The Effect of Profit Management On Company Performance: Widarti, Subiyanto, Jamilah Pramajaya

The Effect Of Profit Management On Company Performance
Widarti, Subiyanto, Jamilah Pramajaya

To Link this Article: http://dx.doi.org/10.6007/IJAREMS/v7-i4/4831 DOI: 10.6007/IJAREMS/v7-i4/4831
Received: 02 Sep 2018, Revised: 21 Oct 2018, Accepted: 23 Oct 2018
Published Online: 14 Nov 2018
In-Text Citation: (Widarti, Subiyanto, & Pramajaya, 2018)

To Cite this Article: Widarti, Subiyanto, & Pramajaya, J. (2018). The Effect Of Profit Management On Company
Performance. International Journal of Academic Research in Economics and Management Sciences, 7(4), 44–
63.
Copyright: © 2018 The Author(s)

Published by Human Resource Management Academic Research Society (www.hrmars.com)
This article is published under the Creative Commons Attribution (CC BY 4.0) license. Anyone may reproduce, distribute,
translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full
attribution to the original publication and authors. The full terms of this license may be seen
at: http://creativecommons.org/licences/by/4.0/legalcode
Vol. 7, No. 4, October 2018, Pg. 44 - 63

http://hrmars.com/index.php/pages/detail/IJAREMS JOURNAL HOMEPAGE
Full Terms & Conditions of access and use can be found at

http://hrmars.com/index.php/pages/detail/publication-ethics
International Journal of Academic Research economics and management sciences
Vol. 7 , No. 4, October 2018, E-ISSN: 2 2 2 6 -3624 © 2018 HRMARS
The Effect Of Profit Management On Company

Performance
1Widarti, 2Subiyanto, 3Jamilah Pramajaya
Lecturer, Department of Management for Tamansiswa University, Palembang - South Sumatra
- Indonesia
Abstract: The purpose of this study is to determine earnings management that affects financial
performance. Financial reporting provides corporate financial information that is useful for a
number of users of the report in economic decision making. The main focus of users of financial
reporting is information about the company's performance as measured by profit and its
components. So that the financial statements have a very important meaning because it is a form
of accountability in carrying out its activities during a performance-based budget year. The
company's reported profit contains unclear or unparalleled observable accounting earnings and
unobservable economic profits, called earnings opacity. The company's reported earnings may
become unclear due to complex interactions between, at least three factors, namely managerial
motivation, accounting standards, and the implementation of accounting standards. Reporting
higher profits and hiding unfavorable profit realization (losses) that can trigger mixed the other
hand. Furthermore, it was found that financial reporting could change due to management
earnings.
Keywords: Profit Management, Financial Reporting.
Inroduction
The development of the capital market has been able to contribute substantially to the
development of the national economy. These developments indicate that many public
companies can increase their capital by issuing valuable securities to the public. Through the
capital market, available funds can be dialoxic to those who are most productive in using these
resources. To realize the optimal allocation of resources in the capital market, companies must
provide transparent information to the public and be useful in economic decision making.
Financial reports provide company financial information that is useful for a number of users of
the report in making economic decisions (SAK, 2017). The main focus of users of financial
statements is information about company performance as measured by profit and its
components (FASB 1978, SFAC No.1, para. 43). Investors and creditors as users of financial
statements use past earnings information to help assess the company's prospects. Although
investment and credit decisions reflect the expectations of investors and creditors about the
45
company's performance in the future, these expectations are usually based at least in part on
evaluating the company's financial performance in the past. Bhattacharya, Daouk and Welker
(2003), stated that the firm's reported profit contains unclear or unparalleled observable
accounting earnings and unobservable economic profit, called earnings opacity. The company's
reported profit may become unclear due to complex interactions between, at least three factors,
namely managerial motivation, accounting standards, and the implementation of accounting
standards. Managers have an incentive to manage corporate earnings reports using accrual
policies that are permitted by accounting standards with the aim of covering the actual
performance of the company, for example reporting higher profits and hiding unfavorable profit
realization (losses) that can trigger another party's interference.
Accrual accounting aims to assist users of a company's financial statements in assessing
economic performance for a period through the use of accounting principles, such as the use of
accounting for recognition of income and expenses. However, accrual accounting is often used
by managers to increase or decrease reported earnings for personal gain so that the earnings
report does not reflect the actual situation and can mislead the report users. Healy and Wahlen
(1999, p. 92) define earnings management as a consideration used by managers in preparing
transactions and financial reporting of companies to change financial statements with the aim of
misleading interested parties about the company's economic performance or to influence the
outcome of the contract. which is based on the accounting figures reported. Leuz, Nanda and
Wysocki (2003) state that the practice of earnings management in a country depends on the size
of the capital market, the spread of share ownership, the strength or weakness of the rights of
investors, and legal enforcement. Large capital, diffuse ownership, strong investor rights, and
strong legal enforcement. In the investment community in the United States there is great
concern for earnings management practices that have eroded public trust and disrupted efficient
capital flows in the capital market. The community states that managers misuse the flexibility
provided by the generally accepted accounting principles (GAAP) and intentionally change the
contents of information in financial statements that can mislead report users (Wooten, 2003).
Arthur Levit, chairman of the Securities Exchange Commission (SEC), in a speech in
September 1998 on "the Numbers Game" stated that the SEC was concerned and gave full
attention to earnings management practices and its negative influence on earnings quality and
financial reporting (Levitt, 1998). The concern of the chairman of the American capital market
commission and the investment community for the practice of earnings management has
triggered many researchers to be able to provide empirical evidence for the practice of earnings
management throughout the world. The findings of the Bhattacharya, Daouk and Welker (2003)
research on the practice of earnings management throughout the world show countries in Asia
including Indonesia have a high level of earnings management. Forms of earnings management
are highlighted in the form of: 1) aggressive earnings reporting (earnings aggressiveness), namely
by delaying the recognition of current burdens and losses and or accelerating recognition of
future income and profits (Bhattacharya, et al. 2003), 2) avoiding reporting loss (loss avoidance),
namely by avoiding negative earnings reporting, increasing earnings reporting, and meeting
analysts' profit forecasts (Leuz, et al. 2003), 3) earning smoothing, namely the use of accounting
policies to hide top economic surprises operating cash flow. For example, accelerating the
recognition of future income to conceal bad current performance, so that reported earnings do
not reflect actual performance (Leuz, et al. 2003, p.510).
46
Earnings management is inappropriate, and abuse such as earnings management occurs

