Strengthening the independence of the Board of Commissioners

Oct 13, 2025 by magicalceylontours.com 125 views

The Effect of Corporate Governance on Profit Management in Manufacturing Companies Listed on the IDX (2010-2012)

Introduction

Corporate governance plays a vital role in ensuring the integrity and transparency of financial statements in companies listed on the Indonesia Stock Exchange (IDX). The Board of Commissioners, Board of Directors, and Audit Committees are key components of corporate governance that are responsible for overseeing the company's operations and ensuring compliance with regulations. However, the effectiveness of these components in preventing earnings management practices has been a subject of debate among researchers and practitioners. This study aims to investigate the effect of corporate governance on earnings management in manufacturing companies listed on the IDX during the period 2010 to 2012.

Literature Review

Corporate governance is a critical factor that influences the practice of earnings management in companies. The Board of Commissioners, as a company supervisor, is responsible for maintaining the integrity and transparency of financial statements. However, the lack of independence of the Board of Commissioners in making profitable decisions for shareholders can lead to a lack of significant impact on earnings management. On the other hand, the Board of Directors, responsible for the daily management of the company, may be under pressure to meet short-term performance expectations, which can encourage less ethical decision making in the presentation of financial statements.

The Audit Committee, whose job is to ensure the accuracy of financial statements and compliance with regulations, plays a crucial role in preventing earnings management practices. However, the effectiveness of the Audit Committee in preventing earnings management needs to be improved. The literature review highlights the importance of corporate governance in ensuring the integrity and transparency of financial statements in companies listed on the IDX.

Methodology

This study uses a purposive sampling method to select 26 relevant manufacturing company samples listed on the IDX during the period 2010 to 2012. The data analysis process includes descriptive statistics, classical assumption tests, and hypothesis tests, with the statistical method used being multiple linear regression. The study aims to investigate the effect of corporate governance on earnings management in manufacturing companies listed on the IDX.

Results

The results of this study show that partially, the Board of Commissioners did not have a significant positive influence on earnings management. On the other hand, the Board of Directors and the Audit Committee showed an insignificant negative effect on earnings management. When viewed simultaneously, the Board of Commissioners, Board of Directors, and the Audit Committee also did not have a significant effect on earnings management on companies listed on the IDX.

Discussion

The results of this study highlight the need for an increase in the implementation of corporate governance in companies listed on the IDX. The lack of independence of the Board of Commissioners in making profitable decisions for shareholders can lead to a lack of significant impact on earnings management. The pressure to meet short-term performance expectations can encourage less ethical decision making in the presentation of financial statements. The effectiveness of the Audit Committee in preventing earnings management needs to be improved.

Conclusion

This study concludes that corporate governance plays a vital role in ensuring the integrity and transparency of financial statements in companies listed on the IDX. The results of this study highlight the need for an increase in the implementation of corporate governance in companies listed on the IDX. Continuous improvement efforts in corporate governance can create a better environment to minimize the practice of unethical earnings management, so that it brings long-term benefits to all stakeholders.

Recommendations

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

Strengthening the independence of the Board of Commissioners: The Board of Commissioners should be independent in making profitable decisions for shareholders to ensure the integrity and transparency of financial statements.
Improving the effectiveness of the Audit Committee: The Audit Committee should be effective in preventing earnings management practices by ensuring the accuracy of financial statements and compliance with regulations.
Enhancing corporate governance structure: Companies listed on the IDX should strengthen their corporate governance structure to increase accountability and transparency in financial statements.
Increasing investor confidence and company reputation: Continuous improvement efforts in corporate governance can create a better environment to minimize the practice of unethical earnings management, so that it brings long-term benefits to all stakeholders.

Limitations

This study has several limitations. Firstly, the sample size is limited to 26 manufacturing companies listed on the IDX during the period 2010 to 2012. Secondly, the study only investigates the effect of corporate governance on earnings management in manufacturing companies listed on the IDX. Finally, the study does not investigate the effect of other factors that may influence earnings management practices.

