Jurnal Akuntansi

THE EFFECT OF GOOD CORPORATE GOVERNANCE AND FINANCIAL

DISTRESS ON REAL EARNINGS MANAGEMENT

Santi Yopie*1), Erika2)

Universitas Internasional Batam
[email protected]), [email protected])

ABSTRACT

The purpose of this research is to analyze the effect of good corporate governance and financial distress on real
earnings management. The sample in this study is a manufacturing company listed on Indonesia Stock Exchange
for the 2016-2020 period. Data collection in this study was carried out using secondary data taken from
financial statement of the company. The data were analyzed and tested using SPSS 25 program to test
descriptive statistics and outlier tests, and also use Smart PLS 3.0 program to test validity and reliability, test
quality indexes and test hypotheses. The results of this study indicate that institutional ownership has a
significant effect on real earnings management, managerial ownership has no significant effect on real earnings
management, family ownership has no significant effect on real earnings management, audit committee has a
significant effect on real earnings management, auditquality has a significant effect on management. Financial
distress has a significant effect on real earnings management. The moderating variable in this study proves that
family ownership has no significant effect on real earnings management which is moderated by political
connections.

Keywords: Real Earnings Management; Institutional Ownership; Managerial Ownership; Family Ownership;
Audit Committee; Audit Quality; Financial Distress; Political Connections.

INTRODUCTION

Background
Earnings management is an act of manipulating financial statements that has been heard
very often by exaggerating profits or minimizing profits (Santoso, 2021). The case that
allegedly carried out earnings management carried out by PT Tiga Pilar Sejahtera Food Tbk
in 2017. In this case, it was found that there was manipulation of the recording of financial
statements on receivables where the receivables were overstated by reaching IDR 1.4 trillion,
inflation funds worth IDR 4 trillion, revenue inflation of IDR 662 billion, EBITDA inflation
of IDR 329 billion and there is a flow of funds of IDR 1.78 trillion to management (Wareza,
2019). PT Tiga Pilar Sejahtera Food also noted six distributors as third parties who have the
context of investor protection which means that if a problem occurs, the third party is
responsible. While the six distributor companies are affiliates (Mahadi, 2021).
In the financial statements, information about company profits can be seen. Financial
statements are information needed by decision makers (such as investors and creditors) that
are needed to make decisions whether they can invest in the company. Managers in the
company must take action so that the company's financial statements are presented perfectly
(Ningsih, 2015). Therefore, the reported earnings information must be presented in a quality
and related to cash flow. The attitude taken or taken by the company to generate good profits
is earnings management.
Earnings management is an administration which in the process of making financial
statements is needed by outside parties because affect earnings reporting. Management can
use methods by making or creating regulations that speed up or slow down expenses and
revenues, so the company's profits are according to company desired (Dwiyanti & Astriena,
2018). The occurrence of earnings management due to the managers in the company who use
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the strategy of accounting in recording profits which plunged the financial statements which
resulted in financial information to conform to the actual circumstances.
Earnings management is always judged negatively because it presents financial
information that is not in the right condition. This situation is due to the relationship of
management with shareholders as well as interested parties collide or collide with each other.
The management side expects a relatively high bonus by increasing or increasing the
company's profits, while shareholders try to lower the company's profits with the aim of
attracting their shares back (Ningsih, 2015). Earnings management is divided into two
approaches, namely real earnings management and accrual earnings management (Yulaeli,
2018). Researched by Ningsih, (2015) results that managers prefer to do real earnings
management than accrual earnings management. It is proven that is more difficult for auditors
to find. Companies operated by family ownership structures or family business groups more
likely to carry out earnings management actions. This situation causes a decrease in the
quality of company earnings or an increase in the quality of company earnings by non-
controlling and controlling shareholders.
Good corporate governance arises because the relationship between agents and
principals is not good. This unfavorable relationship is triggered by reasons that information
is not strong enough which leads to information asymmetry that may be affected by earnings
management (Hidayanti & Paramita, 2014). The principle of good corporate governance is a
new pattern that can motivate the provision of bonus compensation to encourage management
to manipulate the accounting numbers contained in the financial statements. To minimize
conflicts with the parties concerned, financial reports that have been prepared with accounting
numbers are needed. The method used to control agency costs is through good corporate
governance. Corporate governance is a rule that can regulate or coordinate the relationship
between management, shareholders, government, creditors, employees and other external and
internal stakeholders relating to the rights and obligations to control the company. There are
four main factors to increase shareholder welfare and professionalism without leaving the
interests of shareholders. The four components are responsible, transparency, fairness, and
accountability (Susanto & Pradipta, 2016).

The Aim of the Research

The purpose of research is to obtain new knowledge or discoveries as evidence or
testing the truth of existing knowledge. The aim of this research is to determine whether there
is an influence between the institutional ownership, managerial ownership, family ownership,
audit committee, audit quality, and financial distress on real earnings management. This
research also aim to determine whether there is an influence between family ownership on
real earnings management which moderated by politic connections.

Contributions
In theory, this research is requested to be used as a reference for scholars and contribute
to the literature on research on good corporate governance, financial distress, politic
connections, and real earnings management. This research is requested by practitioners to
share the following benefits:
1. For researchers, this is in order to increase the understanding and knowledge of
researchers on the relationship between good corporate governance, financial distress,
politic connections, and real earnings management.
2. For companies, this research is to show that companies should pay more attention to
how works good corporate governance, financial distress, politic connections, and real
earnings management.
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3. For investors, this research is expected to provide insight of making future investment
into the relationship between good corporate governance, financial distress, politic
connections. and real earnings management and government action against the
government in making investment decisions.

LITERATURE REVIEW
Institutional Ownership on Real Earnings Management
Institutional ownership has the resources, capabilities or opportunities in monitoring,
influencing, and controlling the decisions of managers in the company. Similarly, the
literature shows that managers of highly concentrated firms have the opportunity to be closely
monitored (Yulaeli, 2018). If the majority of company ownership is in the hands of a few
people, then the company is highly concentrated. The fewer people who own a lot of shares,
the more reasons they should focus on investing and thus monitoring the management of
company affairs (Farouk & Bashir, 2017). Institutional ownership is the structure of the
shareholders owned by the institution. Institutional ownership has an important task in a
company (Setiawati & Lieany, 2016). This role can control the management consisting of
shareholders and managers. Institutional ownership can minimize disputes between
shareholders and managers. The presentation of share ownership by the institution will have
an impact on the process of preparing the company's financial statements, which is impossible
in the absence of earnings management. Institutional ownership usually plays a role in
monitoring a company that ensures an increase in shareholder wealth due to a large
investment in the company. Setiawati & Lieany (2016) shows research on the significant
negative effect of institutional ownership on real earnings management. This situation shows
that institutional ownership is the largest shareholder who can monitor the company's
operations and limit managers to profit from themselves, so managers are not relaxed in
manipulating real profits generated by the company. This research are in line with Susanto &
Pradipta (2016) research. Then it can be formulated into the following hypothesis:
H1: Institutional ownership has a significant negative impact on real earnings management.

