273

Analysis of the Impact of Managerial Ownership, Institutional

Ownership, Firm Size, Leverage, Profitability and Sales Growth
Toward Earnings Management in Manufacturing Companies
Listed on IDX in the 2015-2019 Period
Sella Herlina Harahap
[email protected]
Pelita Harapan University, Surabaya, Indonesia

Abstract

The phenomenon of earnings management is very interesting to research because it can provide an overview of
the behavior of managers in reporting their business activities in a certain period, namely the emergence of earnings
management caused by managers by manipulating company profits to be higher, lower, or always the same for several
periods. Certain motivations encourage them to manage or manage financial data, especially reported earnings. This study
aims to analyze a model regarding the effect of Managerial Ownership, Institutional Ownership, Firm Size, Profitability
(ROA), Leverage (DER), and Sales Growth toward Earnings Management in Manufacturing Companies listed on the IDX
in the 2015-2019 period.
The type of non-probability sampling used in this study is purposive sampling because the sampling technique is
based on certain considerations. Certain considerations in determining the sample or respondent in this study are
manufacturing companies that are consistently listed on the IDX website during the 2015-2019 period and companies that
have managerial and institutional share ownership data respectively during the observation period. The number of samples
(N) used was 285 data obtained from 57 manufacturing companies with a 5year study period.
The result of the study concludes that Managerial Ownership, Institutional Ownership, Company Size, and
Leverage (DER) do not affect Earnings Management. Meanwhile, Profitability (ROE) and Sales Growth have a significant
positive effect on Earning Management.

Keywords: Earnings Management; Managerial Ownership; Institutional Ownership; Firm Size; Leverage; DER; Profitability; ROE;
Sales Growth.

1. Introduction

Over time, economic and business development is now increasingly rapid. Fierce competition in the
business world today encourages companies to compete competitively with advantages in their respective
sectors. Through the use of available company resources effectively and efficiently in carrying out operational
activities, can be one of the factors for companies to increase the company's competitiveness against the
market. Besides, attracting and or retain several investors to support company activities is becoming
increasingly difficult due to the tight competition. Therefore, companies tend to always show good
performance. One of the measuring tools that can be used to determine the company's performance is the
amount of profit earned. Profit figures that continue to increase from year to year can be assumed that the

IJRP 2021, 69(1), 273-286; doi:.10.47119/IJRP100691120211678 www.ijrp.org

 Sella Herlina Harahap / International Journal of Research Publications (IJRP.ORG)
274

company can manage its resources maximally to make a profit.

Financial reports are the main consideration for users to make decisions, therefore, financial reports
must be displayed correctly under applicable financial accounting standards. The general purpose of financial
reports is to provide financial statement users with information about the company's financial position,
performance, and cash flow to use as a basis for decision making and to demonstrate management's
responsibility for the use of resources entrusted to them.
Phenomena that often occur related to earnings management usually caused by errors and omissions
of the financial management entity itself, which are directly or indirectly influenced by various internal and
external factors. Related to the agency theory, Jensen & Meckling (1976) states that an agency relationship is
a manager (agent) contract with shareholders (principal). Both parties are bound by a contract that defines the
rights and obligations of each party. Principals provide facilities and resources to conduct business, while
agents are required to manage what shareholders entrust to them. Separation of ownership and control results
in differences in interests between shareholders as owners and managers as controllers. Managers have a
responsibility to maximize the welfare of shareholders and debtholders, but on the other hand, managers also
have an interest in maximizing their welfare. This unification of the interests of the parties often creates
problems known as agency conflict. Earnings management is one of the agency problems that occur because
of the separation of ownership and control between shareholders and company management.
Earnings management is a condition for the management to intervene in the preparation of financial
reports for external parties so that they can increase, stabilize and decrease earnings (Schipper, 1989). Healy
and Wahlen (1999) show that earnings management occurs when management uses certain decisions in the
financial statements and prepares transactions that change the financial statements. Therefore, it is intended to
mislead users of financial statements about the company's economic situation and affect the contractual
income that can control the accounting numbers reported.
One of the factors that influence earnings management is managerial ownership. Theoretically, the
management who has a high percentage of share ownership will act like someone who holds an interest in the
company. This assumption is in line with the contracting based theory which shows that management will be
efficient in choosing accounting methods that will provide added value to the company (Christie &
Zimmerman, 1994). The parties involved in the contract will review the managers who own the company's
shares, such as selecting an audit committee that will ask shareholders, creditors, and users of financial reports
to provide high-quality financial reports to ensure the efficiency of the contracts being made. Management
will be motivated to prepare quality financial reports. This will reflect better contract conditions (Ball, Robin,
& Wu, 2003). Therefore, it is likely that the level of managerial ownership will be in the same direction to
suppress management's utilization of earnings management. Research (Kouki, Abderrazek, Hanen, & Slim,
2011) reveals that managerial ownership has a negative effect on earnings management. Meanwhile,
according to research (Asih, 2015), managerial ownership has a significant positive effect on earnings
management practices.
Institutional ownership is considered to provide a similar monitoring mechanism within the
company. Research (Widyastuti, 2009) shows that institutional ownership has a negative and significant
impact on earnings management. This shows that institutional ownership can minimize the possibility of
earnings management because institutional investors can supervise and are not easily fooled by manager
behavior. Meanwhile, research conducted by (Jao & Pagalung, 2011) shows that institutional ownership has a
positive and significant effect on earnings management, which means that an increase in institutional
ownership will also increase earnings management actions in the company.
Firm size can be a factor in the occurrence of earnings management in the company. There are two
views about the firm size on earnings management. The first view is that small company sizes are considered
to be more likely to practice earnings management than large companies. It is because small companies tend
to have the ambition to show the investors that the company is performing well. Meanwhile, large companies
care more about the public, so they will be more careful in financial reporting so that the impact on these