when people take advantage of the flexibility inherent in GAAP implementation with the aim of
obscuring actual financial volatility, and in turn will hide the true consequences of management
decisions (Levitt, 1998, p. 16). Managers misuse the flexibility provided by accounting principles
and intentionally change the contents of information in financial statements for personal gain
that misleads report users. The opportunistic manager behavior can occur due to the weak
control mechanism of the company. The cases of financial reporting violations by public
companies handled by Bapepam mostly involve violations of the principles of accurate and
transparent expression, this will be very detrimental to users of financial statements, especially
investors, because the information published by the company containing errors has become the
basis of the decision investation. When the published information error is announced, the stock
price falls and the investor loses.
Many parties (regulators, investors, and researchers) realize that the weakness of
corporate governance is the cause of fraud by management. Several studies, including Yeo, et al.
(2002), Matsumoto (2002) and Balatbat, et al. (2004) have tried to explain how corporate
governance factors as a corporate control mechanism influence manager behavior with decisions
that benefit themselves and ultimately affect investor confidence. Bapepam as a capital market
authority has required public companies to implement good corporate governance, where one
of the characteristics of good corporate governance is the existence of an independent
commissioner. The formation of independent commissioners is motivated in part by the desire
to protect minority shareholders, where in general they are investors who suffer losses due to
actions taken by the board of directors or commissioners under the control of the majority
shareholder (Tjager, et al. 2003 ).
Independence of the board of directors is a condition that is important for effective
corporate governance. The effectiveness of the board of commissioners in monitoring
management activities depends on a composition between the board of the internal party and
the board of outside parties who are members of the board of commissioners. The independence
of the board of directors will be doubted if the composition of the board of commissioners has
more executive boards, because how can it be independent if the executive board as
management is also a supervisor (Kim and Nofsinger, 2004). The annual report of companies
listed on the JSX shows that the company has an average board of commissioners of three or four
people, this number includes independent commissioners. A good size of the board of
commissioners must be sufficient to have an audit committee, compensation committee and
other committees that assist the board's duties in overseeing the company. However, if the
number of boards is too much, it will be long-winded, less active and reduce the productivity of
the discussion in a short board meeting (Salmon, 2000, p.6).
Xie, et al. (2003) show that large board sizes can monitor management activities in the
financial reporting process more effectively than smaller board sizes. Other research, Yermark
(1996), Eisenberg, et. al. (1998) and Uzun, et al. (2004) found opposite results, stating that the
size of a large commissioner was considered less effective in carrying out its function because of
difficulties in communication, coordination, and decision making. The results of his study
concluded that smaller board sizes would more effectively monitor management actions
compared to larger board sizes. In addition to the formation of independent commissioners,
public companies are also required to form an audit committee that assists the supervisory
47
function of the commissioner. Regulators recognize that internal monitoring committees, namely
the audit committee, play an important role in corporate monitoring and governance (Colley, et
al. 2003). The Sarbanes-Oxley Act 2002 is a law that is seen as a major reform in America,
requiring public companies to make an independent audit committee from its board of directors.
Likewise, regulation in Indonesia requires all companies listed on the Jakarta Stock Exchange to
have an audit committee (among others in Bapepam Circular No.SE-031PM / 2000, Kep. No.
41.PM/2003, Kep. No. 45 / PM / 2004, and PT BEJ Board of Directors Decree No. Kep-339 / BEJ /
07-2001 and Kep-305 / BEJ / 2004).
The practice of corporate governance, there is great attention to the importance of
institutional ownership of shares to play a role in corporate governance. Cadbury Report (1992)
states that because of its large shareholdings, institutional owners have the ability to influence
actions or decisions taken by the company. As a shareholder, the institution's right to appoint
the board of commissioners and is a "moral duty" to ensure that the company has been managed
according to the interests of the shareholders (Cadbury, 2002). Company management is not in
accordance with its interests, they will prefer to sell their shares rather than having to intervene
in managing the company (Drucker, 1976 in Keasey, 1997). Therefore, institutional owners
cannot be expected to play their role in overseeing the company. A good corporate governance
mechanism is expected to monitor the actions of managers, so that companies can operate more
efficiently and can improve company performance. Several studies provide different results
about the effect of corporate governance mechanisms on company performance.
Definition of Profit Management

Before defining earnings management, it is necessary to consider the role of accrual
accounting because certain forms of earnings management (such as income smoothing) are
difficult to distinguish from a decent accrual accounting option. The following is outlined the
purpose of financial reporting and how it relates to the definition of accrual accounting, as
presented by the Financial Accounting Standard Board (FASB) in various Statement of Financial
Accounting Concepts (SFAC). The main focus of financial reporting is financial information about
company performance provided by measurement of earnings and its components (FASB 1978,
SFAC No.1, para. 43). Accrual accounting attempts to record the financial effects on business
transactions and other events and environments that have cash consequences on a company in
a period in which transactions, events and the environment occur rather than only in the period
in which cash is received or paid for by an entity (FASB 1985, SFAC No.6, para.139).
Accrual accounting uses accruals, referrals, and allocation procedures with the aim of
connecting income, expenses, gains and losses in a period to reflect the company's performance
over a period rather than just listing cash in and cash out. So, the recognition of income,
expenses, profits and losses and their relation to the increase or decrease in assets and liabilities,
includes bringing together expenses with income, allocation, and amortization, is the
essence of using accrual accounting to measure entity performance (FASB 1985, SFAC No.6,
para.145). The principle objective of accrual accounting is to help investors assess economic
performance for a period through the use of basic accounting principles such as revenue
recognition and matching (Dechow and Skinner, 2000). The definition of earnings management
is important for accountants because it allows for the development of an understanding of net
income for reporting to investors and for a contract / agreement.
48
a purposeful intervention in external financial reporting processes, with the intent of

obtaining a private gain (Schipper, 1989, p. 92). Furthermore Earnings management occurs when
managers use regulations in financial reporting and in structuring transactions to financial reports
to either mislead some stakeholders about the underlyaing of economic performance of the
company, or the influence of outcomes that depend on reported accounting numbers ”(Healy
and Wahlen, 1999, p.368). Given that managers can choose accounting policies from a set of
policies (for example, GAAP), it is natural to expect that they will choose policies so as to
maximize their own utility and / or the market value of the firm. This is called earnings
management (Scott, 2003, p.368).
From the description above it can be concluded that earnings management is a
consideration of the choice of accounting policies used by management in the process of
compiling transactions and financial reporting of a company to achieve certain objectives, for
example: to influence contractual results that depend on the reported profit (debt or
compensation contract) and or for affect the company's market value. Although the definition
has been widely accepted, it is difficult to operationalize directly by using the attributes of the
accounting numbers reported because it involves management intentions that are difficult to
observe. In the statement of Arthur Levitt (1998), chairman of the Securities and Exchange
Commission (SEC), earnings management (earnings management) is defined as financial fraud.
According to Mulford and Comiskey (2002), earnings management is a profit
manipulation that is intended to create an impression of business performance, for example to
meet targets determined by management or predictions made by analysts. Impression of the
changed business performance does not always state that earnings management results in
meaningless earnings measurements. For example, the number of managed earnings numbers is
an indicator of better future earnings expectations. Furthermore, the volatility of earnings figures
managed in the time series provides a more realistic financial risk index compared to unmanaged
earnings. However, earnings management can result in material negligence and misstatement of
appropriate numbers and disclosures, and this action is intended to deceive or cheat financial
statement users.
Scott (2003) suggests two things about earnings management. First, earnings
management can reflect opportunistic behavior (managers) to maximize their personal profits in
the face of compensation, debt contracts and political costs. Second, viewed from the
perspective of an efficient contract (efficient contracting perspective), earnings management can
give managers the flexibility to protect themselves and the company in the face of conditions
that cannot be anticipated from imperfect and rigid contracts. Furthermore, managers can
influence the market value of the company's stock with earnings management. For example,
managers want to give the impression that profits are smooth (smooth) and always increase over
time, so (based on an efficient securities market) information is needed inside (inside
information). So earnings management can be a tool to communicate information that managers
have to investors.
Managers can be asked to do earnings management by reporting changes in permanent
earnings separated from temporary earnings to help investors reduce errors in valuation. If a
temporary profit that can be estimated statistically is eliminated in the report, the manager only
reports permanent profit, then the reported profit will be smooth (smooth) over time. In this
scenario, "manipulation" can not only be tolerated but also recommended by shareholders for
49
its interests. In cases where managers manipulate company performance in their personal
interests, shareholders usually have no choice because of their limited access to inside
information, and generally shareholders prefer to allow managers to manage earnings rather
than prevent it with expensive audit technology (Arya , et al. 2003).
Based on the description of the notion of earnings management, it can be interpreted
that earnings management can be said to be useful if viewed from an efficient and justified
agreement perspective if it is still within the limits of generally accepted accounting principles
(GAAP). But earnings management can be detrimental when viewed from the manager's
opportunistic behavior and is a fraud if done outside the GAAP limit.
Motivating Profit Management