Managerial Ownership on Real Earnings Management

Shareholders can pressure managers to increase company profits, thereby achieving
market value and because of this pressure, manager carry out earnings management.
Managerial ownership can equalize the interests of managers and company investors because
the manager is the manager and owner of the company.Managerial ownership is the
ownership structure owned by company managers. There are many owners of the company's
shares, one of which is ownership by the manager. This action was confirmed by the company
manager. This arrangement is because the manager's ownership determines policies and
decisions related to the formation of financial statements in accordance with applicable
standards (Hidayanti & Paramita, 2014). When a company has managerial ownership, it
reflects the distribution of company power between managers and shareholders. Hidayanti &
Paramita (2014) shows research on significant positive impact of managerial ownership on
real earnings management. It show a higher managerial ownership structure will not change
the opportunistic attitude and behavior of management on the company's real earnings
management. This research are in line with Kamardin (2014) research. Then it can be
formulated into the following hypothesis:
H2: Managerial ownership has a significant positive impact on real earnings management.

Family Ownership on Real Earnings Management

Family ownership in companies can affect the quality of financial reports because
families usually occupy or hold important positions in the company which causes family
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companies to be compelled to report higher profits than non-family companies. The

increasing concentration of family ownership, the higher the earnings management actions
taken.Companies with family members have their own characteristics, namely the
involvement of members and the role of families in running or managing the company. The
ownership structure is very important because of the problems caused by the breakdown of
ownership and management of the company. The important factor is family. The family is the
controlling shareholder which causes the alignment of the interests of all family shareholders
to lead to long-term management and is more concerned with the company's image.
Therefore, the family is an important factor in quality earnings information. Yulaeli (2018)
and Ghaleb, Kamardin, & Tabash (2020) shows research on significant negative effect of
family ownership on real earnings management. Because family is the controlling shareholder
so that the owner of the company can easily supervise the manager better and also with the
presence of family shareholders can focus more on long-term investment than other
shareholders. Company owners also tend to focus on the company's reputation so that they
can build good relationships with third parties. Then it can be formulated into the following
hypothesis:
H3: Family ownership has a significant negative impact on real earnings management.

Audit Committee on Real Earnings Management

Audit committee is an important person in a company. The committee is called the eyes
and ears of the board of commissioners in monitoring industry operations. The creation of
effective monitoring in the company intersects with the amount of resources owned by the
audit committee (Wicaksono, Pambudi, & Miftah (2016). Effective monitoring can prevent or
reduce management from giving bad grades of financial reports. The characteristics of a good
audit committee can affect the efficiency of the audit committee in carrying out its duties. In
order for management to be more careful in carrying out company activities, real earnings
management actions can be avoided in the preparation of company financial statements
(Kharashgah, Amran, & Ishak, 2019). Haji-Abdullah & Wan-Hussin (2015) audit committee
is measured by the size of the audit committee, audit committee meetings, audit committee
independence and audit committee expertise have a significant negative impact on real
earnings management. This research are in line with research by Wicaksono et al., (2016)
which resulted in significant negative ties on real earnings management. Then it can be
formulated into the following hypothesis:
H4: Audit committee has a significant negative impact on real earnings management

Audit Quality on Real Earnings Management

The quality of financial statements also an important factor in a company both in terms
of presentation, delivery and so on with the aim of attracting investors or trusting investors.
With this goal, the company will carry out earnings management. The quality of the financial
statements will attract investors to invest in the company if it is good. One of them is audit
quality which shows the auditor's ability to manage the company's financial information. The
ability of the auditor is always seen because it can weaken the quality of company's financial
statements. Boedhi & Ratnaningsih (2017) research shows a significant positive onreal
earnings management. This situation proves that good quality auditors will encourage
companies to bring out real earnings management. This research are in line with Lestari &
Aeni (2019) which shows a significant positive effect on real earnings management.Then it
can be formulated into the following hypothesis:
H5: Audit quality has a significant positive impact on real earnings management
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Financial Distress on Real Earnings Management

In the financial statements can be seen how the condition of the financial statements.
Companies that are in financial distress will also carry out earnings management.Financial
distress is not a new thing to hear, especially in a company. Companies experiencing financial
distress are natural but not on an ongoing basis. There are times when finances are stable.
Financial distress shows that the company is experiencing financial distress gradually and
leads to bankruptcy (Muljono & Suk, 2018). Companies that are in financial distress will
carry out profit management both from excessive product production, reducing expenses from
sales, general and administrative expenses that can increase or decrease profitability. Muljono
& Suk (2018), Yulaeli (2018), and Feldo, Rinaningsih, & Yuliati (2019) research shows a
significant negative impact between financial distress and real earnings management.
Companies with negative earnings are prefer to carry out earnings management, namely by
lowering profits and then being recognized as current expenses so that in the next period an
increase in company profits can be seen, so that investors who view the financial statements
will assume that the company has recovered from financial distress.
H6: Financial distress have a significant negative impact on real earnings management

Family Ownership on Real Earnings Management moderated by Politic Connections

Everyone must have good relations with friends, family, relatives and so on. Political
connections is a relationship related to the state. Basically, political connections tend to
influence the influence of family ownership on earnings management (Ghaleb et al., 2020).
Family plays an important role in a family because the family holds an important position in a
company. Political connections can have good and bad results as well as a person's reputation.
The more famous the better because of the many connections to people. Research by Braam,
Nandy, Weitzel, & Lodh (2015) and Apriyani et al., (2019) research shows a significant
positive impact on real earnings management. It prove that politically connected companies
have a possibility to replace accrual to real earnings management due to public monitoring
which causes detection risk to increase so that politically connected companies prefer to carry
out real earnings management because it is less detectable.Then it can be formulated into the
following hypothesis:
H7: Family ownership has a significant positive impact on real earnings management which
is moderated by political connections.
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From the description above, it can be described as a framework of thought as follows:

Institutional Ownership (X1)

Moderating Variable:
Political Connections
Managerial Ownership (X2)

Family Ownership (X3)

Audit Committee (X4) Real Earnings

Management (Y)
Audit Quality (X5)