www.ijrp.org
 Sella Herlina Harahap / International Journal of Research Publications (IJRP.ORG)
275
3

companies is to report their status more accurately (Nasution & Setiawan, 2007). The second view in
proprietary research (Watts & Zimmerman, 1990) states that compared to small firms, large firms have
greater motivation for income smoothing (earnings management) because large firms have greater political
costs. Political costs arise because of the high profitability of the company, which can attract the attention of
the media and consumers. However, regarding these two views, both state that company size has a positive
influence on earnings management.
Another component that can be used as an assessment of company performance by external parties is
leverage. The greater the Leverage ratio, the higher the company's debt. Firth & Smith (1992) stated that the
greater the debt owed by the company; the tighter supervision carried out by creditors. This results in reduced
management flexibility to perform Earnings Management. This means that the higher the leverage ratio, the
lower the possibility for management to do earnings management. Almadara (2017) in his research revealed
that the leverage variable has a negative effect on earnings management. This is in line with research
conducted by Mahiswari & Nugroho (2014). Meanwhile, research conducted by (Dechow, Sloan, & Sweeney,
1996) found that the company's motivation for earnings management is to meet external capital needs and
fulfill debt covenants. Sari's research (2015) shows that leverage has a positive effect on earnings
management. A positive coefficient indicates that high leverage encourages company management to manage
earnings to avoid violating debt contracts. Meanwhile, different results were found in Indriyani's (2010)
research which examined the effect of leverage on earnings management in banking companies on the IDX,
that leverage does not have a significant effect on earnings management. This is because the high debt policy
causes the company to be monitored by debtholders (third parties). Because the tight monitoring in the
company causes managers to act in accordance with the interests of debtholders and shareholders.
Another variable that can affect earnings management is Profitability. The effectiveness of the
company in generating profits through the operation of assets owned is a benchmark for company
performance and can also motivate earnings management actions in the company. The greater the Return on
Assets as a profitability ratio, the more efficient the use of assets will be so that it will increase the company's
profitability. Big profits will attract investors because with large profits the company will have a higher rate of
return. The higher this ratio, the better the asset productivity in obtaining net profit. So that Return on Assets
can motivate management to carry out earnings management, and it can also be said that Return on Assets has
a positive effect on earnings management, such as research conducted by Guna and Herawaty (2010) which
shows that profitability has a significant positive effect on earnings management. The opposite results were
obtained by Purwandari's (2011) study which states that Return on Assets has a significant negative effect on
earnings management actions.
Companies with high sales growth rates also have the motivation to carry out earnings management
to earn profits, when they are faced with problems to maintain profit trends and sales trends. This makes sales
growth can affect the existence of earnings management. Research conducted by Nayiroh (2013) states that
sales growth does not affect earnings management. While the results of research conducted by Handayani and
Rachadi (2009) and Sari (2015) state that sales growth has a positive effect on earnings management.
Manufacturing companies are more widely used as research subjects because manufacturing
companies listed on the IDX (Indonesia Stock Exchange) have various industrial subsectors, which can reflect
the reaction of the capital market as a whole. Besides, manufacturing companies also have the largest number
of companies on the Indonesia Stock Exchange compared to other corporate sectors.

2. Review of Related Literature

Jensen & Meckling (1976) states that an agency relationship is a manager (agent) contract with
shareholders (principal). Both parties are bound by a contract that defines the rights and obligations of each
party. Principals provide facilities and resources to conduct business, while agents are required to manage

www.ijrp.org
 Sella Herlina Harahap / International Journal of Research Publications (IJRP.ORG)
276

what shareholders entrust to them. Separation of ownership and control results in differences in interests
between shareholders as owners and managers as controllers. Managers have a responsibility to maximize the
welfare of shareholders and debtholders, but on the other hand, managers also have an interest in maximizing
their welfare. This unification of the interests of the parties often creates problems known as agency conflict.
Govindarajan (2009) states that one key element of agency theory is that principals and agents have
different preferences and goals. Agency theory assumes that all individuals act in their best interests.
According to Scott (2000), agency theory is the design of an appropriate contract to align the
interests of principals and agents in the event of a conflict of interest. Agency problems arise when the
principal finds it difficult to ensure that the agent acts to maximize the principal's welfare (Yushita, 2010).
Eisenhardt (1989) states that agency theory uses three assumptions of human nature, namely, humans
are generally self-interested, humans have limited thinking power about future perceptions (bounded
rationality), and humans always avoid risk (risk-averse).
This study uses the discretionary accrual calculation of the Modified Jones model. The following
proxies according to Dechow, Sloan, Sweeney (1995):

Where:

TACCit = Total Accrual i in year t

NIit = Net Income i in year t
CFOit = Company i's operating cash flow in year t
To find out the value of non-discretionary accruals, it is necessary to calculate the coefficient of the accrual
regression which is known by regression as follows:

Where:
TACCit = Total Accrual i in year t
TAit-1 = Total Assets i in year t-1
REVit = Change in net income of firm i between year t and year t-1
RECit = Change in the receivables of company i between year t and year t-1
PPEit = The acquisition value of fixed assets at company i in year t
it = Error term
The total accrual equation above was estimated using the Ordinary Least Square (OLS) method. Estimates of
α, β1, β2 were obtained from the OLS regression and used to calculate the Non-Discretionary Accrual as
follows:

After regressing the above model, Discretionary Accrual can be calculated by the equation:

www.ijrp.org
 Sella Herlina Harahap / International Journal of Research Publications (IJRP.ORG)
277
5

2.1. Managerial Ownership

Managerial ownership, namely ownership of shares of a company by management. Earnings

management is largely determined by the motivation of the company manager. Low share ownership, then the
incentive for the possibility of opportunistic behavior of managers will increase (Shleifer and Vishny, 1986).
According to Downes and Goodman (1999), managerial ownership is the management who is the
shareholder of the company, in this case, the management (directors and commissioners) is also the owner of
the company who actively participates in making company decisions. Therefore, management plays an
important role as they carry out planning, organization, guidance, monitoring, and decision making.
Research (Kouki et al. 2011) reveals that managerial ownership has a negative effect on earnings
management and can improve the quality of the financial reporting process, this is because when managers
also have a share of ownership, they will act the same as general shareholders and ensure that financial reports
have been fairly presented and disclosed the real condition of the company.
The results of research by Midiastuty and Machfoedz (2003), Ujiyantho and Pramuka (2007), Ali et
al. (2008), Jao (2014), Mahariana and Ramantha (2014), and Sari (2015) also found that managerial
ownership has a negative relationship with earnings management. Based on the results of several studies
above, it can be concluded that the greater the managerial ownership, the lower the earnings management
behavior.

H1: Managerial ownership has a negative effect on earnings management.

2.2. Institutional Ownership

Institutional investors have the opportunity, resources, and ability to supervise, discipline, and
influence company managers in terms of opportunistic management actions (Chung et al. In Purwandari,
2011). Institutional investors who have large shareholdings will have a strong enough incentive to gather
information, supervise and encourage better management performance. If institutional investors have a
relatively lower number of shareholdings, then institutional investors have little incentive to oversee the
opportunistic actions of managers.
According to Tarjo (2008), institutional ownership is the ownership of company shares owned by
other institutions or companies (such as insurance companies, banks, investment companies, and other
institutional ownership). Institutional ownership means very important in supervision and management
because the existence of institutional ownership will best encourage the strengthening of supervision. This
kind of Supervision will certainly guarantee the prosperity of shareholders, and the influence of institutional
ownership as a supervisory agency will be suppressed by massive investment in the capital market.
The results of research conducted by Balsam et al. (2002) stated that high institutional ownership can
minimize earnings management practices, but depending on the significant number of ownerships so that it
will be able to monitor management which has an impact on reducing managers' motivation to carry out
earnings management. The results of research by Rajgofal et al. (1999), Midiastuty and Mahfoedz (2003),
Cornett et al. (2006), Tarjo (2008), Shah et al. (2009), Jao (2011), and Sari (2015) also found that institutional
ownership has a negative relationship with earnings management.

H2: Institutional ownership has a negative effect on earnings management.

www.ijrp.org
 Sella Herlina Harahap / International Journal of Research Publications (IJRP.ORG)
278

2.3. Firm Size

Company size can be defined as the effort to assess the size of a company. The size of the company
will be very important for investors and creditors because it will relate to the investment risk being made.
Companies with medium and large sizes have more pressure than their stakeholders so that the company's
performance is in line with the expectations of its investors compared to small companies.
Moses (1997) argues that larger companies have a greater incentive to smooth income (a form of
earnings management) compared to small companies because large companies have greater political costs.
Large companies will receive more public attention, so they will be more careful in terms of financial
reporting and reporting conditions. Company size is measured using the natural logarithm of total assets
owned by the company (Jao & Pagalung, 2011)
Political costs arise because high company profitability can attract media and consumer attention.
Research results according to Halim (2005), Nuryaman (2008), Llukani (2013), Asih (2014) and Putra et al.
(2014) stated that company size has a significant positive effect on earnings management practices.

H3: Firm size has a positive effect on earnings management

2.4. Leverage

According to (Irawati, 2006), leverage is a policy carried out by a company in terms of investing
funds or obtaining sources of funds accompanied by fixed expenses that the company must bear.
According to (Fakhruddin, 2008), leverage is the amount of debt used to finance/purchase company
assets. Companies that have debt greater than equity are said to be companies with a high degree of leverage.
Leverage Ratio or Solvency Ratio or Debt Ratio is a comparison used to measure how much a
company's debt loans are financed by the assets (assets) and equity (capital) owned by the company.
According to Van Horne (2002: 357), the Leverage Ratio is a ratio that describes the proportion of corporate
debt. Research conducted by Saleh et al. (2005), Tarjo (2008), and Lin et al. (2009) found that leverage has a
positive relationship with earnings management.
Leverage is the ratio between total liabilities and total equity. The greater the leverage ratio, the
higher the company's debt value. A company that has a high leverage ratio means that the proportion of debt
is higher than the proportion of its assets, so the supervision carried out by creditors on the company will be
tighter. The results in reduced management flexibility to perform Earnings Management. It means that the
higher the leverage ratio, the lower the possibility for management to do earnings management. Almadara
(2017) in his research revealed that the leverage variable has a negative effect on earnings management. It is
in line with research conducted by Mahiswari & Nugroho (2014).

H4: Leverage has a negative effect on earnings management.

