Widanarni Pudjiastuti

STIE Malangkuçeçwara Malang

Aida Ainul Mardiyah

STIE Malangkuçeçwara Malang


This research objective is to examine empirically the influence of earnings management on earnings quality. The analysis units were 459 (153×3) manufacturing companies listed in the Jakarta Stock Exchange, started from the year 2002 up to 2004. Data used were archival ones. Sample selection was based on purposive sampling. Statistical method used to test the hypotheses was multiple regressions.

The result of the research showed that: the influence of earnings management on earnings quality was 47.56%. It means that higher earnings management will be followed by higher earnings quality. Earnings management supports earnings responsive coefficient (ERC) that revealed on the fluctuation of market response as the symbol of market assurance towards financial statement especially on the earnings. The financial statement users assume that the reported earnings show managerial performance, through its responsive strength. The weak influence of earnings management on earnings quality means that the earnings management can not be detected by users, so that market will not give over response. It indicated that there is still chance for management to do the earnings management in the border of Standar Akuntansi Keuangan. Result of this study supported the results of Cho and Jung (1991), Subramanyam (1996), Pae (1999), Sankar (1999), Feltham and Pae (2000), Nelson et al. (2000), Scott (2000), Lobo and Zhou (2001), also Teixeira (2002).

Keywords: Earnings Management, Earnings Quality, Earnings Response Coefficient (ERC), and CAR.

Simposium Nasiona Akuntansi 9 Padang


A. Background Of The Study

In an ideal condition, capital market is a media to support the mechanism of fair stock transactions but in reality this condition is difficult to gain because of the interest conflict and because of intransparancy of company’s financial statement. Leuz and Winsock (2003) had done international comparative study on earnings management and investor protection with 31 countries (including Indonesia) as samples that covered 1990 up to 1999-study period. Objective of the study was, to give empirical evidence that there were differences of earnings management in various countries because of the difference in investor protection. Based on average score of earnings management, Indonesia was on the 15th level among 31 countries that means that Indonesia was in the middle level. At the lowest level of earnings management was United States. If it is compared to other ASEAN countries that were chosen as samples: Malaysia, Philippines, and Thailand, it seems that Indonesia got the highest earnings management score. For legal enforcement score, Indonesia got point 2.9 as the lowest score, means that legal enforcement in Indonesia was very weak and this will give influence to the low investor protection level.

Bagnoli and Watts (2000) told that an earnings management practice is done in many companies because other companies do so. It means that, competitor’s performance was one factor that supports earnings management practice because investors and creditors will compare among companies to get one company with good (favorable) rating.

Jurnal Simposium Nasiona Akuntansi 9 Padang

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