Healy and Wahlen (1999) suggest that researchers have tested many different
motivations for earnings management, including: 1) expectations and capital market
assessments (2), 2) contracts made relating to accounting numbers and 3) government
regulations. The use of widespread accounting information by investors and financial analysts to
help assess stocks can create incentives for managers to manipulate earnings in an effort to
influence stock price performance in the short term.
Research conducted to support earnings management motivation related to
capital markets (capital market motivation), which are among others: 1) that managers have the
incentive to 'manage' their profits by avoiding reporting of losses and decreasing profits
(Burgstahler and Dichev, 1997), reporting growth and quarterly profit increase with the aim of
meeting earnings expectations according to analysts (Degeorge, et al. 1999), and the
consequences of non-fulfillment of profit benchmarks cause a large decline in stock prices
(Skinner and Sloan, 2000), 2) showing that managers manage earnings at the time of equity
offerings, namely by reporting high profits improperly and related to high discretionary accruals,
and there is a strong relationship between earnings management and stock price performance
in subsequent periods after the company's equity offer (Dechow et al ., 2000), 3) shows that the
participants the market is "fooled" by the practice of earnings management, namely when
market participants overestimate the persistence of low current earnings quality and
underestimate the persistence of high current earnings quality (Sloan, 1996).
Accounting data is used to help monitor and regulate contracts between
companies and many interested parties. Management compensation contracts are used to
harmonize management's incentives with other interested parties. Loan contracts are made to
limit managers' actions that benefit the company's shareholders but impose creditors. Watts and
Zimmerman (1986) state that these contracts create an impetus for earnings management.
Research related to loan contracts that give rise to earnings management motivation, DeFond
and Jiambalvo (1994) and Sweeney (1994) examine samples of companies that violate loan
agreements. And the results of the study are inconsistent.
DeFond and Jiambalvo (1994) found that companies increased their profits one
year before the breach of the agreement, and interpreted it as evidence that earnings
management by the company was closely related to the loan agreement. Sweeney (1994)
research also found that companies that violate agreements make changes in accounting
methods that increase profits, but this is done after the violation. This finding indicates that the
company does not make changes to accounting methods specifically to avoid violations of loan
50
agreements, but changes in accounting methods are made to reduce the possibility of future
breach of the agreement.
Compensation contracts that give rise to earnings management are supported by
many studies which state that managers use accounting considerations to increase bonuses on
the basis of reported earnings. Healy (1985; in Healy & Wahlen, 1999) and Holthausen et al.
(1995) shows that companies with bonuses reach the upper limit are most likely to report
accruals that postpone earnings when the limit is reached from companies that do not have a
bonus limit. Guidry et al. (1998) found that divisional managers for large multinational companies
tend to postpone earnings when the profit targets in the bonus program cannot be achieved and
when they are declared to have reached the maximum bonus allowed according to the program.
The compilers of accounting standards show concern for earnings
management which aims to avoid industrial regulation. Actually, the whole industry is regulated
in a certain level, but there are several industries (banking, insurance, and utility industries) facing
regulatory monitoring which is explicitly related to accounting data. Banking regulations require
that banks must meet capital adequacy requirements made in the form of accounting figures.
Insurance regulations require that insurance companies must meet minimum financial health
conditions. These regulations create the impetus to manage the income statement and balance
sheet variables that are of concern to the regulator. Some research shows evidence that banks
are approaching minimum capital requirements to tighten loan loss provisions, reduce loan
elimination, and recognize abnormal profits for securities portfolios (Beatty and Petroni, 2002).
There is also evidence that insurance companies that are financially weak and risk getting the
attention of regulators will reduce claims loss reserves, and enter into reinsurance transactions
(Healy & Wahlen, 1999).
Teknik Manajemen Laba

The most common earnings management techniques include the use of flexibility in
generally accepted accounting principles. Levitt (1998) states that flexibility in accounting is
allowed to deal with developments in the business environment. Earnings management is
inappropriate, and abuse such as earnings management occurs when people take advantage of
the flexibility inherent in GAAP implementation with the aim of obscuring actual financial
volatility, and in turn will hide the true consequences of management decisions (Levitt, 1998, p.
16).
Mulford and Comiskey (2002) state that earnings management techniques can be carried
out both within and outside the limits of generally accepted accounting principles (GAAP).
Earnings management techniques that are within GAAP limits include: a) changes to the
depreciation method, changes in the useful life used for depreciation purposes, changes in
estimated residual value for depreciation purposes and changes to the amortization period for
intangible assets, b) determination of allowance for doubtful accounts loan or loan receivables,
deferred tax allowance and determination of assets that have expired, c) estimated completion
stage of the percentage of contract completion, estimated deletion required for a particular
investment, consideration needed for inventory elimination and consideration of whether the
market value is reduced a temporary or long-term investment.
Furthermore, efforts to manage profits result in material misstatement or negligence in
amounts or appropriate disclosures. This action is intended to deceive users of financial
51
statements, forms of accounting irregulaities and fraudulent financial reporting are often used
for these actions (Mulford and Comiskey, 2002, p.66) or also called abusive earnings
management (Levitt, 1998, p. 16) . Premature income recognition or fictitious income is the most
common form of earnings management. Giroux (2004) provides an example of the most
commonly used earnings management techniques, namely: aggressive revenue recognition
(recognizing income earlier in the operating cycle), choosing capitalization rather than charging
operating costs, and allocating costs over a longer period (extends the useful life of fixed assets).
Because many accounting techniques provide alternatives and professional considerations,
accounting choices (accounting choise) are important components in earnings management.
Inventory methods, depreciation and accounting for securities are examples of accounting
options used for earnings management (Giroux, 2004, p. 5).
Nelson, Elliott and Tarpley (2003) conducted research that focused on earnings management
that greatly biased financial reports that were audited and opposed by the public and the SEC.
Based on data obtained from auditors partnering with a Big5 KAP, the results of his research show
that the main techniques in earnings management are efforts to influence: 1) other expenses and
losses, namely: elimination of obsolete assets that are too low, over-capitalization, modification
of depreciation or amortization of assets), 2) other income and profit, in order to increase profits
(Lesi Hertati, 2015).
Pendeteksian Manajemen Laba

