The Influence of Good Corporate Governance Mechanism on Earnings Management with Corporate Social Responsibility as a Moderation Variable in Manufacturing Companies in the Indonesia Stock Exchange
Introduction
Good Corporate Governance (GCG) is a crucial aspect of company management, as it aims to increase transparency and accountability in financial reporting. One of the expected impacts of GCG is controlling earnings management, which refers to the actions of company management in manipulating financial statements to create a more positive picture of company performance. However, the effectiveness of GCG in controlling earnings management is still a topic of debate among researchers and practitioners. This study aims to examine the effect of the GCG mechanism on earnings management, with Corporate Social Responsibility (CSR) as a moderation variable, in manufacturing companies listed on the Indonesia Stock Exchange (IDX) during the 2018-2022 period.
Background
The application of GCG is expected to increase transparency and accountability in company management. One of the expected impacts of the application of GCG is controlling earnings management. Profit management refers to the actions of company management in manipulating financial statements to create a more positive picture of company performance. On the other hand, Corporate Social Responsibility functions as a guideline that directs companies to be responsible for the social and environmental impacts of their operations.
Research Methodology
This study uses a quantitative approach with the causal method. Data was collected from the annual report of 26 companies registered in the BEI Food and Beverage Subsector. The sampling technique used is a saturated sampling technique (census), where the entire population becomes samples. Data analysis was carried out using panel regression techniques and moderation regression analysis to see the effect of the variables studied.
Research Result
The results showed that:
Independent Commissioners : does not have a significant effect on earnings management. This shows that although there is an independent commissioner, they do not play an effective role in controlling the practice of earnings management.
Audit Committee : also does not have a significant impact on earnings management. This is an important highlight for companies to increase the active role of the Audit Committee in financial supervision.
Institutional Ownership : turns out to have a negative and significant influence on earnings management. This shows that the higher the institutional ownership, the lower the company's tendency to carry out earnings management, possibly due to pressure from institutional shareholders to maintain transparency.
Managerial Ownership : does not have a significant effect on earnings management. This shows that managerial ownership is not always directly proportional to better profit management.
Corporate Social Responsibility : Cannot moderate the effect of independent commissioners on earnings management. This indicates that even though the company carries out social responsibility, it is not enough to compensate for the weaknesses in the supervision of the independent commissioners.
Additional Analysis and Explanation
This research highlights the importance of the role of GCG in company management. However, the results showing that the Independent Commissioners and Audit Committee had no effect on earnings management indicating that only applying GCG structures was not enough. Companies need to evaluate the effectiveness of the existing GCG mechanism.
In addition, the positive impact of the Institutional Ownership shows that institutional owners can function as supervisors who encourage transparency and accountability. Therefore, companies need to consider increasing institutional ownership to reduce earnings management practices.
From the CSR aspect, although it is expected to strengthen the practice of good corporate governance, the results of the study show that the implementation of CSR needs to be better integrated in GCG policies to produce a more significant impact on earnings management practices.
Conclusion
Overall, this study provides in-depth insight into the relationship between the mechanism of good corporate governance and earnings management, as well as the role of corporate social responsibility. These findings are a guide for companies, especially in the food and beverage sub-sector, to improve the practice of GCG and CSR to achieve better transparency and reduce earnings management.
Recommendations
Based on the findings of this study, the following recommendations are made:
Companies need to evaluate the effectiveness of the existing GCG mechanism : Companies need to assess the effectiveness of their GCG mechanism and make necessary improvements to ensure that it is functioning properly.
Increase institutional ownership : Companies need to consider increasing institutional ownership to reduce earnings management practices.
Better integration of CSR in GCG policies : Companies need to better integrate CSR in their GCG policies to produce a more significant impact on earnings management practices.
Active role of the Audit Committee : Companies need to increase the active role of the Audit Committee in financial supervision to ensure that earnings management practices are controlled.
Training and development for independent commissioners : Companies need to provide training and development for independent commissioners to ensure that they are equipped with the necessary skills and knowledge to perform their duties effectively.
Limitations of the Study
This study has several limitations that need to be acknowledged. Firstly, the study only focuses on manufacturing companies listed on the IDX, which may not be representative of all companies in the food and beverage sub-sector. Secondly, the study only examines the effect of GCG on earnings management, and does not consider other factors that may influence earnings management practices. Finally, the study only uses a quantitative approach, which may not capture the nuances of earnings management practices.