2.5. Profitability

Profitability shows the ability of management to generate profits by utilizing assets used in operating
activities. Bonus Plan The hypothesis states that if in a certain year the actual performance is below the
requirements for getting a bonus, the manager will carry out earnings management so that the profit can reach
the minimum level to get the bonus. Concerning earnings management, profitability can influence managers
to carry out earnings management. Because the profitability obtained by the company is low, in general
managers will take earnings management actions to save their performance in the eyes of the owner.

www.ijrp.org
 Sella Herlina Harahap / International Journal of Research Publications (IJRP.ORG)
279
7

According to Weygandt et al. (1996), the profitability ratio is the ratio used to measure the
effectiveness of the company's management as a whole, which is indicated by the amount of profit the
company receives. Profitability ratios are considered as the most valid tool in measuring the results of the
company's operations because profitability ratios are comparison tool for various investment alternatives
according to the level of risk. The greater the investment risk, the higher the profitability is expected.
Return on Assets (ROA) is part of the profitability ratio analysis. Return on Asset is the ratio
between net income which is inversely proportional to the total assets to generate profit. Kasmir (2012: 201)
explains that Return on Assets is a ratio that shows the results (return) on the total assets used in the company.
In other words, Return on Assets (ROA) can be defined as a ratio that shows how much net profit can be
obtained from all the wealth owned by the company.
This statement is supported by research by Welvin and Arleen (2010) showing the results that
profitability has a positive effect on earnings management.

H5: Profitability has a positive effect on earnings management.

2.6. Sales Growth

Sales growth shows an increase in sales from year to year. If sales and profits increase every year,
then financing debt with a certain fixed expense will increase shareholder income. Therefore, managers are
encouraged to carry out earnings management in line with the higher sales growth of a company so that the
company's profits appear to be lower than the actual profit obtained. Companies can predict how much profit
will be obtained by the amount of sales growth. According to Perdana (2013), sales growth in a company
shows that the greater the sales volume, the higher the profit that will be generated. Sales growth is defined as
an increase in the number of sales over time or from year to year (Kennedy, 2010)
According to Fahmi (2012: 69), the growth ratio is a ratio that measures how much the company's
ability to maintain its position in the industry and general economic development. This growth ratio is seen
from various aspects of sales (sales), earning after tax (EAT), earnings per share, dividends per share, and
market price per share.
This statement is supported by the research of Gu et al. (2005), Handayani and Rachadi (2009), and
Sari (2015) which state that sales growth has a positive effect on earnings management.

H6: Sales growth has a positive effect on earnings management

3. Research Methodology

This research will be directed to analyze models regarding the influence of Managerial Ownership,
Institutional Ownership, Company Size, Profitability (ROA), Leverage (DER), and Sales Growth on Profit
Management in Manufacturing Companies in 2015-2019 listed on the IDX. The theoretical framework and
model will be used as the theoretical basis for this research.

www.ijrp.org
 Sella Herlina Harahap / International Journal of Research Publications (IJRP.ORG)
280

Fig. 1. Research methodology

The method used in this research is quantitative. According to Sugiyono, quantitative research
methods can be interpreted as research methods based on the philosophy of positivism, used to research on a
particular population or sample. The sampling technique is generally carried out randomly, data collection
using research instruments, quantitative/statistical data analysis to test predetermined hypotheses (Sugiyono,
2012). The purpose of this study is to explain, explain the generalization of the sample for the population, or
explain the relationship, difference, or influence between one variable and another (Bungin, 2008). Based on
the benefits of research, this research is basic research or basic research because this study aims to find new
knowledge about fundamental phenomena (Sugiyono, 2012), namely to determine the role of Managerial
Ownership, Institutional Ownership, Company Size, Profitability (ROA), Leverage (DER) and Sales Growth
to Profit Management in Manufacturing Companies listed on the IDX in the 2015-2019 period (idx.com).
The population is a generalization area consisting of objects/subjects that have certain qualities and
characteristics that are determined by the researcher for the study and then draw conclusions. (Sugiyono P. D.,
2017). The population used in this study is non-banking companies, namely manufacturing companies listed
on the IDX in the 2015-2019 period. Based on the stock list data listed on the IDX website, there are a total of
3 sectors and 20 subsectors of manufacturing companies (Indonesia Stock Exchange, 2020)
The sampling technique used in this study is non-probability sampling because the sampling
technique does not provide equal opportunities for each element or member of the population to be selected as
samples (Sugiyono, 2014). The type of non-probability sampling used in this study is purposive sampling
because the sampling technique is based on certain considerations (Sugiyono, 2014). Certain considerations in
determining the sample or respondent in this study are manufacturing companies that are consistently listed
on the IDX website during the 2015-2019 period, companies that have consecutive managerial share
ownership data during the observation period, companies that have consecutive institutional share ownership
data. During the observation period, companies that have managerial and institutional share ownership data
respectively during the observation period.

www.ijrp.org
 Sella Herlina Harahap / International Journal of Research Publications (IJRP.ORG)
281
9

Table 1. Sample Planning

No. Characteristics Total

1. Manufacturing companies consistently listed on the IDX 144
website during the 2015-2019 period
2. Companies that do not have managerial and institutional share (87)
ownership data respectively during the observation period.
Total Sample 57
Total Sample 5-years period 285

The data collection method used in this study is to use the non-participant observation method in the
form of financial statements of manufacturing companies in the consumer goods industry sector which are
listed on the Indonesia Stock Exchange (IDX) during the study period, which is obtained from the official
website of the IDX. Quantitative data is divided into discrete data and continuum data. Continuum data is
divided into ordinal data, interval data, and ratio data (Sugiyono, 2015). This study using ratio data. Data
collection is an important part of research (Darmono and Hasan, 2002). The data used in this research is
secondary data. The secondary data collection technique used in this study is data collection from the
financial and annual reports of manufacturing companies on the IDX website. The type of data in this study is
ratio data. According to the classification of collection, the type of data is cross-section data, namely in the
2015-2019 period.
Data analysis methods in this study include descriptive statistics, data quality test factor analysis,
multiple linear regression analysis, and hypothesis testing. Test data quality using the classic assumption test
which includes normality test, multicollinearity test, heteroscedasticity test, and autocorrelation test.
Hypothesis testing used is the t-test and F test. This analysis tool uses the SPSS version 22.0 program.