Accrual basis (accrual basis) is agreed as the basis for preparing financial statements
because they are more rational and reasonable than the cash basis. Some studies indicate that
earnings have a greater information content than operating cash flows, because earnings
information generated from accrual use reduces the timing and mismatching problems that arise
in cash flow measurement (Dechow, 1994; Sloan, 1996). Accrual-based financial statements
involve many estimates and estimates.
Accrual options available in generally accepted accounting principles and the
vulnerability of accruals to manipulation allow earnings management to occur (Belkaoui, 2004).
In the accounting literature, discretionary accruals have the same meaning as earnings
management (Kothari, 2001, p.161). Detecting accounting policy manipulations related to
accruals (discretionary accruals) is difficult, for example companies increase depreciation and
amortization costs, this may occur due to excessive recording of liabilities for product guarantees,
conditional obligations, and discounted prices, or perhaps because noted a large number of bad
debts and obsolete inventories (Scott, 2003, p. 281).
The use of discretionary accruals is intended to make financial statements more
informative, namely financial statements that can reflect the true situation. However, in reality
the discretionary accrual is utilized by the management to increase or decrease the reported
profit for personal gain so that the earnings report does not reflect the actual situation.
Researchers often use discretionary accrual measurements to test earnings management and
market efficiency. According to Dechow, Sloan and Sweeney (1995), the most widely used
discretionary accrual models to detect earnings management are: DeAngelo Model (1986), Healy
Model (1985), Jones Model (1991), Modified Jones Model (in Dechow's research , Sloan, and
Sweeney, 1995), the Industry Model (Dechow, Sloan, and Sweeney, 1995), and the Cross
Sectional Jones Model (in DeFond and Jiambalvo, 1994).
52
Healy (1985) examines earnings management by comparing the average total accruals
scaled by lagged total assets to partitioning variables in earnings management. The Healy Study
is different from most other earnings management studies where it predicts systematic earnings
management that occurs in each period. Variable dividers divide the sample into three groups,
namely one group for the predicted profit increase, and two groups for derived earnings. Then
the average total accrual from the estimation period is used to measure nondiscretionary accrua
(Lesi Hertati, 2015).
The ability of industrial models to reduce measurement errors in discretionary
accruals critically depends on two factors, namely: 1) the industrial model only removes
variations in nondiscretionary accruals that are common in companies in the same industry, if
there is a change in nondiscretionary accruals then it reflects the reaction to changes in certain
corporate environments, so that the model industry cannot explore all of the nondiscretionary
accruals from proxy discretionary accruals, 2) industrial models eliminate variations in
discretionary accruals relating to companies in the same industry, potentially causing problems.
The severity of the problem depends on the extent of the stimulus of earnings management
related to companies in the same industry (Lesi Hertati, 2015).
Dechow, Sloan and Sweeney (1995) examined five models of discretionary accruals
(namely the Healy 1985 model, DeAngelo 1986, Jones 1991, Jones Modification and the industrial
model used by Dechow and Sloan 1991), the results of which show that the Jones model and
modification model developed by Jones (1991) most popularly used and provide the most
powerful (powerful) earnings management testing. However, earnings management testing has
the potential to misspecified for all models when earnings management dividing variables
correlate with firm performance (Lesi Hertati, 2016).
Corporate Financial Performance

Performance is the end result of an activity. The company's performance is the
accumulation of all the final results of the company's work activities and processes (Robbins and
Coulter, 2005, p.465). Managers need to provide a tool to monitor and measure company
performance. Financial reports provide financial information that is useful for managers to
analyze their work in managing the company (Lesi Hertati, 2016), and is beneficial for other users
in making economic decisions. Measurement of financial performance can be done based on
accounting performance (accounting measure of performance), and can also be based on market
performance (market based measure). (Rhoades, et al., 2001, p.313; Dutta & Reichelstein, 2005,
p. 1069).
The debate about measuring financial performance based on the cash flow model or
profit model has been ongoing. Advocates of cash flow based performance measurement say
that cash is reality while profit is only an opinion (Penman, 1992 & Rappaport, 1998; in Hirst &
Hopkins, 2000, p. 14). Cash flow performance proponents state that accounting profit is the
subject of manipulation by managers, there is a conservative bias in accounting standards, and
sometimes ignores important elements of economic profit. Using operating cash flow as a
measurement for financial performance has the advantage of not relying on stock returns which
assume that the capital market is inefficient in its ability to detect opportunistic management
behavior (Bowen, et al. 2004). Furthermore, any mechanical relationship between current
accruals and future earnings regarding accrual reversals is avoided. However, operating cash
53
flows have problems with timeliness as performance metrics (Dechow, 1994). In particular,
negative cash flows can generate investment in projects whose NPV is positive and does not
result in poor operating performance. Therefore, operating cash flow is likely to be a good
measure of financial performance only for stable companies. This motivates the use of profit-
based metrics as other measurements for financial performance, such as return on assets, return
on investment, and others.
The role of securities markets and information in securities markets justifies the use of
predictions of market reactions in accounting formulations. According to one interpretation of
the predictive approach, observation of capital market reactions can be used as a guide for
evaluating and choosing among various accounting measurement alternatives (Belkaoui, 2004,
p. 408). For example, Gonedes (1972) states that observations of market reactions as recipients
of accounting output determine the evaluation of the actual information content of accounting
numbers generated through accounting procedures. Likewise, Beaver and Dukes (1972) stated
that the method that produces the highest profit numbers related to securities prices is the most
consistent with information that results in efficient pricing of securities which is the method that
must be reported. In other words, predictive approaches favor the adoption of accounting
numbers that have the highest link with market prices. This requires evaluating the usefulness of
accounting numbers transmitted to capital market transactions as an aggregate, which means
the focus is on the reaction of the securities market not to the individual investors who make up
the market (in Belkaoui, 2004, p. 408).
Corporate Governance
Corporate governance has been practiced since 1600, when British companies
traded to East India. The British trading company has 218 members and is managed by the Court
of Directors. The governance structure consists of: 1) Court of Proprietors is a court of owners
who all have voting rights, but rarely hold meetings because of the large number of them, and 2)
Court of Directors is the executive body responsible for the running of the company, but its policy
decisions endorsed by court of proprietors. This executive body consists of governors, deputy
governors, and 24 directors. The governance structure in the East Indian company is slightly
different from the current structure of the company. The Court of Proprietors is now a general
meeting of shareholders, while the Court of Directors is a classic function of the board of directors
where they elect the chief executive. (Cadbury, 2002).
Compared to current company problems, not only the corporate governance
structure, but also there are problems faced by the board, namely the problem of differences in
the motivation of shareholders to invest in the company. Short-term investors want profits from
their money in the near future, while others see profits to be gained in the longer term. The board
of directors also has a problem to oversee those who are appointed who act not only for the
benefit of the company but often for their own sake. In the 18th century, agency problem was
introduced by Adam Smith (1776) who paid attention to the wealth of Nation for governance
issues that were important in his message about the joint stock company. Adam Smith stated
that company directors are managers of other people's money rather than their own money, it
cannot be expected that they can keep other people's money with the same vigilance compared
to keeping their own money.
54
Governance is a word that connects wisely and responsibly. Governance in Latin is