Future Research Directions

Future research directions include:

Investigating the effect of corporate governance on earnings management in other industries: This study only investigates the effect of corporate governance on earnings management in manufacturing companies listed on the IDX. Future research should investigate the effect of corporate governance on earnings management in other industries.
Investigating the effect of other factors on earnings management practices: This study only investigates the effect of corporate governance on earnings management practices. Future research should investigate the effect of other factors that may influence earnings management practices.
Investigating the effect of corporate governance on earnings management in emerging markets: This study only investigates the effect of corporate governance on earnings management in companies listed on the IDX. Future research should investigate the effect of corporate governance on earnings management in emerging markets.
Frequently Asked Questions (FAQs) on the Effect of Corporate Governance on Profit Management in Manufacturing Companies Listed on the IDX (2010-2012)

Q: What is corporate governance, and how does it affect profit management in manufacturing companies?

A: Corporate governance refers to the system of rules, practices, and processes by which a company is directed and controlled. It plays a vital role in ensuring the integrity and transparency of financial statements in companies listed on the Indonesia Stock Exchange (IDX). The Board of Commissioners, Board of Directors, and Audit Committees are key components of corporate governance that are responsible for overseeing the company's operations and ensuring compliance with regulations.

Q: What is earnings management, and how does it relate to corporate governance?

A: Earnings management refers to the practice of manipulating financial statements to achieve a specific goal, such as meeting earnings expectations or avoiding losses. Corporate governance plays a crucial role in preventing earnings management practices by ensuring the accuracy of financial statements and compliance with regulations.

Q: What are the key findings of this study on the effect of corporate governance on profit management in manufacturing companies listed on the IDX (2010-2012)?

A: The study found that partially, the Board of Commissioners did not have a significant positive influence on earnings management. On the other hand, the Board of Directors and the Audit Committee showed an insignificant negative effect on earnings management. When viewed simultaneously, the Board of Commissioners, Board of Directors, and the Audit Committee also did not have a significant effect on earnings management on companies listed on the IDX.

Q: What are the implications of this study for companies listed on the IDX?

A: The study highlights the need for an increase in the implementation of corporate governance in companies listed on the IDX. Continuous improvement efforts in corporate governance can create a better environment to minimize the practice of unethical earnings management, so that it brings long-term benefits to all stakeholders.

Q: What are the recommendations of this study for companies listed on the IDX?

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

Strengthening the independence of the Board of Commissioners: The Board of Commissioners should be independent in making profitable decisions for shareholders to ensure the integrity and transparency of financial statements.
Improving the effectiveness of the Audit Committee: The Audit Committee should be effective in preventing earnings management practices by ensuring the accuracy of financial statements and compliance with regulations.
Enhancing corporate governance structure: Companies listed on the IDX should strengthen their corporate governance structure to increase accountability and transparency in financial statements.
Increasing investor confidence and company reputation: Continuous improvement efforts in corporate governance can create a better environment to minimize the practice of unethical earnings management, so that it brings long-term benefits to all stakeholders.

Q: What are the limitations of this study?

A: This study has several limitations. Firstly, the sample size is limited to 26 manufacturing companies listed on the IDX during the period 2010 to 2012. Secondly, the study only investigates the effect of corporate governance on earnings management in manufacturing companies listed on the IDX. Finally, the study does not investigate the effect of other factors that may influence earnings management practices.

Q: What are the future research directions for this study?

A: Future research directions include:

Investigating the effect of corporate governance on earnings management in other industries: This study only investigates the effect of corporate governance on earnings management in manufacturing companies listed on the IDX. Future research should investigate the effect of corporate governance on earnings management in other industries.
Investigating the effect of other factors on earnings management practices: This study only investigates the effect of corporate governance on earnings management practices. Future research should investigate the effect of other factors that may influence earnings management practices.
Investigating the effect of corporate governance on earnings management in emerging markets: This study only investigates the effect of corporate governance on earnings management in companies listed on the IDX. Future research should investigate the effect of corporate governance on earnings management in emerging markets.