Financial Distress (X6)

Control Variables:
- SIZE
- LEV
- ROA
- MTBV

Figure 1. Research Conceptual Framework

RESEARCH METHODS
This research method used is the use of quantitative data. The subject of quantitative
research is the use of one or more types of data whose purpose is to develop pre-existing
research. The use of a descriptive approach because later it will produce descriptive data
which basically uses a deductive-inductive approach. Quantitative methods are designed to
test hypotheses, establish facts, prove relationships between variables, pass on descriptive
statistics, and estimate results. Research models that use quantitative methods tend to be
standardized, formal, structured and designed in such a way beforehand.
This study also uses data with the type of collection time series, because the data used
for research is over one period from 2016 to 2020. Assessment in terms of the characteristics
of the problem, this study is included in a causal comparative study (Causal-Comparative)
where the characteristic type is to find a cause-and-effect relationship between variables
where the assessment is done by comparing the variables. While historical research because
the data collected and used on the object of this research isdata, time series which means that
it has happened in the past.
The population are manufacturing companies that listed on the Indonesia Stock
Exchange in 2016-2020. The secondary data from the company's financial and annual reports
on IDX or the company's official website.The procedure for collecting data is literature study
and documentation. Literature and documentation studies are used to obtain quantitative data
from the financial statements. The research sample must have the following provisions:
1. Manufacturing company listed on the Indonesia Stock Exchange.
2. Manufacturing company that IPO before 2016.
3. Manufacturing company that have complete financial statements.
Analyzing data is the act of searching for information that can be useful to many people.
The method in analyzing the data is needed to fulfill the question statement or to evaluate the
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assumptions that have been put forward. PLS is an equation model derived from Structural
Equation Modeling (SEM) with a variance or component based approach to SEM.The data
analysis method in this researchis used Partial Least Square (PLS).
In the PLS method, the data is distributed free of charge without any certain
assumptions, which can be categorical, interval, ratio, nominal and ordinal). PLS also uses
random multiplication or bootstrap where the assumption of normality is not an obstacle for
PLS. In addition, PLS not required the use of a minimum sample size in research, including
even smaller sample sizes can still use PLS. SEM is a useful technique to cover the weakness
of the regression technique. SEM is divided into two methods, namely Covariance Based
SEM (CBSEM) and methods Variance Based SEM or PLS. PLS is a powerful study review
technique because it is not based on many assumptions. PLS is classified as a non-parametric
type because it does not require a normal distribution of the PLS modeling data.
The weight estimate is used as a form of the latent variable score element obtained
based on the outer model (measurement model as the relationship between the indicator and
its construct) and the inner model (structural model as a link to latent variables) is determined.
The target of using PLS is to make assumptions. In making these assumptions, it is by
estimating the correlation between variables, so that the value of the latent variable is obtained
which will help researchers in making predictions. The result is the residual variance of the
dependent variable which has been minimized. The latent variable is linear from the number
of parameters.
The evaluation of the limitations obtained using PLS is divided into the following types
of categories: The first category is weight estimates which are useful for making estimates of
latent variable scores. The second category is path estimation, which is a path estimate that
reflects the variables connected to the latent variable with between latent variables and their
indicator blocks (loading).

Operational Definition and Variable Measurement

Institutional Ownership
Institutional ownership is shares owned or purchased by institutions. The institution in
question can be local or foreign. These institutions consist of mutual fund companies,
insurance companies, pension funds, and other institutions in the form of companies.
Institutional ownership in this study uses the ratio of issued shares and is ownership by
institutions divided by total outstanding shares (Setiawati & Lieany, 2016).

Managerial Ownership
Managerial ownership can influence the nature of decisions and thus affect the
development of the company. Managers are more in favor of their personalities such as salary
increases or status because managers are generally consumptive and productive. Managerial
ownership in this study uses the ratio of issued shares and is the ownership by managerial
members divided by total outstanding shares (Hidayanti & Paramita, 2014).

Family Ownership
An important factor in a company is the family because the family usually holds
important positions or positions. Family ownership in this study uses the ratio of issued shares
and is ownership by family members divided by total outstanding shares(Ghaleb et al., 2020).

Audit Committee
1. Audit Committee Size
The size of audit committee uses the number of members of the audit committee
(Kharashgah et al., 2019).
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2. Independence of the Audit Committee

The independence of the audit committee is determined by Bapepam LK (2012),
as follows (Hidayanti & Paramita, 2014):
a. People who are not in a legal consulting firm, public accounting firm, party
providing insurance services or public appraisal service office, appraisal services,
non-insurance services and other consulting services to issuers or related public
companies in the last 6 months,
b. Except for independent commissioners, KA members are not persons who have
worked or have the right to control, plan, supervise or lead the activities of issuers
or public companies within the last 6 months.
c. Does not own shares indirectly or directly in issuers or public companies.
d. Has no affiliation with members of the directors, major shareholders or board of
commissioners of the issuer or public company.
e. Does not have a good business relationship indirectly or directly related to the
business activities of the public company or issuer.
3. Expertise of the Audit Committee
In accordance with the provisions of the Minister of State regarding BUMN (No.
Per-12/MBU/2012 and Bapepam LK (2012)) that the audit committee member is at
least 1 person and must meet the following requirements: accounting education
background or expertise in finance. The two regulations do not describe the
characteristics of audit committees with accounting education or financial expertise.
According to the SEC definition in IAI (2015), financial experts are defined as having
education and experience, including treasurer, head of accounting, public accountant,
auditor or other experience with similar functions.
4. Audit Committee Meetings
Measurements of audit committee meetings use the number of meetings or
meetings held within a period of 1 period (Kharashgah et al., 2019).