Future Research Directions
This study provides several avenues for future research. Firstly, future studies can examine the effect of GCG on earnings management in other industries or sectors. Secondly, future studies can consider other factors that may influence earnings management practices, such as company size, industry, and market conditions. Finally, future studies can use a mixed-methods approach to capture the nuances of earnings management practices.
Conclusion
In conclusion, this study provides in-depth insight into the relationship between the mechanism of good corporate governance and earnings management, as well as the role of corporate social responsibility. The findings of this study highlight the importance of the role of GCG in company management and provide recommendations for companies to improve the practice of GCG and CSR to achieve better transparency and reduce earnings management practices.Frequently Asked Questions (FAQs) about the Influence of Good Corporate Governance Mechanism on Earnings Management with Corporate Social Responsibility as a Moderation Variable
Q: What is Good Corporate Governance (GCG)?
A: Good Corporate Governance (GCG) refers to the practices and procedures that a company follows to ensure that it is managed in a fair, transparent, and accountable manner. GCG is essential for companies to maintain the trust of their stakeholders, including shareholders, customers, employees, and the wider community.
Q: What is Earnings Management?
A: Earnings management refers to the actions of company management in manipulating financial statements to create a more positive picture of company performance. This can include practices such as revenue recognition, expense recognition, and asset valuation.
Q: What is Corporate Social Responsibility (CSR)?
A: Corporate Social Responsibility (CSR) refers to the voluntary actions that a company takes to benefit society and the environment. CSR can include practices such as philanthropy, community development, and environmental sustainability.
Q: How does GCG influence earnings management?
A: GCG can influence earnings management by providing a framework for company management to make decisions that are in the best interests of the company and its stakeholders. GCG can also provide a mechanism for monitoring and controlling earnings management practices.
Q: What is the role of independent commissioners in GCG?
A: Independent commissioners play a crucial role in GCG by providing an objective perspective on company management and ensuring that earnings management practices are controlled. However, the results of this study show that independent commissioners do not have a significant effect on earnings management.
Q: What is the role of institutional ownership in GCG?
A: Institutional ownership plays a significant role in GCG by providing a mechanism for monitoring and controlling earnings management practices. The results of this study show that institutional ownership has a negative and significant influence on earnings management.
Q: How can companies improve their GCG mechanism?
A: Companies can improve their GCG mechanism by evaluating the effectiveness of their existing GCG mechanism, increasing institutional ownership, and better integrating CSR in their GCG policies. Companies can also provide training and development for independent commissioners to ensure that they are equipped with the necessary skills and knowledge to perform their duties effectively.
Q: What are the limitations of this study?
A: This study has several limitations that need to be acknowledged. Firstly, the study only focuses on manufacturing companies listed on the IDX, which may not be representative of all companies in the food and beverage sub-sector. Secondly, the study only examines the effect of GCG on earnings management, and does not consider other factors that may influence earnings management practices. Finally, the study only uses a quantitative approach, which may not capture the nuances of earnings management practices.
Q: What are the implications of this study for companies?
A: The findings of this study have several implications for companies. Firstly, companies need to evaluate the effectiveness of their existing GCG mechanism and make necessary improvements to ensure that it is functioning properly. Secondly, companies need to consider increasing institutional ownership to reduce earnings management practices. Finally, companies need to better integrate CSR in their GCG policies to produce a more significant impact on earnings management practices.
Q: What are the implications of this study for regulators?
A: The findings of this study have several implications for regulators. Firstly, regulators need to ensure that companies are implementing effective GCG mechanisms to control earnings management practices. Secondly, regulators need to consider increasing institutional ownership to reduce earnings management practices. Finally, regulators need to provide guidance and support to companies to help them implement effective GCG mechanisms.
Q: What are the implications of this study for researchers?
A: The findings of this study have several implications for researchers. Firstly, researchers need to continue to study the relationship between GCG and earnings management to gain a deeper understanding of the complex issues involved. Secondly, researchers need to consider other factors that may influence earnings management practices, such as company size, industry, and market conditions. Finally, researchers need to use a mixed-methods approach to capture the nuances of earnings management practices.