'gubernare' which means directing and setting balance values. The term corporate governance
was first introduced by the Cadbury Committee in 1992 using the term in the Cadbury Report,
and defined corporate governance as "the system by which companies are directed and
controlled" (Cadbury, 2002, p.1). A set of rules that define the relationship between
shareholders, managers, creditors, the government, employees and other internal and external
stakeholders in respect to their rights and responsibilities. Denis and McConnell (2003, p.2)
define corporate governance The set of mechanisms, both institutional and market based, that
induce the self-interest controllers of a company (those that make decisions regarding how the
company will be operated) to make decisions that maximize the value of the company to its
owners (the suppliers of capital). Then the Organization for Economic Cooperation and
Development (2004, p. 11) defines corporate governance as a structure whereby shareholders,
directors, managers form corporate objectives and means to achieve these goals and monitor
performance.
The principles of good corporate governance have been developed by the OECD,
where the corporate governance framework must be able to improve an efficient and
transparent market, consistent with legal rules and clear responsibilities between the position of
supervisor, regulator and implementing authority. The principles developed by the OECD cover
five main areas, namely: 1) the rights of shareholders and their protection, 2) equal treatment
for all shareholders, 3) the rights of interested parties (stakeholders) are protected by law or
through mutually beneficial agreements, 4) disclosure and transparency must ensure the
accuracy and accuracy of disclosures made on all material issues relating to the company,
including the financial situation, performance, ownership and corporate governance, 5) board
accountability must ensure the company's strategic guidelines, effectiveness of management
oversight by the board, and board responsibilities to the company and shareholders (OECD,
2004).
Corporate Governance Mechanisms

A mechanism is needed so that activities in the organization can run in the direction that
has been set. The governance mechanism is defined as a rules of the game, procedures and clear
relationships between parties who make decisions with those who supervise the decision (Kim &
Nofsinger, 2004). The governance mechanism is directed to guarantee and supervise the running
of the corporate governance system (Syakhroza, 2005, p. 27). In general there are two
mechanisms in the corporate governance system, namely internal control mechanisms, and
external control mechanisms (Weston, et al., 2004). Internal mechanisms also called institutional
or organizational mechanisms are primarily board of directors and equity ownership structures
(Denis & McConnell, 2003, p. 2). The equity ownership structure, namely managerial ownership
of shares, is one of the important internal governance mechanisms (Weston, et al., 2004, p.568).
The following is discussed in detail the board of commissioners and managerial ownership of the
company.
55
Prior Research on Profit Management, Financial Performance and Corporate Governance