Audit Quality
The auditor must be able to detect material errors in financial statements. The quality of
good financial statements describes a good auditor. Audit quality is an effort or ability of the
auditor to catch material misstatements and report these errors simultaneously (Boedhi &
Ratnaningsih, 2017). Audit quality is measured using a dummy variable equal to '1' if a
company employs Big 4 auditors and '0' otherwise. The Big 4 Audit Firms mentioned are as
follows:
1. Deloitte Firm
2. PwC Firm
3. Ernest & Young Firm
4. KPMG Firm

Financial Distress
Finance is an important factor in the company. With stable finances, the company will
easily run the company, otherwise if the company's finances are unstable, it will be difficult to
run the company's operations. Financial distress reflect the company's inability to pay off its
obligations (Melinda & Widyasari, 2019). The financial distress of this study was measured
using the Altman model or the so-called Altman Z-Score formulated as follows:

Zscore=1,2 ( WC
TA ) ℜ
+1,4 ( )+ 3,3 (
TA
EBIT
TA ) +0,6 (
MVE
BVL ) +1,0 (
SALES
TA )
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Description:
WC = Working Capital
TA = Total Assets
RE = Retained Earnings
EBIT = Earnings before Interest and Tax
MVE = Market Value of Equity
BVL = Book Value of Liabilities
Real Earnings Management
REM is defined as an act of manipulation or management action that drifts away from
business provisions to meet nominal income. It detects that there is a real manipulation of
activities by examining cash flow from operations or cash flow operations (CFO), production
costs (PRC) and discretionary costs (DIE), found consistent evidence that companies try to
avoid losses by offering discounts for increasing sales, exaggerating manufacturing to
minimize the cost of goods sold and reducing discretionary costs aggressively to lower
margins (Ghaleb et al., 2020). Thus, to detect real earnings management, three methods are
used, namely as follows:
1. Sales Manipulation
Ningsih(2015) sales manipulation is an action taken by a company to get a temporarily
increase sales by providing discounts, excessive goods and longer terms. Actions taken
inadvertently will affect profits thereby increasing profits and cash flow (Khuong, Ha, & Thu,
2019). Cash flow from operating activities is calculated as the residual or residual value of the
calculation and is referred to as ACFO (abnormal cash flow from operations) with a small
ACFO indicating high real earnings management.Sales manipulation is formulated as follows:

CFOt 1 Salest ∆ Salest

Assets t−1
=β1
(
Assetst−1 ) (
+ β2
Assets t−1
+ β3) (
Assetst −1
+ εt)
Description:
CFOt = Cash flow operations period t.
Assetst-1 = total assets of the previous year.
Salest = total sales in period t.
∆Salest = change in total sales minus the previous year's sales.

2. Overproduction
Production is an activity which creates new products or adds quality to goods so that
they can meet needs (Adiguzel, 2013). Companies can produce or manufacture excess
products because this action can lower the cost of goods sold. Production costs are calculated
as the residual value of the calculation and are called APRC (abnormal level of production). A
large APRC indicates high real earnings management. This method can reduce COGS and
increase profits (Ningsih, 2015) is formulated as follows:

PRC t 1 Salest ∆ Salest ∆ Salest−1

Assets t−1
=β1
(
Assetst−1 ) (
+ β2
Assets t−1
+ β3) (
Assetst −1
+ β4) (
Assetst −1
+ε t )
Description:
PRCt = sum of changes in inventory (∆INV) and cost of goods sold (COGSt) at t.
Assetst-1 = total assets of the previous year.
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Salest = total sales in period t.

∆Salest = change in total sales minus the previous year's sales.
∆Salest-1 = change in sales related to sales of tofu in advance.
3. Discretionary Cost Reduction
Discretionary costs are costs that can be reduced or increased according to the
company's decision (Farouk & Bashir, 2017). The discretionary costs referred to are the sum
of general and administrative expenses, research and development expenses, advertising
expenses, and selling expenses. Examples of discretionary costs are training costs, advertising
costs, maintenance costs and so on. The company minimizes these reported costs in order to
increase revenue. Discretionary costs are calculated as the residual or residual value of the
calculation and are called ADIE (abnormal discretionary expenses) with a small ADIE
indicating high earnings management. Discretionary costs are generally paid in cash, this
reduces or decreases cash outflows and has a positive effect on operating cash flows
formulated as follows:

DIE t 1 Salest −1
Assets t−1
=β1
(
Assetst−1 ) (
+ β2
Assets t−1
+ε t)
Description:
DIEt = discretionary costs during period t.
Assetst-1 = total assets of the previous year.
Salest-1 = total sales in the previous year.

Company Size
Company size is a size in the form of small or large in the company monitored from its
assets. Firm size in this study uses the natural logarithm of total assets (Ghaleb et al., 2020).

Leverage
Leverage is used to measure company assets that are financed with long-term debt.
Leverage estimates total debt divided by total assets (Ghaleb et al., 2020).

Return on Assets
ROA in this study uses total net income divided by total assets. Companies that
manipulate earnings tend to have a motive to improve company performance to make it look
good (Ghaleb et al., 2020).

Market to Book Value of Equity

MTBV in this study uses the market value of shares or market capitalization divided by
the book value of shares or total equity for the period (Ghaleb et al., 2020).

Political Connections
The moderating variable of this research is political connection. Political relations can
be used as the supporting indicators of a company. In this study, political connection is used
as a moderating variable. Political connections can weaken or strengthen a company because
of that reputation (Chandra, 2021). It is stated that there is a political connection if:
1. There is one director or board of commissioners who arranges positions as a member of
the state parliament/high state official (government cabinet), state institution official and
member of a political party.
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2. There is one of the director or board of commissioners as a former high-ranking official

or politician.
3. One of the owners / founders of the company or controlling shareholder is a government
official / former government official and politician.
4. There is one of the director, commissioners, owners, or shareholders who have close
relationships with politicians, political parties, government officials or former
government officials. To limit subjectivity, close relationships in this study were
determined according to family relationships as well as cases where close relatives or
friends with politicians.

RESULTS AND DISCUSSION

The table presentation below shows a total of 192 companies listed on the IDX during
the 2016-2020 period. During that period, there were also 49 companies whose IPOs after
2016, there were 8 companies whose financial statements were not available, and 1 company
whose company withdrew from the IDX. Thus the companies that realize the requirements to
be researched are 134 companies with a total data sample of 670 data and there are 107 data
outliers so that the data that can be studied reaches 563 data samples that can be studied. This
study uses independent variables, namely institutional ownership, managerial ownership,
family ownership, financial distress and audit committee. While the dependent factor is real
earnings management. The control factors are leverage, return on assets, company size, and
market to book value of equity.

Table 1. Sample Selection Criteria

No Description Samples
1 Manufacturing Company Listed on the IDX 192
2 IPO After 2016 (49)
3 Incomplete Financial Statements (8)
4 Delisting from IDX (1)
Total 134

Descriptive Statistics
The table below displays descriptive statistics for regression such as dependent,
independent, moderating, and control variables. The table presents the entire sample for
descriptive statistics including minimum, maximum, standard deviation and mean values.

