The Influence of Corporate Governance Mechanisms on Earnings Management and Earnings Volatility in The Indonesian Banking Sector
DOI:
https://doi.org/10.55583/invest.v7i1.2039Keywords:
Corporate Governance, Earnings Management, Earnings Volatility, Banking SectorAbstract
This study aims to analyze the effects of corporate governance mechanisms on earnings management and on earnings volatility in the Indonesian banking sector. The corporate governance variables examined include managerial ownership, institutional ownership, audit committee independence, audit quality, and the frequency of audit committee meetings. This study employs a quantitative approach using secondary data from audited financial statements of banking companies listed on the Indonesia Stock Exchange during the 2020–2023 period. The sample consists of 39 companies selected through purposive sampling. Data were analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM). The results indicate that corporate governance mechanisms significantly affect earnings management, with the frequency of audit committee meetings being the most dominant variable. In addition, earnings management has a significant positive effect on earnings volatility. This study strengthens agency theory and positive accounting theory by showing that corporate governance serves as a monitoring mechanism that reduces earnings management in the banking industry. The findings have implications for banks, regulators, investors, and academics in improving supervisory effectiveness and the quality of financial reporting.
References
Ahmed, H., Alam, M. S., & Hossain, M. (2021). Audit committee independence and earnings quality: Evidence from financial institutions. Managerial Auditing Journal, 36(7), 987–1008. https://doi.org/10.1108/MAJ-02-2020-2547
Alhadab, M., & Clacher, I. (2021). The impact of institutional ownership on earnings quality and firm performance. International Review of Financial Analysis, 74, 101677. https://doi.org/10.1016/j.irfa.2021.101677
Alodat, A. Y., Salleh, Z., & Hashim, H. A. (2022). Audit committee characteristics and earnings quality in emerging markets. Asian Review of Accounting, 30(1), 45–67. https://doi.org/10.1108/ARA-06-2021-0114
Alqatamin, R. M. (2022). Audit committee effectiveness and earnings quality: Evidence from emerging markets. Asian Journal of Accounting Research, 7(3), 244–258.
Alzoubi, E. S. S. (2021). Audit quality and earnings management: Evidence from emerging markets. Journal of Financial Reporting and Accounting, 19(5), 787–805. https://doi.org/10.1108/JFRA-10-2020-0306
Biswas, S., Bhattacharya, M., Sadarangani, P. H., & Jin, J. Y. (2022). Corporate governance and earnings management in banks: An empirical evidence from India. Cogent Economics & Finance, 10(1), 2085266. https://doi.org/10.1080/23322039.2022.2085266
Buallay, A., Hamdan, A., & Zureigat, Q. (2021). Corporate governance and financial reporting quality in the banking sector. Journal of Financial Reporting and Accounting, 19(5), 849–867.
Damayanty, P., Hasibuan, A. N., & Sari, M. E. (2022). Pengaruh profitabilitas, likuiditas dan umur perusahaan terhadap opini audit going concern. Jurnal Ilmiah Edunomika, 6(2), 31–40. https://doi.org/10.29040/jie.v6i2.5201
Damayanty, P., Yulianto, K. I., Utomo, K. W., Nurdiana, D., Febriantika, F., Utama, R. P., & Amalia, T. (2023). Pendampingan penyusunan laporan keuangan pada KPM PKH yang mempunyai usaha di Kota Depok. ABDI MOESTOPO: Jurnal Pengabdian Pada Masyarakat, 6(2), 200–207. https://doi.org/10.32509/abdimoestopo.v6i2.3080
Elyasiani, E., & Zhang, L. (2021). Institutional ownership stability and financial reporting quality: International evidence. Journal of International Financial Markets, Institutions and Money, 72, 101337. https://doi.org/10.1016/j.intfin.2021.101337
Fatwara, M. D., Hasibuan, A. N., Nursalam, L. M., & Rahmadi, Z. T. (2022). Analisis faktor corporate social responsibility dipengaruhi ukuran perusahaan dan umur perusahaan yang terdaftar pada indeks LQ45. Jurnal Bisnis dan Manajemen, 2(1), 48–63.