Mechanisms
Some previous studies on earnings management, company performance and corporate
governance, can be divided into two groups, namely: 1) research on the effect of corporate
governance mechanisms on earnings management, and 2) research on the influence of earnings
management and governance mechanisms on financial performance company. Several studies
have tried to explain how corporate governance factors influence managers' behavior with
decisions that benefit themselves and ultimately affect investor confidence. Weak governance is
often used by company management for personal gain through the choice of accounting policies
in preparing financial statements. Previous research shows that there is a relationship between
earnings management and the mechanism of corporate governance, and means that there is
evidence that weak governance results in excessive managerial opportunism.
In addition to the proportion of the board, the number of commissioners can affect the
effectiveness of supervisory activities. The number of councils is subject to serious debate and
discussion, some view that the relatively small number of councils is more effective because
board members can get to know each other more closely and allow for effective discussions at
board meetings and board duties. While others view a large number of boards that can bring
broader experience and knowledge needed to carry out board duties (Cadbury, 2002, Kim &
Nofsinger, 2004).
The findings of Francis et al. (1999) supported by Krishnan's (2003a) study, showed that
companies audited by the Big 6 had higher total accruals than companies audited by the Non-Big
6, but Big 6 clients reported lower discretionary accruals. These findings provide evidence that
companies that tend to generate more accruals are more likely to employ big-six auditors to
increase the credibility of reported earnings, and prove that Big Six auditors reduce the potential
for earnings management based on accrual policies. Industry specialization owned by big-six
auditors is able to detect earnings management and offer higher audit quality than non-specialist
auditors (Lesi Hertati, 2016).
Thinking Framework
The framework of thinking in this study starts from the existence of the organization as a
basis for analyzing corporate governance, then followed by a discussion of agency theory that
raises agency problems, namely opportunistic behavior of management in corporate financial
reporting. The capital market provides a place for testing positive accounting theory, because
accounting provides information to the capital market and changes in stock prices are related to
certain accounting changes. An organization is a social entity that is consciously coordinated,
consisting of two or more people, whose function is based on continuity to achieve a general goal
or set of goals (Robbin, 2003, p.465).
The company is a business organization which is an instrument in which capital is collected
for the activities of making and distributing goods and services, as well as for investment.
Companies must always be able to increase profits from their business activities and profits for
shareholders (Monks & Minow, 2004, p.8). The main objective of a company is to create an
environment that is conducive to obtaining long-term benefits, originating from two main
sources, namely increasing profits from core operations, and increasing profits from sales growth
56
of existing products or sales resulting from the introduction of new products (Kim and Nofsinger,
2004).
Development of business activities requires additional capital and also carries risks. The ability
to obtain capital and control risk is important in the success or failure of a company. Capital gains
and the ability to control risk are influenced by the way or form of company arrangements.
Lukviarman (2001) proposes three main foundations of corporate governance, namely
philosophical foundations, historical foundations, and psychological foundations. Philosophical
foundation is a structural functionalist approach, which describes the governance system as rules
about how companies manage their activities in pursuit of goals. Organizational structures and
functions are designed to provide a mechanism that can maintain balance in the company with
interested parties. strength between executive management in a public company and its
shareholders.
Conclusion
The company's financial performance shows a long-term downward trend. If earnings
management has a negative relationship with the company's financial performance. Earnings
management negatively affects the company's market performance (stock return), but the effect
is very small. The negative effect of earnings management on stock returns shows that the
market is aware of the opportunistic motivation of earnings management practices by the
company. Consequently, greater earnings management will lead to lower returns on stocks (stock
returns). Accounting reports are not the only source of information used in economic decision
making. But large companies affect the company's financial performance. The weakness of the
rupiah exchange rate makes it difficult for companies to be able to generate the expected profit
and cash inflows, as well as investors who find it difficult to profit from their shares. Associated
with business ethics, earnings management is unethical if there is a fictitious transaction by
deliberately deceiving the users of the company's financial statements.
References
Agrawal, A. & C.R. Knoeber. 1996. Firm performance and mechanisms to control agency problems
between managers and shareholders. Journal of Financial and Quantitative Analysis 31
(September): 377-397
Antonius Alijoyo & Subarto Zaini, 2004. Independent Commissioner: Driving GCG Practices in the
Company. PT Index - Gramedia Publisher. Jakarta.
Arya, A., J.C. Glover, & S. Sunder. 2003. Are Unmanaged earnings always better for shareholders?
Accounting Horizon. Supplement: 111-116.
Asian Development Bank. 2000. Corporate Governance and Finance in East Asia: A Srudy of
Indonesia, Republic of Korea, Malaysia, Philippines, and Thailand. Manila: ADB
Publication.
Balatbat, M.C., S.L. Stephen & T.S. Walter. 2004. Corporate Governance, insider ownership and
operating performance of Australian initial public offerings. Journal of Accounting and
Finance 44: 299-328.
Ball, R., S. Kothari, & A. Robin. 2000. The effect of international institutional factors on the
properties of earnings. Journal of Accounting and Economics, 29: 1-15.
57
Bartov. E., D. Givoli & C. Hyan. 2002. The rewards to meeting or beating earnings expectations.
Journal of Accounting and Economics, 33: 173-204.
Beasley, M.S. 1996. An empirical analysis of the relationship between the board of directors of
composition and financial statement fraud. The Accounting Review 71 (October): 433-
465.
Beatty, A.L., B. Ke, & K.R. Petroni. 2002. Earnings management to avoid earnings declines across
publicly and privately held banks. The Accounting Review 77 (3) July: 547-570.
Becker, C.L., M.L. DeFond, J. Jiambalvo & K.R. Subramanyam. 1998. The effect of audit quality on
earnings management. Contemporary Accounting Research. Spring, 15: 4-24
Bedard, J., S.M. Chtourou, & L.Courteau, 2001. Corporate governance and earnings
management. Working Paper University Laval, Quebec City, Canada.
Bedard, J., S.M. Chtourou, & L.Courteau. 2004. The effect of audit committee expertise,
independence, and activity on aggressive earnings management. Auditing: A Journal of
Practices & Theory 23 (2) September: 13-35
Belkaoui, A.R. 2004. Accounting Theory. Fifth Edition. Thomson Learning, USA.
Bhagat, S. & B. Black. 2002. The non-correlation between boards independence and long-term
firm performance. Journal of Corporation Law, Winter: 231-273
Bhattacharya, U., H.Daouk & M.Welker. 2003. The world price of earnings opacity. The
Accounting Review 78 (3): 641-678.
Bobko, Philip. 1995. Correlation and Regression: Principles and Applications for Industrial /
Organizational Psychology and Management. McGraw-Hill, USA.
Bonn I., T. Yoshikawa & P.H. Phan. 2004. Effects of board structure on firm performance: A
between Japan and Australia comparison. Asian Business and Management, 3: 105-125
Bowen, R., S. Rajgopal & M. Venkatachalam. 2004. Accounting discretion, corporate governance
and firm performance. Working Paper. University of Washington & Duke University.
Burgstahler, D. and I. Dichev. 1997. Earnings management to avoid earnings decreases and losses.
Journal of Accounting and Economics 24 (1): 99-126.
