The Type I Versus Type II Agency Conflict on Earnings Management

Yavida Nurim, Sunardi Sunardi, Rini Raharti

Abstract

Tis study aims to detect the background of earnings management behavior in which it shows the tendency of type I or II agency conflict. The high ownership concentration of firms in In-donesia leads type II agency conflict, but the good corporate governance formulation assumes conflict between management and shareholders. This study uses published data in IDX from 2009–2014. TThe result reveals that reputation quality has negative significant correlation to earnings management behaviors, but corporate governance quality has insignificant correlation to earnings management, except percentage of independent commissioner board in moder-ate level. It has implication that management faces type II agency conflict. The majority may monitor management directly, so the finding reveals that independent commissioner board’s function is not optimum as part of corporate governance mechanism. According to the evi-dence, corporate governance formulation, especially in Indonesia, should be needed for reduc-ing earnings management on type II tendency.

Keywords

orporate Governance; Earnings Management; Ownership Concen-tration; Reputation Quality; Type I and II Agency Conflict.

Full Text:

PDF

References

Aguilera, R. V & Crespi-Cladera, R. 2016. Global

corporate governance: On the relevance of

firms’ ownership structure. Journal of World

Business. 51 (1): 50-57.

Bar-Yosef, S & Prencipe, A. 2013. The Impact of

Corporate Governance and Earnings Management

on Stock Market Liquidity in a

Highly Concentrated Ownership Capital

Market. Journal of Accounting, Auditing & Finance.

(3): 293-316.

Bell, T. B., Causholli, M & Knechel, W. R. 2015. Audit

Firm Tenure, Non-Audit Services, and Internal

Assessments of Audit Quality. Journal

of Accounting Research. 53 (3): 461-509.

Busirin, M. F., Azmi, N. A & Zakaria, N. B. 2015.

How Effective is Board Independence to the

Monitoring of Earnings Manipulation?. Procedia

Economics and Finance. 31: 462-469.

Cheng, Q., Lee, J & Shevlin, T. 2016. Internal Governance

and Real Earnings Management. The

Accounting Review. 91 (4): 1051-1085.

Chen, J. J & Zhang, H. 2014. The Impact of the Corporate

Governance Code on Earnings Management

- Evidence from Chinese Listed

Companies. European Financial Management.

(3): 596-632.

Dainelli, F., Bini, L & Giunta, F., 2013. Signaling

strategies in annual reports: Evidence from

the disclosure of performance indicators. Advances

in Accounting. 29 (2): 267-277.

Darrat, A. F., Gray, S., Park, J. C & Wu, Y. 2014.

Corporate Governance and Bankruptcy Risk.

Journal of Accounting, Auditing & Finance.

(2): 163-202.

Fama, E. F & Jensen, M. C. 1983. Separation of

Ownership and Control. Journal of Law and

Economics. 26 (2): 301-325.

Hamid, M. A., Ting, I. W. K & Kweh, Q. L. 2016.

The Relationship between Corporate GoverJurnal

Dinamika Manajemen, 8 (1) 2017, 44-58

nance and Expropriation of Minority Shareholders’

Interests. Procedia Economics and

Finance. 35: 99-106.

Haw, I.-M., Ho, S. S. M & Li, A. Y. 2011. Corporate

Governance and Earnings Management by

Classification Shifting. Contemporary Accounting

Research. 28 (2): 517-553.

Ismail, N. I., Zakaria, N. B & Sata, F. H. A. 2015. Auditors

Roles Towards the Practice of Earnings

Manipulation among the Malaysian Public

Firms. Procedia Economics and Finance. 28:

-150.

Jensen, M. C & Meckling, W. H. 1976. Theory of

The Firm: Managerial Behavior, Agency

Costs and Ownership Structure. Journal of

Financial Economics. 3 (4): 305-360.

Kamalluarifin, W. F. S. W. 2016. The Influence of

Corporate Governance and Firm Characteristics

on the Timeliness of Corporate Internet

Reporting By Top 95 Companies in

Malaysia. Procedia Economics and Finance.

: 156-165.

Lafond, R & Roychowdhury, S. 2008. Managerial

Ownership and Accounting Conservatism.

Journal of Accounting Research. 46 (1): 101-135.

Liang, D., Lu, C. C., Tsai, C. F & Shih, G. A. 2016.

Financial ratios and corporate governance

indicators in bankruptcy prediction: A comprehensive

Study. European Journal of Operational

Research. 252 (2): 561-572.

Lim, H., Kang, S. K & Kim, H. 2016. Auditor Quality,

IFRS Adoption, and Stock Price Crash

Risk: Korean Evidence. Emerging Markets Finance

and Trade. 52 (9): 2100-2114.

Listyaningsih, E. & Krishnamurti, C. 2015. How

Performance of Jakarta Islamic Index (JII)

Stocks Relative to Other Stocks. Jurnal Dinamika

Manajemen. 6 (2): 145-164.

Madhani, P. M. 2016. The Impact of Legal and Regulatory

Environment: A Study of Corporate

Governance and Disclosure Practices of Firm

Listed on Bombay Stock Exchange. The IUP

Journal of Corporate Governnace. 15 (2): 7-36.

Manzaneque, M., Priego, A. M & Merino, E. 2016.

Corporate governance effect on financial distress

likelihood: Evidence from Spain. Revista

de Contabilidad. 19 (1): 111-121.

Noor, N. F.M., Sanusia, Z. M., Heang, L. T., Iskandar,

T. M & Isa, Y. M. 2015. Fraud Motives

and Opportunities Factors on Earnings Manipulations.

Procedia Economics and Finance.

: 126-135.

Nisasmara, P. W & Musdholifah. 2016. Cash Holding,

Good Corporate Governnace and Firm

Value. Jurnal Dinamika Manajemen. 7(2):

-131.

Persakis, A & Iatridis, G. E. 2016. Audit quality,

Investor Protection and Earnings Management

During The Financial Crisis of 2008:

An International Perspective. Journal of International

Financial Markets, Institutions and

Money. 4: 73-101.

Rose, C. 2016. Firm performance and comply or explain

disclosure in corporate governance. European

Management Journal. 34 (3): 202-222.

Rostami, S., Rostami, Z & Kohansal, S. 2016. The

Effect of Corporate Governance Components

on Return on Assets and Stock Return

of Companies Listed in Tehran Stock Exchange.

Procedia Economics and Finance. 36:

-146.

Schipper, K. 1989. Commentary on Earnings Management.

Accounting Horizon, Volume December.

: 91-102.

González, N. U & Muñoz, F. J.C. 2016. Do investors

react to corporate governance news? An empirical

analysis for the Spanish market. BRQ

Business Research Quartely. 19 (1): 13-25.

Xie, B., Davidson III, W. N & Dadalt, P. J. 2003.

Earnings Management and Corporate Governance:

The Role of Board and The Audit

Committee. Journal of Corporate Finance. 9

(3): 295 - 316.

Zabri, S. M., Ahmad, K & Wah, K. K. 2016. Corporate

Governance Practices and Firm Performance:

Evidence from Top 100 Public Listed

Companies in Malaysia. Procedia Economics

and Finance. 35: 287-296.

Zgarni, I., Halioui, K & Zehri, F. 2014. Do The

Characteristics of Board of Directors Constrain

Real Earnings Management in Emerging

Markets? Evidence from The Tunisian

Context. The IUP Journal of Accounting Research

& Audit Practices. 8 (1): 46 - 61.


View Counter: Abstract - 2193 and PDF - 1148

Refbacks

  • There are currently no refbacks.