Corporate Governance and Profit Management

Oct 13, 2025 by talynt.org 42 views

Analysis of the Effect of Corporate Governance, Leverage, and Audit Quality on Profit Management with Corporate Size as Moderating Variables in Consumer Goods Companies Listed on the Indonesia Stock Exchange

Introduction

The Indonesia Stock Exchange (IDX) is one of the largest stock exchanges in Southeast Asia, with a wide range of companies listed across various sectors. Among these sectors, the consumer goods sector is a significant contributor to the country's economy. However, the sector is also known for its high level of earnings management practices, which can have a negative impact on investors and other stakeholders. This study aims to analyze the effect of corporate governance, leverage, and audit quality on profit management in consumer goods companies listed on the IDX, with corporate size as a moderating variable.

Methodology

This study uses a causal associative method, with a census technique that includes all 14 companies from the existing population, producing a total of 98 observations. Data is collected through documentation methods and analyzed using panel data regression analysis. The study focuses on the following variables:

Corporate governance: institutional ownership, size of the Board of Commissioners, composition of the Board of Commissioners, and audit quality
Leverage: debt-to-equity ratio
Audit quality: quality of audit reports
Profit management: earnings management practices
Corporate size: size of the company

Results

The results of this study show that overall, corporate governance, leverage, and audit quality have a significant influence on earnings management. However, when analyzed separately, only the size of the Board of Commissioners and leverage showed a positive and significant influence on earnings management. Institutional ownership, composition of the Board of Commissioners, and audit quality did not show a significant effect.

One interesting finding is that the company size can moderate the relationship between corporate governance and earnings management. This means that the size of the company can affect how much influence corporate governance, leverage, and audit quality have on earnings management.

Deeper Analysis

Corporate Governance and Profit Management

Corporate governance is an essential aspect in company management, especially in maintaining transparency and accountability. Institutional ownership can increase supervision of management, but the results show that their effect on earnings management is not significant. This can be caused by the level of compliance with the practice of corporate governance, which is still low or perhaps the conflict of interest between institutional and management shareholders.

Meanwhile, the size of the Board of Commissioners and the structure of the Independent Board of Commissioners have a significant effect on earnings management. A larger council with adequate independent members tends to be more effective in overseeing and evaluating management performance, thus minimizing earnings management practices that harm shareholders.

Leverage and Audit Quality

Leverage functions as a signal for investors regarding risks and potential profits that can be obtained by the company. In this study, leverage was found to have a positive and significant influence on earnings management. This shows that companies with higher debt rates tend to make earnings management to meet the expectations of shareholders and creditors.

Audit quality also has an important role in controlling the practice of earnings management. Although in this study the audit quality does not show a significant effect, it is essential to record that quality audits can prevent manipulation of financial statements.

The Role of Company Size

The size of the company as a moderation variable shows that this factor can affect how corporate governance and other factors have an impact on earnings management. Larger companies usually have more resources and better supervision than small companies, so they are better able to apply good corporate governance practices. Thus, company size is a key factor in determining the extent to which corporate governance can affect earnings management.

Conclusion

This study provides important insights for investors and other stakeholders regarding the importance of corporate governance, leverage, and audit quality in earnings management practices. The results of this study show the need for companies, especially in the consumer goods sector, to improve the practice of corporate governance and pay attention to the structure of the board of commissioners in order to reduce the possibility of earnings management. In addition, company size also needs to be considered as a moderation factor that can affect the effectiveness of corporate governance in managing earnings.

Recommendations

Based on the findings of this study, the following recommendations are made:

Companies in the consumer goods sector should improve their corporate governance practices, including increasing institutional ownership, size of the Board of Commissioners, and composition of the Board of Commissioners.
Companies should pay attention to the structure of the board of commissioners, including the number of independent members, to ensure effective oversight and evaluation of management performance.
Companies should consider the size of the company as a moderation factor that can affect the effectiveness of corporate governance in managing earnings.
Investors and other stakeholders should consider the size of the company when evaluating the effectiveness of corporate governance in managing earnings.