Bushee, B. 1998. Institutional investors, long-term investment, and earnings management. The
Accounting Review, 73 (3): 305-333.
Cadbury, A. 2002. Corporate Governance and Chairmanship A Personal View. Oxford University
Press.
Carcello, J.V. and A.L. Nagy. 2004. Audit firm tenure and fraudulent financial reporting. Auditing:
A Journal of Pratice and Theory 23 (3): 55-69.
Casterella, J., W.R. Knechel, & P.L. Walker 2002. The relationship of audit failures and auditor
tenure. Working Paper. University of Florida.
Cheng, Q. & T.D Warfield. 2005. Equity incentives and earnings management. The Accounting
Reviews 80 (2): 441-476.
Chung, Hyeeso. 2004. Selective mandatory auditor rotation and audit quality: An empirical
investigation of auditor designation in Korean politics. Working Paper. Purdue University.
Through: http://www.mgmt.purdue.edu
Claessen, S., S. Djankov & L. Lang. 2000. The separation of ownership and control in East Asian
corporations. Journal of Financial Economics, 58: 81-112
Coles, J.W., V. B. McWilliams & N. Sen. 2001. An examination of the relationship of governance
mechanisms to performance. Journal of Management. 27: 23-50
58
Colley, J.L., J.L.Doyle, G.W.Logan & W.Stettinius. 2003. Corporate Governance. McGraw-Hill
Companies, Inc. USA.
Collins, J., D. Shackelford & J. Wahlen. 1995. Bank differences in the coordination of regulatory
capital, earnings and taxes. Journal of Accountng Research 33: 263-291.
Cooper, D.R. & P.S. Schindler. 2003. Business Research Methods. Eight Edition. McGraw-Hill. New
York.
Dechow, Patricia M. 1994. Accounting earnings and cash flows as measures of firm performance:
The role of accounting accruals. Journal of Accounting and Economics 18: 3-42.
Dechow, PM, R.G. Sloan & Sweeney. 1995. Detecting Earnings Management. The Accounting
Review 70 (2): 193-225.
DeFond, M. & J. Jiambalvo. 1994. Debt covenant violation and manipulation of accruals. Journal
of Accounting and Economics 17: (1-2): 145-176.
Degeorge, F., J. Patel, & R. Zeckhauser. 1999. Earnings management to exceed thresholds. Journal
of Business 72: 1-33.
Denis, D. & J. McConnell. 2003. International corporate governance. Journal of Financial and
Quantitative Analysis. 38 (1). March: 1-36
Dutta, S. & S. Reichelstein. 2005. Stock price, earnings and book value in managerial performance
measures. The Accounting Review 88 (4): 1069-1100
Eddy S. & Mas'ud M. 2003. Analysis of ownership structure, company value, investment and
board size. National Symposium on Accounting VI. Surabaya, October: 214-223
Eisenberg, T.S., S. Sundgren & M. Wells. 1998. Larger board size and decreasing firm value in
small firm. Journal of Financial Economics 48: 35-54
Fama, Eugene F. 1980. Agency problem and the theory of the firm. Journal of Political Economy
88 (21): 134-145.
Farid H. & Siswanto S. 2001. Investment Analysis Tools and Techniques in the Indonesian Capital
Market. First Revised Edition. Publisher of the Jakarta Stock Exchange.
Financial Accounting Standard Board (FASB). 1978. Objectives of Financial Reporting by Business
Enterprises. Statement of Financial Accounting Concept (SFAC) No.1. And FASB, 1985.
Elements of Financial Statement. SFAC No.6. Norwalk, CT: FASB.
Forum for Corporate Governance in Indonesia (FCGI) .2001. Corporate Governance. Corporate
Governance Series, Volume 1 2nd Edition.
Francis, J.R., E.L. Maydew & HC. Sparks. 1999. The role of big 6 auditors in the credible reporting
of accruals. A Journal of Practice & Theory, Fall 18 (2): 17-34
F.S. Imung. 2004. PT Telkom scandal. Investor Magazine. Media Accounting & Finance. Issue 96,
March: 10-13
Gabrielsen, G., J.D.Gramlich & T.Plenborg. 2002. Managerial ownership, information content of
earnings, and discretionary accruals in a Non-US Setting. Journal of Business Finance &
Accounting, 29 (7 & 8), Sept./Oct. : 967-988
Geiger, M. and K. Raghunandan. 2002. Auditors tenure and audit reporting failures. Auditing: A
Journal of Pratice and Theory 21 (1): 67-78.
Gideon Setyo B., 2005. The Effect of the Mechanism of Corporate Governance on Earnings
Management and Its Impact on Profit Quality. Doctoral Program Dissertation, not
published. Padjadjaran University Bandung.
Giroux, G. 2004. Detecting Earnings Management. John Wiley & Son, USA
59
Graham, J., C. Harvey and S. Rajgopal. 2004. The economic implications of corporate financial
reporting. Working paper, Duke University / University of Washington.
Guidry, F., A. Leone and S. Rock. 1999, "Earnings-based bonus plans and earnings management
by business-unit managers", Journal of Accounting and Economics 26 (1-3): 113-142.
Gul, FA, S.Y. Sun & J.S. Tsui. 2003. Audit quality, earnings, and the Shanghai stock market reaction.
Journal of Accounting, Auditing and Finance 18 (3): 411-426
Gujarati, D. 2003. Basic Econometrics. Fourth Edition. McGraw-Hill. Singapore
Healy, P.M., & J.M. Wahlen. 1999. A review of earnings management literature and its
implications for setting standards. Accounting Horizons, Dec. 13: 365-383.
Hendriksen, E. S. & M.F. Breda. 2001. Accounting Theory. Fifth Edition. McGraw-Hill. Singapore.
Hirst, D.E & P.E. Hopkins, 2000. Earnings: Measurement, Disclosure, and the Impact on Equity
Valuation. Research Foundation of the Association for Investment Management and
Research (AIMR). Blackwell Publishers, USA.
Holthausen, R., Larcker and Sloan. 1995. Annual bonus schemes and manipulation of earnings.
Journal of Accounting and Economics, 19: 29-74.
Hutchinson, M. & F.A. Gul. 2003. Investment opportunity set, corporate governance practices
and firm performance. Journal of Corporate Finance 182: 1-20.
Jensen, M.C. 1993. The modern industrial revolution, exit, and the failure of internal control
system. Journal of Finance 48: 831-880.
Jermias, J. (2004). Competitive intensity, board characteristics, managerial ownership, and firm
performance. Faculty of Business Administration, Simon Fraser University, Canada.
Jones, T. M. 1995. Instrumental stakeholders theory: A synthesis of ethics and economics.
Academy of Management Review, 20 (2) April: 404-437
Julie, C. & M. Silvester. 2003. Board and Monitoring Committee Independence. Abacus, 39 (2):
211-232
Kaen, R.. R. 2003. Corporate Governance: Strategy, accountability and preservation of
shareholder value. American Management Association. USA
Keasey K., S. Thompson, & M. Wright. 1997. Corporate Governance: Economic and Financial
Issues. Oxford University Press.
Kieso, D.E., J. Weygandt & T.D. Warfield. 2004. Intermediate Accounting. Eleventh Edition. John
Wiley & Sons Inc., USA.
Khurana, I.K. & K.K. Raman. 2004. Litigation risk and financial reporting credibility of Big4 versus
Non-Big4 audits: Evidence from Anglo-American countries. The Accounting Review 79 (2):
473-495.
Kim, K.A & J.R. Nofsinger. 2004. Corporate Governance. Pearson Education, Inc., Upper Saddle
River, New Jersey.
Klein, A. 2002. Audit committee, board of director characteristics, and earnings management.
Journal of Accounting and Economics 33: 375-400
Kothari, S.P. 2001. Capital market research in accounting. Journal of Accounting and Economic
31: 105-231.
Krishnan, Gopal V. 2003a). Audit quality and the pricing of discretionary accruals. Auditing: A
Journal of Practice & Theory 22 (1) : 109-126
Lawrence, A.T, J. Weber & J.E. Post. 2005. Business and Society : Stakeholders, Ethics, Public
Policy. Eleventh Edition. McGraw-Hill / Irwin.
60
Leuz, C., D. Nanda & P.D. Wysocki. 2003. Earnings management and investor protection: an
international comparison. Journal of Financial Economic 69: 505-527
Levitt, A. J. 1998. The Numbers Game”, The CPA Journal, December: 14-19.
Lesi Hertati, 2015. Internal Control And Ethics Of Quality Management System Accounting
Information And Implications On The Quality Of Accounting Information Management:
Proposing A Research Framework. International Journal of Economics, Commerce and
Management United Kingdom Vol. III, Issue 6, June 2015 Licensed under Creative
Common Page 902 http://ijecm.co.uk/ ISSN 2348 0386
Hertati, L. (2015). Research Article Total Quality Management As Technics On Strategic
Management Accounting. International Journal of Recent Advances in Multidis cipli nary
Research. Vol. 02, Issue 11, pp.0942-0949, November, 2015
Hertati, L. (2015). Just In Time, Value Chain, Total Quality Management, Part Of Technical
Strategic Management Accounting. International Journal Of Scientific & Technology
Research Volume 5, Issue 04, April 2016 Issn 2277-8616
Hertati, L. (2015). Competence of Human Resources, The Benefits of Information