Table 2. Descriptive Statistics

Standard
Variable N. Min Max Mean
Deviation
REM 563 -1.071 1.091 0.024 0.317
KI 563 0.000 1.000 0.737 0.238
KM 563 0.000 0.482 0.039 0.084
KF 563 0.000 0.513 0.037 0.092
AC S 563 3.000 4.000 3.036 0.185
AC M 563 0.000 22.000 5.801 3.360
AC I 563 2.000 4.000 3.021 0.222
AC E 563 0.000 4.000 2.075 0.794
KK 563 -7.388 27.680 3.313 3.863
SIZE (IDR 000.000) 563 89.328 295.830.000 9.901.154 25.013.202
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LEV 563 0.065 2.147 0.495 0.296

ROA 563 -0.401 0.921 0.037 0.101
MTBV 563 -8.540 20.594 1.555 2.004
The minimum real earnings management (REM) figure of -1,071 is found at PT Akasha
Wira International Tbk. The maximum number shows 1,091 found at PT Alakasa Industrindo
Tbk and the average value shows 0.024 with a standard deviation of 31.7% which means that
the average company performs earnings management actions on real activities in the
company. We have often heard of earnings management and many companies do it so that it
is expected to be further raised to get bonuses.
For institutional ownership (KI) as measured by the percentage of share ownership of
institutional companies from 563 samples that have a minimum score of 0.000 or 0%, the
maximum value of 1,000 or 100% is found at PT Lion Metal Works Tbk, the average number
is 0.737 or 73.7% in the standard 23.8% deviation. This situation shows that there are
companies whose share ownership is not owned by institutions called 0%. The average
number is greater than the standard deviation, which means that the change between the
maximum and minimum figures during the observation period is small or there is no
relatively small gap between the lowest and highest institutional ownership.
Managerial ownership (KM) shows a minimum number of 0.000 or 0%, the maximum
number shows 0.482 or 48.2% is found in PT Ultra Jaya Milk Industry & Trading Company
Tbk which means that the management has a lot of shares so that managerial ownership is
high. The mean value shows 0.039 or 3.9% with a standard deviation of 8.4%. This shows
that there are companies whose shares are not owned by managers and companies whose
shares are owned by company managers.
Family ownership (KF) shows a minimum value of 0.000 or 0%, the maximum number
shows 0.513 or 51.3% taken by PT Intanwijaya Internasional Tbk for 2020 and the average
value shows 0.037 or 3.7% with a standard deviation of 9.2%. This situation indicates that
there are companies whose shares are not owned by the family, namely 0% and there are
companies whose share ownership is also owned by the family.
Audit committee (AC) is measured by AC Size, AC Meetings, AC Independent, and
AC Expertise. AC Size (AC S) displays a minimum number of 3, a maximum number of 4,
the average number shows 3,036 and a standard deviation of 0.185. This situation shows that
there are companies that do not have audit committee members and have audit committee
members. Generally from the sample, many trains consist of 3 people so that on the average
value we can see it too. Based on the Financial Services Authority Regulation No. 55 /
POJK.04 / 2015, the total number of people who must be on the audit committee in each
company has been determined. In particular, the regulation stipulates that the number of audit
committees must be a minimum of 3 (three) persons which must be chaired by an independent
commissioner. This situation shows that on average all companies have KA of 3 people.
AC meeting (AC M) displays a minimum score of 0, a maximum number of 22, an
average of 5,801 and a standard deviation of 3,360. This situation shows that there are
companies that hold meetings and some that do not hold meetings within a year. On average,
in the sample, companies that hold audit committee meetings are 5-6 times a year. There are
also companies that do not disclose the number of audit committee meetings in the annual
report. Based on the Financial Services Authority Regulation No. 55 / POJK.04 / 2015 which
explains that the AC is expected to hold regular meetings at least once every three months.
This is done to increase effectiveness in carrying out the monitoring function.
AC independence (AC I) displays a minimum score of 2, a maximum score of 4, an
average number of 3,021, and a standard deviation of 0.222. This situation proves that there
are companies whose members of the audit committee are independent and some are not. On
average in the company, because there are 3 members of the audit committee, it inadvertently
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affects the independence of the audit committee of 3 people as well. Where according to the
regulations in Indonesia, the chairman of the audit committee is an independent commissioner
and members of the company's audit committee are parties who are not affiliated with the
company, which means that the audit committee is an independent member from outside the
company.
AC expertise (AC E) shows a minimum score of 0, a maximum score of 4, an average
value of 2,075 and a standard deviation of 0.794. This situation proves that the expertise of
KA members in the field of accounting and finance on average each company has 2 people
who have experience working in these fields.
For the variable of financial distress (KK) shows a minimum value of -7,388 owned by
PT Panasia Indo Resources Tbk. The maximum value indicates the value of 27,680 is found
at PT Hanjaya Mandala Sampoerna Tbk. The average value shows 3,313 which proves that
the sample in the study is included in the save zone with a standard deviation of 3,863. This
proves that there are companies that are experiencing distress and there are companies that are
not distressed in terms of the save zone or gray area. From here it can be seen, the prediction
of the bankruptcy of a company.
For the company size variable (SIZE), which uses the measurement of company assets
presented in the table is millions of rupiah. The maximum amount is IDR
295,830,000,000,000 owned by PT Astra International Tbk, the minimum amount is IDR
89,327,328,853 owned by PT Primarindo Asia Infrastructure Tbk. The average number shows
9,901,154,936,807 with a standard deviation value of 25,013,202,406,256 indicating that the
standard deviation of variation is low.
Leverage (LEV) displays an average number of 0.495 which indicates the average
amount of company assets financed by debt is 49.5%. The lowest number from the test results
is 0.065 which is owned by PT Inti Agri Resources. The highest value from the test results,
which is 2,147, is owned by PT Argo Pantes Tbk with a standard deviation of 0.296, which
means that the standard deviation is highly variable.
Return on assets (ROA) displays a minimum score of -0.401 owned by PT Keramika
Indonesia Assosiasi Tbk. a maximum number of 0.921 owned by PT Merck Tbk. The average
amount is 0.037 with a standard deviation is 0.101. It shows that the percentage of profits
obtained by the company with its assets.
Market to book value of equity (MTBV) showing a minimum number of -8,540 is found
in PT Century Textile Tbk. The maximum value of 20,594 is found at PT Hanjaya Mandala
Sampoerna Tbk. The average number is 1,555 with a standard deviation of 2,004. This
situation proves that the company's growth prospects are stated in market price which are
considered to be included in the stock price. The average number is lower than the standard
deviation, which means that there is a high variation between the maximum and minimum
numbers during the observation period.