4. Result of the Study

Multiple Linear Regression Analysis

Multiple linear regression analysis determines the linear relationship between a single dependent
variable and multiple independent variables by estimating the regression coefficient for straight line
equations.

Table 2. Results of Multiple Linear Regression Analysis

Variable Coefficients
Constant 0,000260
Managerial Ownership -0,065
Institutional Ownership -0,011
Firm Size 0,006
Leverage (DER) -0,007
Profitability (ROA) 0,196
Sales Growth 0,188

The coefficient which is positive shows changes in the direction of the independent variable against
the dependent variable, while the coefficient that is negative shows the opposite change between the
independent variable and the dependent variable.

www.ijrp.org
 Sella Herlina Harahap / International Journal of Research Publications (IJRP.ORG)
282

The Coefficient of determination (R2)

Table 3. Result of Determination Coefficient Analysis

R-Squared Adj. R-Squared

0,090 0,070

The coefficient of determination (R2) in essence measures how far the model's ability to explain the
variation in the dependent variable. The coefficient of determination is between zero and one. The small value
of R2 means that the ability of the independent variables to explain the variation in the dependent variable is
very limited. A value close to one means that the independent variables provide almost all the information
needed to predict the variation in the dependent variable.
Based on table 3, the coefficient of determination for the independent variable is 0.070. Thus, it can
be concluded that 7% of the Earnings Management (DA) variable can be explained by the independent
variables, namely Managerial Ownership, Institutional Ownership, Company Size, Leverage (DER),
Profitability (ROE) and Sales Growth. The remaining 93% is explained by other variables outside the model
which are not discussed in this study.

F-test and t-test

The F-test is used to determine whether the independent variables together have a significant effect
on the dependent variable.

Table 4. Result of F-test

Sig. F-statistic F-table

0,000 4,588 2,131

Based on the results of table 4 above, it can be concluded that the variables Managerial Ownership,
Institutional Ownership, Company Size, Leverage (DER), Profitability (ROE) and Sales Growth
simultaneously affect Earnings Management (DA). This is because the value of F count > F table (4.588>
2.131) or significance <0.05 (0.000 < 0.05) so that Ho is rejected and Ha is accepted.

Table 5. Result of t-test

Variable Sig. t-statistic t-table

Managerial Ownership 0,395 -0,852 -1,969
Institutional Ownership 0,889 -0,140 -1,969
Firm Size 0,932 0,085 1,969
Leverage (DER) 0,904 -0,120 -1,969
Profitability (ROA) 0,004 2,928 1,969
Sales Growth 0,001 3,217 1,969

Based on the results of the t-statistic test on Managerial Ownership, partially there is no significant
effect on Earning Management (DA), this is because the value-t-count> -t-table (-0.852> -1.969) or
significance 0.395> 0.05 so that Ho is accepted and H1 is rejected which stated that Managerial Ownership
has a negative effect on Earning Management. The results of the research for the first hypothesis state that
Managerial Ownership has no effect on Earning Management. The test results of managerial ownership on

www.ijrp.org
 Sella Herlina Harahap / International Journal of Research Publications (IJRP.ORG)
283
11

earnings management show an insignificant effect in a negative direction. This is because, in the sample of
this study, the number of share ownership owned by managers is low so that there is a high probability that
there is a conflict between the interests of the majority (controlling shareholder) and the minority. Managerial
ownership has no effect on earnings management.
Based on the results of the t-statistic test on Institutional Ownership, partially there is no significant
effect on Earnings Management (DA), this is because the value-t-count> -t-table (-0.140> -1.969) or
significance> 0.05 (0.889> 0.05) Ho is accepted and H2 is rejected, which states that Institutional Ownership
has a negative effect on Earning Management. This is because in general, institutional investors do not play
their role effectively as sophisticated investors who can supervise or monitor management performance to
limit management in taking actions or policies that will impact earnings management actions. Institutional
investors only carry out their role as transient investors (temporary owners of companies) who focus only on
short-term profits, so that institutional ownership does not necessarily increase effective monitoring of
management which will lead to reduced management policies in conducting earnings management. This result
is in line with research conducted by Welvin and Arleen (2010), Dian Agustia (2013), Metta Kusumaningtyas
(2012), Werner R Murhadi (2009) which states that institutional ownership does not affect earnings
management. Although the number of shares owned by the institution does not guarantee that it will reduce
earnings management practices. As a result, managers are forced to take actions that can increase short-term
profits. Institutional ownership will make managers feel bound to meet the profit target of investors, so that
even though the number of institutional ownerships increases or decreases, they will still tend to be involved
in earnings manipulation. Besides, high institutional ownership is generally owned by the parent and or
branch of the company itself, so in essence, although other companies have quite high shares, in fact, these
shares are owned by one company.
Based on the results of the t-statistic test on firm size partially does not have a significant effect on
earnings management (DA), this is because the value of t-count <t-table (0.085 <1.969) or significance> 0.05
(0.932> 0.05) so that Ho is accepted and H3 rejected, which states that firm size has a positive effect on
earnings management. The results of this study are also consistent with research conducted by Ayu, Elva,
Anggita (2017) which states that company size is not the only consideration for investors in making
investment decisions. However, other factors are more important to consider in making investment decisions,
such as profitability, the company's future business prospects, and others. The nature of Indonesian investors
is speculative and tends to have capital gains. Moreover, the condition of companies in Indonesia, with the
size of their assets, does not guarantee a good company performance. The results of this study support the
findings of research conducted by Gunawan, Darmawan, and Purwanti (2015) which found that company size
does not affect earnings management.
Based on the results of the t-statistical test on Leverage (DER) partially does not have a significant
effect on Earnings Management (DA) this is because the value t-count> -t-table (-0.120> -1.969) or
significance> 0.05 (0.904> 0.05) so that Ho is accepted and H4 is rejected, which states that Leverage (DER)
has a negative effect on Earning Management. The results of this study are in line with the research of Made
(2007), Jao and Pagulung (2011), Wika (2011), and Elfira (2014) which state that leverage does not affect
earnings management. This means that the level of leverage will not affect earnings management. According
to Jao and Pagulung (2011), companies with high levels of leverage due to a large amount of total debt to total
equity will face a high risk of default, namely the company is threatened with being unable to fulfill its
obligations. This means that earnings management measures cannot be used as a mechanism to avoid this
default. Fulfillment of obligations must be carried out and cannot be avoided by earning management.
Profitability (ROA) partially has a significant effect on Earning Management (DA) this is because
the value of t-count> t-table (2,928> 1.969) or significance <0.05 (0.004 <0.05) so that Ho is rejected and H5
is accepted which states that profitability (ROA) has a positive effect on earnings management. The results of