Technology on Value of Financial Reporting in Indonesia. Research Journal of Finance and
Accounting www.iiste.org.ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.6, No.8,
2015
Hertati, L. (2015). Impact Of Uncertainty Of Environment And Organizational Cultural On

Accounting Information System Management And Implications For Managerial
Performance Proposing A Conceptual Framework. International Journal of Economics,
Commerce and Management United Kingdom Vol. III, Issue 12, December 2015.Licensed
under Creative Common Page 455 http://ijecm.co.uk/ ISSN 2348 0386
Lukviarman, N. 2001. Key characteristics of corporate governance: The case of Indonesia.

Working Paper Series 01.01. Curtin University of technology Graduate School of Business.
Maassen, G.F. & F.A. van de Bosch. 1999. On the supposed independence of two-tier board:
formal structure and reality in the Netherlands. Scholarly Research and Theory Papers.
Blackwell Publisher, Vol.7, No.1, January: 31-37
Matsumoto, D.A. 2002. Management’s incentives to avoid negatif earnings surprises. The
Accounting Review, 77 (3): 483-514
McKinsey & Co. 2002. Global Investor Opinion Survey on Corporate Governace. Melalui
<http://www.mckinsey.com/governance
Millstein, Ira. 1998. The Evolution of Corporate Governance in the United States, World Economic
Forum, I4.
Monk, R.A. & N. Minow. 2004. Corporate Governance. Third Edition. Blackwell Publishing Ltd.
USA.
Mulford, C.W. & E. Comiskey. 2002. The Financial Numbers Game: Detecting creative accounting
practices. Canada, John Wiley & Sons, Inc.
61
Myers, J., L. Myers dan T. Omer. 2003. Exploring the term of the auditor-client relationship and
the quality of earnings: A case for mandatory auditor rotation. The Accounting Review 78:
779-799.
Nelson, M.W., Elliot J.A. & R. L. Tarpley, 2003. How are earnings managed? Examples from
auditors. Accounting Horizons. Supplement: 17-35
Organization for Economic Coorperation and Development. 2004. OECD Principles of Corporate
Governance. OECD Publication Service, France.
Peng, M.W. 2004. Outside directors and firm performance during institutional transitions.
Strategic Management Journal. 25: 453-471
Porter, M.E., 1992. Capital Choices: Changing the way America invest in industry. Boston, Harvard
Business School.
P. Pranata & Mas'ud M. 2003. Analysis of corporate governance mechanism and indications of
earnings management. National Symposium on Accounting VI. Surabaya, October: 176-
186.
Rangan, S. 1998. Earnings management and the performance of seasoned equity offerings.
Journal of Accounting and Economics 50: 101-122.
Rhoades, D.L., P.L. Rechner & C. Sundaramurthy. 2001. Meta-analysis of board leadership
structure and financial performance: are "two heads better than one"? Empirical
Research-Based and Theory Building Papers 9 (4) October: 311-319
Robbins, S.P. 2003. Organizational Behavior. Tenth Edition. Pearson Education Inc. Prentice Hall.
New Jersey.
Salmon, J.W. 2000. Crisis Prevention: How to Gear Up Your Board. Harvard Business Review on
Corporate Governance. USA
Schipper, K. 1989. Commentary on Earnings Management. Accounting Horizons, December, 91-
102.
Schroeder, R.G., M.W. Clark & J.M. Cathey. 2005. Financial Accounting Theory and Analysis.
Eighth Edition. John Wiley & Son. USA.
Scott, R.W., 2003. Financial Accounting Theory. Third Edition. Pearson Education Canada Inc.,
Toronto, Ontario
Skinner, D. and R.G. Sloan. 1999. Earning surprises, growth expectations, and stock returns or not
let torpedo earnings sink your portfolio. Review of Accounting Studies 7: 287-312.
Skousen, K.F., E.K. Stice & J.D. Stice. 2004. Intermediate Accounting. 15th Edition. South-Western
of Thompson Learning.
Sloan, R.G. 1996. Do fully reflecting stock prices information in accruals and cash flows about
future earnings. The Accounting Riview 71: 289-315.
Spira, L.F. 1999. Ceremonies of governance: perspectives on the role of the audit committee.
Journal of Management and Governance 3: 231-260. In Xie et al. 2003. Earnings
management and corporate governance: the role of the board and audit committee.
Journal of Corporate Finance 9: 295-336
Husnan, S. 2001. Corporate Governance and Finance in East Asia. Asian Development Bank.
Sweeney, A.P. 1994. Debt-covenant violations and manager ’accounting responses. Journal of
Accounting and Economics May: 281-308.
62
Syakhroza, A. 2005. Corporate Governance: History and Development, Theory, Model, and
Governance System and Its Application to BUMN Companies. Speech inauguration of
Permanent Professor of the Faculty of Economics, University of Indonesia, FEUI Publisher.
Sylvia V. & Yanivi S. 2004. Good corporate governance, information asymmetry, and earnings
management. National Accounting Symposium VII. Denpasar, December: 57-69
Teoh, S.H., I. Welch, and T.J. Wong. 1998. Earnings m
Tjager, A. Alijoyo, H. R. Djemat, & B. Soembodo. 2003. Corporate Governance: Challenges and
opportunities for the Indonesian business community. PT Prenhallindo, Jakarta.
Uzun, H., S.H. Szewczyk & R. Varma. 2004. Board composition and corporate fraud. Financial
Analysts Journal. May / June: 33-43
Venkataraman, V. 2005. Audit Committee Handbook. Tata McGraw-Hill Professional: Corporate
Governance Series.
Warfield, T.J. Wild and K. Wild. 1995. Managerial ownership, accounting choices, and information
about earnings. Journal of Accounting and Economics 20 (1): 61-91.
Watts, R.L. and J.L. Zimmerman, 1986. Positive Accounting Theory. Prentice-Hall International
Editions, New Jersey.
Welch, E. 2003. The relationship between ownership structure and performance in listed
Australian companies. Australian Journal of Management, 28 (3) December: 287-305
Weston, J.F, M.L. Mitchell & J.H. Mulherin. 2004. Takeovers, Restructuring, and Corporate
Governance. Fourth Edition. Pearson Education, Inc., New Jersey.
Williamson, O.E. 1987. The Economic Institutions of Capital. In chapter 12: "Corporate
Governance", p. 298-325. First Free Paperback Edition, USA.
Wooten, T. 2003. Research about audit quality: It is impossible to know the number of poor
quality audits. The CPA Journal. January: 48-51
Xie, B., W.N. Davidson III, & P.J. DaDalt. 2003. Earnings management and corporate governance:
the role of the board and the audit committee. Journal of Corporate Finance, (9): 295-
316.
Yeo, G.H., P.M. Tan, K.W. Ho. & S.Y. Chen, 2002. Corporate ownership structure and the
information about earnings. Journal of Business Finance & Accounting, 29 (7 & 8)
Sept./Oct. : 1023-1046
Yermark, D. 1996. Higher market valuation of a company with a small board of directors. Journal
of Financial Economics 40: 185-211.
Young, B. 2003. Corporate governance and firm performance: Is there a relationship? Ivey
Business Journal Online, September / October: 1-4
63

The Effect of Profit Management On Company Performance: Widarti, Subiyanto, Jamilah Pramajaya

Uploaded by

Copyright:

Available Formats

The Effect of Profit Management On Company Performance: Widarti, Subiyanto, Jamilah Pramajaya

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

The Effect of Profit Management On Company Performance: Widarti, Subiyanto, Jamilah Pramajaya

Uploaded by

Copyright:

Available Formats

The Effect Of Profit Management On Company Performance

Widarti, Subiyanto, Jamilah Pramajaya

Received: 02 Sep 2018, Revised: 21 Oct 2018, Accepted: 23 Oct 2018

Published Online: 14 Nov 2018

In-Text Citation: (Widarti, Subiyanto, & Pramajaya, 2018)

Copyright: © 2018 The Author(s)

Vol. 7, No. 4, October 2018, Pg. 44 - 63

Full Terms & Conditions of access and use can be found at

The Effect Of Profit Management On Company

Earnings management is inappropriate, and abuse such as earnings management occurs

Definition of Profit Management

a purposeful intervention in external financial reporting processes, with the intent of

Motivating Profit Management

Teknik Manajemen Laba

Pendeteksian Manajemen Laba

Corporate Financial Performance

Governance is a word that connects wisely and responsibly. Governance in Latin is

Corporate Governance Mechanisms

Prior Research on Profit Management, Financial Performance and Corporate Governance

Hertati, L. (2015). Competence of Human Resources, The Benefits of Information

Hertati, L. (2015). Impact Of Uncertainty Of Environment And Organizational Cultural On

Lukviarman, N. 2001. Key characteristics of corporate governance: The case of Indonesia.

You might also like