Table 3. Statistic Descriptive Dummy Variable

Variable Category Total Percent
Audit Quality 1.: BIG 4 230 40.9%
0 : NON BIG 4 333 59.1%
Politic Connections 1 : Connection 234 41.6%
0 : No Connection 329 58.4%
It can be seen that the audit quality variable (AQ) categorized into 2 categories, namely
KAP BIG 4 and NON KAP BIG 4. It can be concluded that 230 data or as much as 40.9% of
data use the services of KAP BIG 4. A total of 333 data or 59.1% of data do not use services
of KAP BIG 4. This situation proves that KAP BIG 4 is less than NON KAP BIG 4.
Political connections (PC) are divided into two, namely there are connections and there
are no political connections. It can be concluded that there are 234 data whose members have
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political connections or 41.6% and as many as 329 data whose members have no connection
or 58.4%. This situation proves that the political connections in companies are greater than
those without political connections.

Outer Model Evaluation

Measurement model or external model shows how each parameter block is related to its
latent variable. In the analyzed model, the correlation between latent variables and their
parameters is determined in the analysis of the external model or measurement model. This
process is carried out to find out that the indicators or research constructs have met the criteria
of validity and reliability. The outer model is divided into 2 tests, namely validity and
reliability.

Convergent Validity
Convergent validity is carried out to measure the accuracy of indicators in displaying
latent variables. In this test, it can be tested by looking at the Outer Loadings and Average
Variance Extracted (AVE) values. If the correlation of individual reflection measurement with
the construct to be measured by looking at the outer loading which has a value > 0.60 and the
AVE has a value > 0.5, it is considered to have met the criteria of convergent validity.
According to Chin (taken by Imam Ghozali), an outer loading figure of around 0.50–0.60 is
acceptable.

Table 4. Loading Factor

AC AC
VAR KI KM KF AC S AC I AQ KK REM PC KF*PC
M E
1.00
KI
0
1.00
KM
0
1.00
KF
0
0.81
AC S
9
AC M 0.674
0.87
AC I
7
0.12
AC E
9
1.00
AQ
0
1.00
KK
0
1.00
REM
0
1.00
PC
0
KF*PC 0.944
From the test results, each indicator has a high relationship with each construct because
outer loadings explain the strength of the index that affects each construct (latent variable)
except audit committee expertise 0.129 is not enough.

Table 5. Average Variance Extracted (AVE)

Variable AVE
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KI 1.000
KM 1.000
KF 1.000
AC 0.489
AQ 1.000
KK 1.000
REM 1.000
PC 1.000
KF*PC 1.000
SIZE 1.000
LEV 1.000
ROA 1.000
MTBV 1.000
From the test results to show the value of AVE on this model already meets the criteria
of convergent validity because the value AVE on this study has been worth > 0.5, except for
the audit committee variable whose value is < 0.5, which is 0.489, so this variable does not
meet the criteria.

Discriminant Validity
Discriminant validity relates to the principle that different indicators should not have
high values. There are 3 criteria for this test where if it is fulfilled then the data has met the
discriminant validity criteria. These criteria include cross loading which requires that the
indicators must be united on each variable with a minimum value of 0.7.

Table 6. Cross Loadings

VAR KI KM KF AC AQ KK REM PC KF*PC SIZE LEV ROA MTBV
KI 1.000 -0.429 -0.431 -0.230 0.277 0.100 -0.046 -0.002 0.032 0.100 -0.027 0.049 0.048
KM -0.429 1.000 0.861 -0.017 -0.094 -0.021 -0.076 -0.025 0.023 -0.163 -0.047 0.030 0.018
KF -0.431 0.861 1.000 -0.023 -0.064 0.010 -0.094 -0.063 -0.122 -0.117 -0.140 0.055 0.060
AC S -0.177 -0.017 -0.014 0.900 0.075 0.022 -0.082 0.208 -0.047 0.213 -0.032 -0.002 0.085
AC M -0.178 0.004 -0.014 0.674 0.067 -0.049 -0.067 0.106 0.035 0.172 0.056 0.014 -0.015
AC I -0.191 -0.001 -0.001 0.821 -0.015 -0.053 -0.042 0.179 -0.032 0.099 -0.030 -0.053 -0.029
AC E 0.056 0.149 0.152 0.129 0.068 -0.037 0.009 -0.034 -0.042 -0.050 -0.014 -0.031 0.018
AQ 0.277 -0.094 -0.064 0.062 1.000 0.249 -0.052 0.106 0.004 0.369 -0.188 0.121 0.052
KK 0.100 -0.021 0.010 -0.022 0.249 1.000 -0.454 0.106 -0.080 0.138 -0.530 0.469 0.460
REM -0.046 -0.076 -0.094 -0.086 -0.052 -0.454 1.000 -0.182 0.015 -0.045 0.255 -0.400 -0.234
PC -0.002 -0.025 -0.063 0.210 0.106 0.106 -0.182 1.000 -0.022 0.310 0.014 0.113 0.073
KF*PC 0.032 0.023 -0.122 -0.016 0.004 -0.080 0.015 -0.022 1.000 0.001 0.093 -0.024 -0.064
SIZE 0.100 -0.163 -0.117 0.221 0.369 0.138 -0.045 0.310 0.001 1.000 -0.101 0.106 0.179
LEV -0.027 -0.047 -0.140 0.000 -0.188 -0.530 0.255 0.014 0.093 -0.101 1.000 -0.252 -0.136
ROA 0.049 0.030 0.055 -0.007 0.121 0.469 -0.400 0.113 -0.024 0.106 -0.252 1.000 0.174
MTBV 0.048 0.018 0.060 0.030 0.052 0.460 -0.234 0.073 -0.064 0.179 -0.136 0.174 1.000
From the test results show that constructs that have adequate discriminatory validity can
be caused by the loadings value of the expected structure is greater than the value of loadings
from other structures. There are 2 variables that do not meet these criteria, namely audit
committee meetings and audit committee expertise where the value is < 0.7.
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The Fornell-Larcker Criterion is another way to test discriminant validity by comparing

each construct of the square root of the AVE greater than the correlation value between
constructs in the model.