www.ijrp.org
 Sella Herlina Harahap / International Journal of Research Publications (IJRP.ORG)
284

this study support the research conducted by Guna and Herawaty (2010) which states that the greater the
Return on Assets as a profitability ratio, the more efficient the use of assets is so that it will increase the
profitability of the company. Big profits will attract investors because with large profits the company will
have a higher rate of return. The higher this ratio, the better the asset productivity in obtaining net profit. So
that Return on Assets can motivate management to perform earnings management, and it can also be said that
Return on Assets has a positive effect on earnings management. The company's profits that are listed in the
financial statements are a sensitivity for investors and potential investors to make the decision making.
Therefore, companies that can provide good signals / deliver good information tend to attract potential
investors and investors to invest in the company. In the signaling theory put forward by Jogiyanto (2014),
information published as an announcement will provide a signal for investors in making investment decisions.
When information is announced, market participants first interpret and analyze the information as a good
signal (good news) or a bad signal (bad news). If the announcement of this information is considered a good
signal, investors will be interested in trading shares, thus the market will react, which is reflected in changes
in stock trading volume (Suwardjono, 2010). One type of information released by a company that can be a
signal for parties outside the company is an annual report. Therefore, company managers will be motivated to
carry out earnings management to convey good information to potential investors and investors.
Then the results of the t-statistic test on Sales Growth partially have a significant effect on Earning
Management (DA) this is because the value of t-count> t-table (3,217> 1.969) or significance <0.05 (0.001
<0.05) so that Ho is rejected and H6 is accepted. which states that Sales Growth has a positive effect on
Earnings Management. The results of this study are consistent with the research of Gu et al. (2005),
Handayani and Rachadi (2009), and Sari (2015) which state that sales growth has a positive effect on earnings
management. Companies with high sales growth rates also have the motivation to carry out earnings
management to earn profits, when they are faced with problems to maintain profit trends and sales trends.
This makes sales growth can affect the existence of earnings management.

5. Conclusion and Reccomendations

This study aims to analyze a model regarding the effect of Managerial Ownership, Institutional
Ownership, Company Size, Profitability (ROA), Leverage (DER), and Sales Growth on Earnings
Management in Manufacturing Companies in the Consumer Goods Industry Sector in 2015-2019 listed on the
IDX. The theoretical framework and model will be used as the theoretical basis for this research. The
phenomenon of earnings management is very interesting to research because it can provide an overview of the
behavior of managers in reporting their business activities in a certain period, namely the possibility of the
emergence of earnings management by managers by manipulating the company's profits to be higher, lower or
always the same for several periods. because of certain motivations that encourage them to manage or manage
financial data, especially reported earnings.
The population used in this study are all manufacturing companies listed on the Indonesia Stock Exchange
(BEI). Based on the list of shares on the IDX (2020), there are 193 manufacturing companies listed on the
IDX. The sampling technique used in this study is non-probability sampling because the sampling technique
does not provide equal opportunities for every element or member of the population to be selected as samples
(Sugiyono, 2014). The type of non-probability sampling used in this study is purposive sampling because the
sampling technique is based on certain considerations (Sugiyono, 2014). Certain considerations in
determining the sample or respondent in this study are manufacturing companies that are consistently listed
on the IDX website during the 2015-2019 period and companies that have managerial and institutional share
ownership data respectively during the observation period. The number of samples (N) used was 285 data

www.ijrp.org
 Sella Herlina Harahap / International Journal of Research Publications (IJRP.ORG)
285
13