Limitations

This study has several limitations, including:

The study only focuses on consumer goods companies listed on the IDX, which may not be representative of all companies in the sector.
The study uses a census technique, which may not be representative of all companies in the sector.
The study only analyzes the effect of corporate governance, leverage, and audit quality on earnings management, and does not consider other factors that may affect earnings management.

Future Research Directions

Future research should consider the following directions:

Analyzing the effect of corporate governance, leverage, and audit quality on earnings management in other sectors, such as manufacturing and services.
Considering other factors that may affect earnings management, such as industry characteristics and macroeconomic conditions.
Analyzing the effect of corporate governance, leverage, and audit quality on earnings management in emerging markets, such as Indonesia.

Conclusion

In conclusion, this study provides important insights for investors and other stakeholders regarding the importance of corporate governance, leverage, and audit quality in earnings management practices. The results of this study show the need for companies, especially in the consumer goods sector, to improve the practice of corporate governance and pay attention to the structure of the board of commissioners in order to reduce the possibility of earnings management. In addition, company size also needs to be considered as a moderation factor that can affect the effectiveness of corporate governance in managing earnings.
Q&A: Analysis of the Effect of Corporate Governance, Leverage, and Audit Quality on Profit Management with Corporate Size as Moderating Variables in Consumer Goods Companies Listed on the Indonesia Stock Exchange

Introduction

In our previous article, we discussed the analysis of the effect of corporate governance, leverage, and audit quality on profit management in consumer goods companies listed on the Indonesia Stock Exchange, with corporate size as a moderating variable. In this article, we will answer some of the most frequently asked questions related to this topic.

Q: What is the significance of corporate governance in consumer goods companies?

A: Corporate governance is an essential aspect in company management, especially in maintaining transparency and accountability. It includes institutional ownership, size of the Board of Commissioners, composition of the Board of Commissioners, and audit quality. Good corporate governance practices can help companies to reduce the possibility of earnings management and increase investor confidence.

Q: How does leverage affect earnings management in consumer goods companies?

A: Leverage functions as a signal for investors regarding risks and potential profits that can be obtained by the company. In this study, leverage was found to have a positive and significant influence on earnings management. This shows that companies with higher debt rates tend to make earnings management to meet the expectations of shareholders and creditors.

Q: What is the role of audit quality in controlling earnings management practices?

A: Audit quality has an important role in controlling the practice of earnings management. Although in this study the audit quality does not show a significant effect, it is essential to record that quality audits can prevent manipulation of financial statements.

Q: How does company size affect the effectiveness of corporate governance in managing earnings?

A: The size of the company as a moderation variable shows that this factor can affect how corporate governance and other factors have an impact on earnings management. Larger companies usually have more resources and better supervision than small companies, so they are better able to apply good corporate governance practices.

Q: What are the implications of this study for investors and other stakeholders?

A: The results of this study show the need for companies, especially in the consumer goods sector, to improve the practice of corporate governance and pay attention to the structure of the board of commissioners in order to reduce the possibility of earnings management. In addition, company size also needs to be considered as a moderation factor that can affect the effectiveness of corporate governance in managing earnings.

Q: What are the limitations of this study?

A: This study has several limitations, including:

The study only focuses on consumer goods companies listed on the IDX, which may not be representative of all companies in the sector.
The study uses a census technique, which may not be representative of all companies in the sector.
The study only analyzes the effect of corporate governance, leverage, and audit quality on earnings management, and does not consider other factors that may affect earnings management.

Q: What are the future research directions?

A: Future research should consider the following directions:

Analyzing the effect of corporate governance, leverage, and audit quality on earnings management in other sectors, such as manufacturing and services.
Considering other factors that may affect earnings management, such as industry characteristics and macroeconomic conditions.
Analyzing the effect of corporate governance, leverage, and audit quality on earnings management in emerging markets, such as Indonesia.

Conclusion

In conclusion, this Q&A article provides additional insights into the analysis of the effect of corporate governance, leverage, and audit quality on profit management in consumer goods companies listed on the Indonesia Stock Exchange, with corporate size as a moderating variable. We hope that this article will be helpful for investors and other stakeholders who are interested in understanding the importance of corporate governance, leverage, and audit quality in earnings management practices.