Table 7. Fornell-Larcker Criterion

VAR KI KF KM KK AC PC AQ LEV REM MTBV KF*PC ROA SIZE
KI 1.000
KF -0.431 1.000
KM -0.429 0.861 1.000
KK 0.100 0.010 -0.021 1.000
AC -0.230 -0.023 -0.017 -0.022 0.699
PC -0.002 -0.063 -0.025 0.106 0.210 1.000
AQ 0.277 -0.064 -0.094 0.249 0.062 0.106 1.000
LEV -0.027 -0.140 -0.047 -0.530 0.000 0.014 -0.188 1.000
REM -0.046 -0.094 -0.076 -0.454 -0.086 -0.182 -0.052 0.255 1.000
MTBV 0.048 0.060 0.018 0.460 0.030 0.073 0.052 -0.136 -0.234 1.000
KF*PC 0.032 -0.122 0.023 -0.080 -0.016 -0.022 0.004 0.093 0.015 -0.064 1.000
ROA 0.049 0.055 0.030 0.469 -0.007 0.113 0.121 -0.252 -0.400 0.174 -0.024 1.000
SIZE 0.100 -0.117 -0.163 0.138 0.221 0.310 0.369 -0.101 -0.045 0.179 0.001 0.106 1.000
Test Results prove that all constructs have met the criteria. This is because the value of
the square root of AVE is greater than the correlation value between constructs.
Heterotrait-Monotrait Ratio (HTMT) is the third criterion in testing discriminant
validity by suggesting that the value should be less than 0.9 which means good and
discriminant validity has been achieved.

Table 8. Heterotrait-Monotrait Ratio

VAR KI KF KM KK AC PC AQ LEV REM MTBV KF*PC ROA SIZE
KI
0,43
KF
1
0,42
KM 0,861
9
0,10 0,02
KK 0,010
0 1
0,27 0,07
AC 0,082 0,073
2 7
0,00 0,02 0,23
PC 0,063 0,106
2 5 8
0,27 0,09 0,10 0,10
AQ 0,064 0,249
7 4 2 6
0,02 0,04 0,05 0,01
LEV 0,140 0,530 0,188
7 7 9 4
0,04 0,07 0,09 0,18 0,25
REM 0,094 0,454 0,052
6 6 0 2 5
0,04 0,01 0,06 0,07 0,13
MTBV 0,060 0,460 0,052 0,234
8 8 6 3 6
0,03 0,02 0,07 0,02 0,09
KF*PC 0,122 0,080 0,004 0,015 0,064
2 3 1 2 3
0,04 0,03 0,04 0,11 0,25
ROA 0,055 0,469 0,121 0,400 0,174 0,024
9 0 5 3 2
0,10 0,16 0,24 0,31 0,10 0,10
SIZE 0,117 0,138 0,369 0,045 0,179 0,001
0 3 2 0 1 6
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From the test results display the number HTMT <0.9 then the model has met the
criteria of discriminant validity. It is recommended that HTMT < 0.9 is very good and means
that discriminant validity has been achieved.

Reliability
Composite reliability is a index scale structural, which can be seen in the display of the
latent variable coefficients. There are two measuring tools used to evaluate the reliability of
composite materials, namely internal consistency / internal consistency and cronbach’s alpha.
In the measurement, if the value reaches > 0.6 then it can be judged that all constructs are
reliable and have test credibility / high level of reliability where this situation is because the
measurement instrument of each variable has a fairly high correlation.

Table 9. Composite Reliability

Variable Cronbach's Alpha Composite Reliability
KI 1.000 1.000
KM 1.000 1.000
KF 1.000 1.000
AC 0.638 0.757
AQ 1.000 1.000
KK 1.000 1.000
REM 1.000 1.000
PC 1.000 1.000
KF*PC 1.000 1.000
SIZE 1.000 1.000
LEV 1.000 1.000
ROA 1.000 1.000
MTBV 1.000 1.000
From the test results, the composite reliability number for all variables > 0.6 has met the
requirements composite validity. The Cronbach Alpha score on all variables > 0.6 which
shows the variables in the model has met thecriteria composite reliability.

Inner Model Evaluation

Testing the inner model or commonly referred to as the evaluation of the structural
model in which there is an influence between latent variables, and assessing the level of
model suitability. In a study the researcher evaluated the internal model analysis through
hypothesis testing and model fit consisting of R-square as the dependent construct,
Standardized Root Mean Square Residual (SMRM) and Goodness of Fit Index.

R-Square
R-Square can review the results of the evaluation of the structural model which shows
the model if the value is 0.75 it means strong, 0.50 it means moderate, and 0.25 it means
weak.

Table 10. R-Square

Variable R-Square Adjusted R-Square
REM 0.296 0.281
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The result of the R-Square number test is 0.296. The R-Square Adjusted number gives a
value of 0.281 for the REM variable, which means it is weak.The Adjusted R-Square value is
0.281 explaining that the variability of the construct and its interaction is 28.1 which proves
that real earnings management can be explained by 28.1%, while the rest explained by other
variables outside this study.

Standardized Root Mean Square Residual (SRMR)

This test is interpreted as the difference between the observed correlation and the inference
correlation matrix model. The SRMR value is called the size of the correlation matrix fit in
the model. SRMR value < 0.1 indicates that the model is fit.

Table 11. Standardized Root Mean Square Residual

Variable Saturated Model Estimated Model
SRMR 0.051 0.051
The results prove the SRMR value < 0.1 which indicates that the research model is fit or
in accordance with the data. So it can be concluded that the model is suitable.

Goodness of Fit (GoF) Index

The overall model as measured by the root of the average AVE multiplied by the
average Adjusted R-Square. If the results obtained from the root are as follows, it can be
interpreted according to the value if GoF 0.10 means weak, 0.25 means moderate, and 0.36
means strong.

Table 12. GoF Index

Root Average
Variable Root R2 GoF Index
AVE
GoF 0.961 0.530 0.509
Results GoF valued Index 0.509, which means this research model is strong category.

Hypothesis Testing Results

Path coefficients are outputs that aim to see the direct influence between latent
variables. When doing this test, what must be considered is showing the magnitude, direction,
and significance of the influence between variables with a T-Statistic value > 1.96 and a P-
Value < 0.05, which means that it has a significant effect. To see the positive and negative
properties, it is taken from the original sample where if it shows - / + then the nature of the
relationship is in accordance with the original sample.

Table 13. Hypothesis Testing

Variable Original Sample T Statistics P Values

KI -> REM -0.107 3.107 0.002

KM -> REM -0.009 0.144 0.886
KF -> REM -0.113 1.855 0.064
AC -> REM -0.113 2.235 0.026
AQ -> REM 0.082 2.178 0.030
KK -> REM -0.328 5.147 0.000
KF - PC -> REM -0.038 1.356 0.176

Hypothesis Testing 1
From the test results show that the relationship between KI and REM is significant with
a T-statistic value of 3.107 which means > 1.96 and P-Values of 0.002 which means <0.05.
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Original sample shows -0.107. So the relationship between KI and REM is significantly
negative. Then H1 in this research were presented that "Institutional ownership have a
significantly negative impact on the real earnings management" acceptable.
The percentage of institutional ownership affects the company's management decision
to carry out earnings management, which means that how big or small the institutional
ownership affects earnings management actions. It shows that the size of the shares owned by
the institution can monitor the company's operations and limit the manager's ability to profit
from themselves, so that managers are not relaxed in manipulating the real profits generated
by the company. These result according to research by Setiawati & Lieany (2016), and
Susanto & Pradipta (2016) also showed a significant negative impact on real earnings
management.

