Sources
Code Authors Code Authors
2 Salno and Baridwan (2000) 17 Assih, Hastuti, and Parawiyati (2005)
3 Gumanti (2001) 20 Permatasari (2005)
4 Surifah (2001) 23 Yulianti (2005)
6 Prasetio and Wirawan
(2002)
28 Bangun and Rita (2007)
7 Setyowati (2002) 34 Dewi and Carina (2008)
9 Kuntanto (2003) 36 Rahman and Hutagaol (2008)
10 Kusuma andSari (2003) 37 Sugiartha (2008)
12 Saiful (2004) 39 Yudhanti and Rachmawati (2008)
13
Saputra and Setiawati
(2004)
41 Herusetya (2009)
14 Sholihin and Naim (2004) 42 Joni and Hartono (2009)
15 Yusuf and Soraya (2004)
Appendix 6. Sample List
Ali, S., and J. Hartono. 2003. Pengaruh Pemilihan Metode Akuntansi terhadap Tingkat
Underpricing Saham Perdana. Jurnal Riset Akuntansi Indonesia 6 (1): 41-53.
Ardiati, A. Y. 2005. Pengaruh Manajemen Laba terhadap Return Saham pada Perusahaan
yang Diaudit KAP Big 5 dan KAP Non big 5.Jurnal Riset Akuntansi Indonesia 8 (3):
235-249.
Assih, P., and Gudono. 2000. Hubungan Tindakan Perataan Laba dengan Reaksi Pasar atas
Pengumuman Informasi Laba Perusahaan yang Terdaftar di BEJ. Jurnal Riset
Akuntansi Indonesia 3 (1): 35-53.
Assih, P., A. W. Hastuti, and Parawiyati. 2005. Pengaruh Manajemen Laba pada Nilai dan
Kinerja Perusahaan. Jurnal Akuntansi dan Keuangan Indonesia 2 (2): 125-144.
Bangun, N., and Rita. 2007. Analisis Earnings Management dalam Penawaran Saham
Perdana Bursa Efek Jakarta. Jurnal Akuntansi 11 (3): 319-333.
Bangun, N., and Vincent. 2008. Analisis Hubungan Komponen Good Corporate Governance
terhadap Manajemen Laba dengan Kinerja Keuangan pada Perusahaan Manufaktur
yang Terdaftar di Bursa Efek Indonesia. Jurnal Akuntansi 12 (3): 289-302.
Suhardianto, Harymawan, A Decade Of Earnings Management Researches In Indonesia 117
Boediono, G. S. B. 2005. Pengaruh Mekanisme Corporate Governace terhadap Manajemen
Laba dan Dampaknya pada Kualitas Laba. Jurnal Akuntansi 9 (3): 232-247.
Bonny, M., C. Meiden, and T. J. R. Sitinjak.2004. Pengaruh Perataan Laba terhadap Earnings
Response Coefficient pada Perusahaan Manufaktur yang Terdaftar di BEJ Periode
1999-2004. Akuntabilitas 4 (1): 19-27.
Budhijono, F. 2006. Evaluasi Perataan Laba pada Industry Manufaktur dan Lembaga
Keuangan yang Terdaftar di BEJ. Akuntabilitas 6 (1): 70-79.
Dewi, S. P., and Carina. 2008. Faktor-Faktor yang Mempengaruhi Praktik Perataan Laba
pada Perusahaan Manufaktur dan Lembaga Keuangan Lainnya yang Terdaftar di BEJ.
Jurnal Akuntansi 12 (2): 117-131.
Febrianto, R. 2005. The Effect of Ownership Concentration on the Earnings Quality:
Evidence from Indonesian Companies. Jurnal Riset Akuntansi Indonesia 8 (2): 105-
120.
Gumanti, T. A. 2001. Earnings Management dalam Penawaran Saham Perdana di BEJ.
Jurnal Riset Akuntansi Indonesia 4 (2): 165-183.
Handajani, L., Sutrisno, and G. Chandrarin. 2009. The Effect of Earnings Management and
Corporate Governance Mechanism on Corporate Social Responsibility Disclosure: An
Empirical Study at Public Companies in Indonesia Stock Exchange. Jurnal Riset
Akuntansi Indonesia 12 (3): 233-248.
Herusetya, A. 2009.Efektifitas Pelaksanaan Corporate Governance dan Audit Eksternal-
Auditor dengan Spesialisasi Industry dalam Menghambat Manajemen Laba. Jurnal
Akuntansi dan Auditing Indonesia 13 (2): 167-188.
Joni, and J. Hartono.2009. Hubungan Manajemen Laba Sebelum IPO dan Return Saham
dengan Kecerdasan Investor sebagai Variabel Pemoderasi. Jurnal Riset Akuntansi
Indonesia 12 (1): 53-70.
Juniar, A., C. Meiden, and T. J. R. Sitinjak. 2006. Perbandingan Reaksi Pasar Perusahaan
Perata dan Non-Perata Laba pada Perusahaan Manufaktur di BEJ. Akuntabilitas 6 (2):
105-113.
Kuntanto. 2003. Pengaruh Profitabilitas dan Ukuran Perataan Laba pada Perusahaan
Manufaktur dan Lembaga Keuangan yang Terdaftar di BEJ. Akuntabilitas 3 (1): 32-
45.
Kustono, A. S. 2008. Motivasi Perataan Penghasilan. Jurnal Riset Akuntansi Indonesia 11
(2): 133-157.
Kusuma, H., and W. A. U. Sari. 2003. Manajemen Laba oleh Perusahaan Pengakusisi
Sebelum Merger dan Akusisi di Indonesia. Jurnal Akuntansi dan Auditing Indonesia 7
(1): 21-36.
Mayangsari, S., and Wilopo. 2002. Konservatisma Akuntansi, Value Relevance dan
Discretionary Accruals: Implikasi Empiris Model Feltham-Ohlson (1996). Jurnal
Riset Akuntansi Indonesia 5 (3): 291-310.
Nazir, F., and E. Herwiyanti. 2009. Pengaruh Mekanisme Corporate Governance, Investment
Opportunity Set (IOS), dan Kualitas Auditor terhadap Earnings Management danNilai
Perusahaan. Jurnal Akuntansi 13 (3): 309-319.
Suhardianto, Harymawan, A Decade Of Earnings Management Researches In Indonesia 118
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