Title:
POLITICAL CONNECTION AND EARNINGS MANAGEMENT: EVIDENCE FROM INDONESIA

Authors:
Dyah Hapsari Rahmaningtyas, Deddy Permana, Ari Kuncara Widagdo, Wahyu Widarjo, Indonesia

Abstract:

The objective of the study is to examine the influence of ownership concentration and earnings management practice. This study also analyzes type ownership concentration (state-owned enterprises vs. privates) on earnings management practice.  This study employs some control variables, such as corporate governance, political relations, sales, and leverage. This study's samples consist of listing companies (state-owned enterprises and private companies) in the Indonesia Stock Exchange from 2006-2014. The sampling technique is purposive sampling producing 232 listing companies consisting of 116  state-owned enterprises and 116 private companies. Data of this study is secondary data collected from annual reports. This study uses multiple regression analysis to examine the effect of ownership concentration on earnings management practice. The results show that the level of concentration of ownership has a positive and significant impact on Indonesia's earnings management practices. Besides, the type of relationship is inverted U-shaped. In contrast, the type of ownership does not significantly mediate the relationship between the concentration of ownership and earnings management. In terms of the control variables, only sales have a positive and significant association with earnings management.