obtained from 57 manufacturing companies with a 5-year study period. The results of this study are expected
to be able to answer the problem formulations in this study.
Based on data processing carried out to obtain the final result of the proposed hypothesis, there are
two hypotheses accepted and four other hypotheses rejected. The results of the study state that Managerial
Ownership, Institutional Ownership, Company Size and Leverage (DER) do not affect earnings management.
This is supported by research by Mediastuty and Machfoeds (2003), Welvin and Arleen (2010), Dian Agustia
(2013), Metta Kusumaningtyas (2012), Werner R Murhadi (2009), Gunawan, Darmawan, and Purwanti
(2015); Ayu, Elva, Anggita (2017). Then the results of further research state that profitability (ROE) has a
positive influence on earnings management. The results of this study support the research conducted by Guna
and Herawaty (2010) which states that the greater the Return on Assets as a profitability ratio, the more
efficient the use of assets is so that it will increase the profitability of the company. Big profits will attract
investors because with large profits the company will have a higher rate of return. The higher this ratio, the
better the asset productivity in obtaining net profit. So that Return on Assets can motivate management to
perform earnings management, and it can also be said that Return on Assets has a positive effect on earnings
management. Furthermore, the results of the study state that Sales Growth has a positive effect on Earning
Management. The results of this study are consistent with the research of Gu et al. (2005), Handayani and
Rachadi (2009), and Sari (2015) which state that sales growth has a positive effect on earnings management.
Companies with high sales growth rates also have the motivation to carry out earnings management to earn
profits, when they are faced with problems to maintain profit trends and sales trends. This makes sales growth
can affect the existence of earnings management. Here are some recommendations for further research so that
it can be more comprehensive. The following are some recommendations that can be given, namely:
• Future research is expected to examine other independent variables that can explain Earnings
Management with a greater R2 presentation.
• Future research is expected to use a sample of manufacturing companies outside Indonesia so that
we can find out the effect of variables on earnings management on an international scale.
• Future research can use data that is not too extreme in the mean.
• Future research should provide a more theoretical basis.
• Further research is expected to use different proxies, especially leverage proxies. It is
recommended to use proxies that are unlikely to have negative values on the liver ratio.
• Future studies are expected to examine using moderating variables.

References
Adyani, L. R., & Sampurno, D. D. (2011). ANALISIS FAKTOR-FAKTOR YANG MEMPENGARUHI PROFITABILITAS (ROA).
Jurnal Dinamika Ekonomi.
Ali, S., Salleh, N., & Hassan, M. (2008). Ownership structure and earnings management in Malaysian listed companies: the size effect.
Asian Journal of Business and Accounting, 89-116.
Asih, P. (2015). Faktor-faktor yang Mempengaruhi Praktik Manajemen Laba. Thesis.
Ball, R., Robin, A., & Wu, J. (2003). Incentives versus Standards: Properties of Accounting Income in Four East Asian Countries. Journal
of Accounting & Economics, 36, 235-270.
Christie, A. A., & Zimmerman, J. L. (1994). Efficient and Opportunistic Choices of Accounting Procedures: Corporate Control Contests.
The Accounting Review, 539-566.
Dechow, P., Sloan, R., & Sweeney, A. (1996). Causes and Consequences of Earnings Manipulaton: An Analysis of Firms Subject to
Enforcement Actions by the SEC Contemporary Accounting Research., 1-36.
Fahmie, A. (2018, 8 13). Pengaruh Profitabilitas, Leverage, Struktur Kepemilikan, Pertumbuhan Penjualan Dan Komisaris Independen
Terhadap Manajemen Laba (Studi Empiris Pada Perusahaan Industri Barang Konsumsi yang Terdaftar di BEI Tahun 2012-2014).
Jurnal Ilmiah Akuntansi Kesatuan, 6 no.2.
Fajrian, H. (2020, Febuari 20). TPS Food Sajikan Ulang Lapkeu 2017, Rugi Membengkak Jadi Rp 5 Triliun Artikel ini telah tayang di
Katadata.co.id dengan judul "TPS Food Sajikan Ulang Lapkeu 2017, Rugi Membengkak Jadi Rp 5 Triliun"

www.ijrp.org
 Sella Herlina Harahap / International Journal of Research Publications (IJRP.ORG)
286

,https://katadata.co.id/berita/2020/02/12/tps-food-saji. Diambil kembali dari Katadata.co.id:

