Journal of Economics and Business

ISSN 2615-3726 (Online)

ISSN 2621-5667 (Print)

Published: 05 February 2021

Institutional Ownership, External Auditor Reputation, Financial Leverage, and Earnings Management

Ngakan Made Kutha, Marcellia Susan

Maranatha Christian University, Indonesia

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10.31014/aior.1992.04.01.323

Pages: 93-99

Keywords: External Auditor Reputation, Financial Leverage, Institutional Ownership, Profits Management

Abstract

Profits show the performance of managers before the related parties, such as investors and creditors. Therefore, managers often incorrectly state them in the published annual financial reports to protect their reputation. Undoubtedly, this action needs to be reduced by the governance mechanism, like supervision by institutions as the owner and audit by the external public accountant firm. To control these two effects on profits management, additionally, this study employs financial leverage. This study aims to prove the impact of institutional ownership, the external auditor reputation, and financial leverage on profits management. The population and the samples are the non-financial companies establishing the LQ45 index from 2014 to 2018, getting taken by the simple random sampling technique. Also, the regression model performs as the technique to examine the data. By denoting the testing of the hypothesis results and the discussion section, this study summarizes that institutional ownership and reputable external auditor effectively decrease profits management. Additionally, although firms have much debt, they cut the tendency to manage their profits because of applying transparency.

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