Analyzing the effect of other factors

Oct 13, 2025 by magicalceylontours.com 96 views

The Influence of Good Corporate Governance, Leverage, and Profitability on Earnings Management in Manufacturing 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 significant number of manufacturing companies listed on it. The performance of these companies is influenced by various factors, including good corporate governance (GCG), leverage, and profitability. Good corporate governance is essential for ensuring that companies are managed in a responsible and transparent manner, while leverage refers to the use of debt to finance company assets. Profitability, on the other hand, is a key indicator of a company's financial health. This study aims to analyze the effect of GCG, leverage, and profitability on earnings management in manufacturing companies listed on the IDX.

Background

Earnings management is a critical aspect of corporate finance, as it involves the manipulation of financial statements to achieve specific goals. In the context of manufacturing companies listed on the IDX, earnings management can be influenced by various factors, including GCG, leverage, and profitability. Good corporate governance, for instance, can ensure that companies are managed in a responsible and transparent manner, which can lead to better earnings management. Leverage, on the other hand, can provide companies with the necessary funds to finance their operations, but it can also increase the risk of financial distress. Profitability, meanwhile, is a key indicator of a company's financial health, and it can influence earnings management by providing companies with the necessary resources to manage their finances effectively.

Methodology

This study uses an explanatory research method to analyze the effect of GCG, leverage, and profitability on earnings management in manufacturing companies listed on the IDX. The data is collected through documentation methods, and the analysis is carried out using panel data regression analysis. The sample consists of 144 manufacturing companies, of which 106 are used as samples through proportional random sampling techniques, with a total of 318 observations.

Research Findings

The results of this study show that simultaneously, GCG, leverage, and profitability have an influence on earnings management. However, when partially tested, the findings show that GCG and leverage do not significantly affect earnings management, while profitability has proven to have an effect.

Analysis of Good Corporate Governance, Leverage, and Profitability

Good Corporate Governance (GCG)

GCG is the principle that regulates and oversees the company to run in accordance with the interests of stakeholders. Although GCG does not show a significant effect on earnings management in this study, it can be understood in the context of manufacturing companies in Indonesia. The application of strong GCG may not be fully implemented, so that it does not have an expected impact on earnings management. However, the importance of GCG still cannot be ignored, considering it can affect company performance in the long run.

Leverage

Leverage is related to the use of debt to finance company assets. The results showed that leverage had no significant influence on earnings management. This may be caused by companies that are more careful in using debt, or because the debt structure owned does not affect the accounting policies that are applied in profit reporting.

Profitability

Profitability, on the other hand, has proven to affect earnings management. This shows that companies that have a high level of profitability tend to be more able to manage and report their profits. Good profitability can provide flexibility for companies in making accounting decisions, which in turn can affect their profit statement.

Conclusion

Overall, the findings of this research provide important insights on the dynamics between GCG, leverage, and profitability for earnings management. While GCG and leverage do not show significant effects, profitability is an important factor in managing earnings in manufacturing companies listed on the IDX. Further research in the future can focus on identifying other factors that might affect earnings management, as well as digging deeper about GCG practices in Indonesia to improve the company's overall performance.

Recommendations

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

Improving GCG practices: Companies listed on the IDX should prioritize improving their GCG practices to ensure that they are managed in a responsible and transparent manner.
Optimizing leverage: Companies should optimize their leverage by using debt in a way that does not increase the risk of financial distress.
Focusing on profitability: Companies should focus on improving their profitability by increasing their revenue and reducing their costs.
Further research: Further research should be conducted to identify other factors that might affect earnings management, as well as to dig deeper about GCG practices in Indonesia.

Limitations

This study has several limitations, including:

Sample size: The sample size of this study is relatively small, which may limit the generalizability of the findings.
Data quality: The data used in this study may not be of high quality, which may affect the accuracy of the findings.
Methodology: The methodology used in this study may not be the most effective way to analyze the effect of GCG, leverage, and profitability on earnings management.

Future Research Directions

Future research should focus on identifying other factors that might affect earnings management, as well as digging deeper about GCG practices in Indonesia. Some potential research directions include:

Analyzing the effect of other factors: Future research should analyze the effect of other factors, such as market conditions, industry trends, and company size, on earnings management.
Digging deeper about GCG practices: Future research should dig deeper about GCG practices in Indonesia to identify the factors that affect the implementation of GCG.
Comparing the effect of GCG, leverage, and profitability: Future research should compare the effect of GCG, leverage, and profitability on earnings management in different industries and countries.

Conclusion

In conclusion, this study provides important insights on the dynamics between GCG, leverage, and profitability for earnings management in manufacturing companies listed on the IDX. While GCG and leverage do not show significant effects, profitability is an important factor in managing earnings. Further research should focus on identifying other factors that might affect earnings management, as well as digging deeper about GCG practices in Indonesia.
Frequently Asked Questions (FAQs) on the Influence of Good Corporate Governance, Leverage, and Profitability on Earnings Management in Manufacturing Companies Listed on the Indonesia Stock Exchange

Q: What is the main objective of this study? A: The main objective of this study is to analyze the effect of good corporate governance (GCG), leverage, and profitability on earnings management in manufacturing companies listed on the Indonesia Stock Exchange (IDX).

Q: What is earnings management? A: Earnings management is the manipulation of financial statements to achieve specific goals, such as increasing profits or reducing losses.

Q: What is good corporate governance (GCG)? A: Good corporate governance (GCG) refers to the principle that regulates and oversees the company to run in accordance with the interests of stakeholders.

Q: What is leverage? A: Leverage is related to the use of debt to finance company assets.

Q: What is profitability? A: Profitability refers to a company's ability to generate profits from its operations.

Q: What are the findings of this study? A: The findings of this study show that simultaneously, GCG, leverage, and profitability have an influence on earnings management. However, when partially tested, the findings show that GCG and leverage do not significantly affect earnings management, while profitability has proven to have an effect.

Q: What are the implications of this study? A: The implications of this study are that companies listed on the IDX should prioritize improving their GCG practices, optimizing their leverage, and focusing on profitability to manage their earnings effectively.

Q: What are the limitations of this study? A: The limitations of this study include the sample size, data quality, and methodology used.

Q: What are the future research directions? A: Future research should focus on identifying other factors that might affect earnings management, as well as digging deeper about GCG practices in Indonesia.

Q: What are the recommendations of this study? A: The recommendations of this study are that companies listed on the IDX should improve their GCG practices, optimize their leverage, and focus on profitability to manage their earnings effectively.

Q: What is the significance of this study? A: The significance of this study is that it provides important insights on the dynamics between GCG, leverage, and profitability for earnings management in manufacturing companies listed on the IDX.

Q: What are the potential applications of this study? A: The potential applications of this study are that it can be used by companies listed on the IDX to improve their GCG practices, optimize their leverage, and focus on profitability to manage their earnings effectively.

Q: What are the potential implications of this study for policymakers? A: The potential implications of this study for policymakers are that it can inform policy decisions related to corporate governance, leverage, and profitability in Indonesia.

Q: What are the potential implications of this study for investors? A: The potential implications of this study for investors are that it can provide insights on the factors that affect earnings management in manufacturing companies listed on the IDX, which can inform investment decisions.

Q: What are the potential implications of this study for regulators? A: The potential implications of this study for regulators are that it can inform regulatory decisions related to corporate governance, leverage, and profitability in Indonesia.