https://katadata.co.id/berita/2020/02/12/tps-food-sajikan-ulang-lapkeu-2017-rugi-membengkak-jadi-rp-5-triliun
Fakhruddin, H. M. (2008). Istilah Pasar Modal A-Z. Jakarta: Elex Media Komputido.
Ghazali, Imam, 2016, “Aplikasi Analisis Multivariat Dengan Program IBM SPSS 23”, Cetakan kedelapan, Universitas Diponegoro,
Semarang. Hal 156, 134, 138, 137, 116, 5, 103, 157.
Govindarajan, V. (2009). Management Control System. Jakarta: Salemba Empat.
Irawati, S. (2006). Manajemen Keuangan. Bandung: Pustaka.
Jao, R., & Pagalung, G. (2011, November). “Corporate Governance, Ukuran Perusahaan dan Leverage terhadap Manajemen Laba
Perusahaan Manufaktur Indonesia”. Jurnal Akuntasi & Auditing, 8, 1-94.
Jensen, M., & Meckling, W. (1976). Theory of The Firm: Manajerial Behavior, Agency Cost and Ownership Structure. Journal of
Financial Economics, 3, 305-360.
Kennedy. (2010). Faktor- faktor yang Mempengaruhi Struktur Modal pada Perusahaan Real Estate and Property yang Go Public Di Bursa
Efek Indonesia. Jurnal.
Kouki, M., Abderrazek, E., Hanen, A., & Slim, S. (2011). Does Corporate Governance Constrain Earnings Management? Evidence from
U.S. Firms. European Journal of Economics, Finance and Administrative Sciences, 35, 58-71.
Lafond, R., & Roychowdhury, S. (2008). Managerial Ownership and Accounting Conservatism. Journal of Accounting Research, 101-
135.
Mahawyahrti, P. T., & Budiasih, I. A. (2016). Assymetry Information, Leverage and Firm Size on Earnings Management. Jurnal Ilmiah
Akuntansi dan Bisnis, Vol. 11, No. 2, Juli 2016, 100.
Muliati, N. K. (2011). Pengaruh Asimetri Informasi dan Ukuran Perusahaan pada Manajemen Laba di Perusahaan Perbankan yang
Terdaftar di Bursa Efek Indonesia. Tesis.
Nasution, M., & Setiawan, D. (2007). Pengaruh Corporate Governance Terhadap Manajemen Laba di Industri Perbankan. Simposium
Nasional Akuntansi X, Makassar.
Nirmalasari, I. (2020, Febuari 14). Mantan direktur Tiga Pilar Sejahtera (AISA) resmi jadi tahanan. Diambil kembali dari Kontan.co.id:
https://investasi.kontan.co.id/news/mantan-direktur-tiga-pilar-sejahtera-aisa-resmi-jadi-tahanan
Priyatno, Duwi, 2013, “Mandiri Belajar Analisis Data Dengan SPSS”, Yogyakarta: Media Kom. Hal 25, 30, 9, 40.
Priyatno, Duwi, 2014, “SPSS 22 Pengolah Data Terpraktis”, Edisi 1, Yogyakarta: ANDI. Hal: 94, 103, 106.
Puspitasari, I. (2020, Juli 06). Belum cabut suspensi, BEI minta Tiga Pilar (AISA) gelar public expose insidentil. Diambil kembali dar i
Kontan.co.id: https://investasi.kontan.co.id/news/belum-cabut-suspensi-bei-minta-tiga-pilar-aisa-gelar-public-expose-insidentil
Santoso, Singgih, 2013, “Menguasai SPSS 21 di Era Informasi”. PT. ELEK Media Komputindo. Jakarta. Hal: 347, 354
Savitri, D., & Priantinah, D. (2019). The Effect of Leverage on Earnings Management with Corporate Governance as Moderating
Variable Various Industries Manufacturing Companies Listed on Indonesia Stock Exchange 2013-2016. JURNAL NOMINAL /
VOLUME VIII NOMOR 2 / TAHUN 2019.
Schipper, K. (1989). Earnings Management. Commentary on Earnings Management, 91-102.
Scott, W. (2000). Financial Accounting Theory 2nd Edition. Canada: Prentice Hall.
Solihin, I. (2009). Pengantar Management. Jakarta: Erlangga.
Sukirni, D. (2012). KEPEMILIKAN MANAJERIAL, KEPEMILIKAN INSTITUSIONAL, KEBIJAKAN DEVIDEN DAN
KEBIJAKAN HUTANG ANALISIS TERHADAP NILAI PERUSAHAAN. Accounting Analysis Journal.
Suparsada, N. D., & Putri, I. A. (2017). PENGARUH PROFITABILITAS, REPUTASI AUDITOR, UKURAN PERUSAHAAN, DAN
KEPEMILIKAN INSTITUSIONAL TERHADAP AUDIT DELAY PADA PERUSAHAAN MANUFAKTUR. E-Jurnal Akuntansi
Universitas Udayana, 60-87.
Suwito, E., & Herawaty, A. (2005). Analisis Pengaruh Karakteristik Perusahaan terhadap Tindakan Perataan Laba yang Dilakukan Oleh
Perusahaan yang Terdaftar di Bursa Efek Indonesia. Simposium Nasional Akuntansi VIII.
Trihendradi, Cornelius, 2013, “Langkah Mudah Menguasai Analisis Statistik Menggunakan SPSS 21”, Yogyakarta: ANDI. Hal:154.
Wareza, M. (2019). Tiga Pilar dan Drama Penggelembungan Dana. Jakarta: CNBC Indonesia.
Watts, R. L., & Zimmerman, J. L. (1990, January). Positive Accounting Theory: A Ten-Year Perspective. The Accounting Review, 65,
131-156.
Watts, R., & Zimmerman, J. (1968). Positive Accounting Theory. New York: Prentice Hall.
Widarjono, Agus, 2015, “Analisis Multivariate Terapan Dengan Program SPSS, AMOS, dan SmartPLS”. Edisi II, UPP STIM YKPN,
Yogyakarta. Hal 71.
Widyastuti, T. (2009). “Pengaruh Struktur Kepemilikan dan Kinerja Keuangan Terhadap Manajemen Laba: Studi Pada Perusahaan
Manufaktur di BEI”. Jurnal Maksi, 9 No. 1, 30-41.
Widyastuti, T. (2009). “Pengaruh Struktur Kepemilikan dan Kinerja Keuangan Terhadap Manajemen Laba: Studi Pada Perusahaan
Manufaktur di BEI”. Jurnal Maksi, Vol 9 No. 1, 30-41.
Wild, J. J., & Subramanyam, K. (2009). Financial Statement Analysis 10th Edition. The USA: McGraw-Hill Companies, Inc.
Yendrawati, Y. (2017, 02 08). Pengaruh Dewan Komisaris Independen, Komite Audit, Kepemilikan Manajerial, dan Kepemilikan
Institusional terhadap Manajemen Laba. Jurnal Entrepreneur dan Entrepreneurship, 4 No. 1,2.
Yogiyanto. (2007). Teori Portofolio dan Analisis Investasi.

www.ijrp.org