Ghozali, I., & Latan, H. (2015). Partial least squares: Konsep, teknik, dan aplikasi menggunakan program SmartPLS 3.0 untuk penelitian empiris (4th ed.). Badan Penerbit UNDIP.
Habib, A., Bhuiyan, M. B. U., & Islam, A. (2021). Audit quality and financial reporting quality: Evidence from emerging economies. International Journal of Auditing, 25(3), 614–632. https://doi.org/10.1111/ijau.12235
Hassan, M. K., Karim, M. S., & Rashid, A. (2021). Institutional ownership and financial reporting quality in emerging markets. International Review of Financial Analysis, 78(2), 101932.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs, and ownership structure. Journal of Financial Economics, 3(4), 305–360. https://doi.org/10.1016/0304-405X(76)90026-X
Khatib, S. F. A., Abdullah, D. F., Elamer, A. A., & Hazaea, S. A. (2022). Audit committee characteristics and financial reporting quality in emerging economies. Journal of Financial Reporting and Accounting, 20(5), 1043–1065. https://doi.org/10.1108/JFRA-09-2021-0317
Mawardi, W., Muharam, H., & Haryanto, M. (2023). The role of audit committee characteristics and intellectual capital performance on intellectual capital disclosure: Evidence from the Indonesian banking sector. Economies, 11(1), 7–19.
Musma, M., Achmad, H., & Saffanah, N. (2024). The effect of ownership structure on earnings management in banking companies. Jurnal Manajemen Sains dan Organisasi.
Pangaribuan, D. B., Silaban, A., & Sijabat, J. (2023). The influence of the audit committee characteristics on the quality of earnings in banking companies listed on the Indonesia Stock Exchange in 2019–2021. Jurnal Pendidikan Tambusai, 7(2), 16038–16043.
Rahayu, D. P., Nurkholis, N., Subekti, I., & Atmini, S. (2024). The influence of earning targets, independent board, and audit committee on earnings management in the Indonesian banking sector. Banks and Bank Systems, 19(4), 288–297.
Rahmadi, Z. T., Wahyudi, M. A., Nurdiana, D., & Hasibuan, A. N. (2022). The influence of independent commissioners, audit committees, and profitability on the integrity of LQ45-indexed companies’ financial reports. Jurnal Ekonomi, 11(3), 612–622.
Salehi, M., Zimon, G., Tarighi, H., & Gholamzadeh, M. (2022). The relationship between audit quality and earnings persistence in emerging markets. Sustainability, 14(9), 5237. https://doi.org/10.3390/su14095237
Samad, A. W., Abdullah, N. H., & Ismail, N. A. (2023). Institutional monitoring and earnings management: Evidence from ASEAN emerging markets. Asian Journal of Accounting Research, 8(2), 155–170. https://doi.org/10.1108/AJAR-2022-0015
Sriwati, S., Verawati, V., & Kurniawati, H. (2024). Impact of the audit committee and audit quality on banking earnings quality. International Journal of Application on Economics and Business, 2(4), 628–637.
Supatminingsih, S., & Wicaksono, M. (2020). Pengaruh good corporate governance, ukuran perusahaan dan intellectual capital terhadap manajemen laba pada perusahaan manufaktur yang terdaftar di BEI. Jurnal Ilmiah Edunomika, 4(1). https://doi.org/10.29040/jie.v4i01.768
Velte, P. (2023). Audit committee characteristics and earnings management: Recent international evidence. Corporate Ownership and Control, 20(2), 45–59.
Wati, E., & Gultom, O. R. T. (2022). The impact of ownership structure on earnings management: Evidence from the Indonesian Stock Exchange. Journal of Accounting, Finance and Auditing Studies, 8(1), 152–175. https://doi.org/10.32602/jafas.2022.007
Wijayana, S., & Gray, S. J. (2021). Institutional factors and earnings management in the Southeast Asian banking industry. Asian Review of Accounting, 29(3), 401–420.
Zaman, R. K., & Andriyanty, R. (2022). Analisis pengembangan UMKM terhadap kesejahteraan nasional. Mediastima, 28(2), 96–114.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2026 Prisila Damayanti, Shine Pintor S. Patiro, Hendi Prihanto
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