Hypothesis Testing 2
From the test results show that the relationship between KM and REM is not significant
with a T-statistic of 0.144 which means <1.96 and P-Values of 0.886 which means> 0.05.
Original sample shows -0.009. So the relationship between KM and REM is not significant.
Then H2 in this research were presented that "Managerial ownership has a significant positive
impact on the real earnings management" is not accepted.
The size of the shares by managers cannot change opportunistic attitudes and behavior
in real earnings management practices because managers' shares do not have a significant
effect compared to institutional shares. Therefore, the manager's opportunistic behavior is
monitored by the institution even though the manager is likely to take earnings management
actions. These result not according to research by Kamardin (2014) and Hidayanti & Paramita
(2014) that shows a significant positive impact on real earnings management.

Hypothesis Testing 3
From the results show the relationship between KF and REM is not significant with a T-
statistic of 1.855 which means <1.96 and P-Values of 0.064 which means> 0.05. Original
sample -0.113. So the relationship between KF and REM is not significant. Then H 3 in this
research were presented that "Family ownership have significantly negative impact on the real
earnings management" is not accepted.
This situation proves that family share ownership cannot monitor and reduce the actions
of managers in real earnings management practices. So family ownership is not able to
control the opportunistic actions of managers in creating profits for personal purposes which
sometimes do not benefit the company. These result are not in line with research by Yulaeli
(2018) and Ghaleb et al., (2020) that shows a significant negative impacton real earnings
management, which means that family ownership can control company management.

Hypothesis Testing 4
From the test results show that the relationship between KA and REM is significant
with a T-statistic of 2.235 which means > 1.96 and P-Values of 0.026 which means <0.05.
Original sample -0.113. So the relationship between KA and REM is significantly negative.
Then H4 in thisresearch were presented that "Audit committee has a significantly negative
impact on the real earnings management" acceptable.
The company has sufficient resources in supervising or monitoring the company's
operational activities if it has a large audit committee size because the audit committee
functions as a supervisor related to resources which she/he has. In order not to harm minority
shareholders, an independent audit committee is needed to ensure that financial decisions are
made in the best interests of all shareholder. Audit committee can increase supervision on
preparation of financial statements prepared by managers. So that managers feel inhibited in
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their freedom to manipulate financial statements so that earnings management actions are
suppressed. These result according to research by Haji-Abdullah & Wan-Hussin (2015) and
Wicaksono et al., (2016) also showed a significant negative on real earnings management.

Hypothesis Testing 5
From the results show the relationship between AQ and REM is significant with a T-
statistic of 2.178 which means > 1.96 and P-Values of 0.030 which means <0.05. Original
sample 0.082. So the relationship between AQ and REM is significantly positive. Then H 5 in
this research were presented that "Audit quality has a significant positive impact on the real
earnings management" acceptable.
A better quality auditor is able to reduce accrual earnings management and switch to
real earnings management when the company has a strong urge to require earnings
management. These result according to research by Boedhi & Ratnaningsih (2017) and
Lestari & Aeni (2019) also showed that there is a significant positive impact on real earnings
management.

Hypothesis Testing 6
From the test results show the relationship between KK and REM is significant with a
T-statistic of 5,147 which means > 1.96 and P-Values of 0.000 which means <0.05. Original
sample -0.328. So the relationship between KK and REM is significantly negative. Then H 6 in
this research were presented that "Financial distress have significant negative impact on the
real earnings management" acceptable.
The higher the distress experienced by the company will increase the real earnings
management carried out by management to influence investors that the company is in a safe
position to avoid distress. The higher the distress of a company will not affect the company's
management. Management takes these actions to attract investors and maintain the company's
name in the eyes of investors and the public. These results according to research by Muljono
& Suk (2018), Yulaeli (2018), and Feldo, Rinaningsih, & Yuliati (2019)also showed that
there is a significant negative impact on real earnings management.

Hypothesis Testing 7
From the test results show that the relationship between KF and REM moderated by PC
is not significant with a T-statistic of 1.356 which means <1.96 and P-Values of 0.176 which
means> 0.05. Number of original sample -0.038. So the relationship between KF and REM
moderated by PC is not significant. Then H7 in this research were presented that "Family
ownership have significant positively impact on the real earnings management moderated by
political connection" is not accepted.
There is no proven political connection because the company is indicated to have
political relations, does not have legal leniency if it is proven to carry out earnings
management. These result are not fit with research by Braam et al., (2015) and Apriyani et al.,
(2019) that shows a significant positive impact on real earnings management.

CONCLUSIONS AND SUGGESTIONS

This study is used to analyze the effect of good corporate governance and financial
distress on real earnings management moderated by political connections. Based on the results
of the analysis above, it can be concluded that institutional ownership has a significant
negative impact on real earnings management, managerial ownership has no significant
impact on real earnings management, family ownership has no significant impact on real
earnings management, audit committee has a significant negative impact on real earnings
management, audit quality has a significant positive impact on real earnings management,
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financial distress have a significant negative impact on real earnings management, and family
ownership has no significant impact on real earnings management which is moderated by
political connections.
This study still has shortcomings and limitations to be used as a consideration for future
research in order to get result a better for future research. The limitations in this study are the
research sample is a manufacturing company listed on the IDX, there are 49 companies listed
on the IDX whose IPO after 2015, there is 1 company that is not listed on the IDX, and there
are 8 companies whose data are incomplete.
There are suggestions for researchers to give to previous researchers, which adding a
moderating variable for each existing independent variable in order to give more influence on
the dependent variable in order to produce a good test, expand in the selection of research
objects and using a suitable measurement method for each variable.Companies should pay
more attention to the factors that influence real earnings management actions considering that
real earnings management is more favored by managers than accruals because real earnings
management has a direct influence on current and future cash flows, making it more difficult
to detect than accruals. If the company is not careful about real earnings management actions,
it will have a negative impact on operating performance in the future which has the potential
to reduce the value of the company. Investors should be more careful in making investment
decisions, and pay attention to factors that affect the company's management actions that
benefit themselves, but reduce the value of the company in the future. This is necessary so
that investors can make the right decisions in investing.

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