The effect of free cash flow and financial leverage toward earnings management with corporate governance as the moderating variable in consumer goods industries listed in Indonesia Stock Exchange

Wanchenia, Winny (2021) The effect of free cash flow and financial leverage toward earnings management with corporate governance as the moderating variable in consumer goods industries listed in Indonesia Stock Exchange. Bachelor thesis, Universitas Pelita Harapan.

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Abstract

Financial statements is a crucial tool as it contains significant information that accurately reflects business performance and financial position of the company. With the tendency of investors paying more attention to earnings information as a parameter of company performance, will encourage management to perform an action to improve the financial report by managing and manipulating the profit of the company, which is known as earnings management. Earnings management is a purposeful intervention within the constraints of accounting policy to achieve some specific reported earnings objective. This research aims to study the effect of free cash flow and financial leverage towards earnings management with corporate governance as the moderating variable. In this study, the independent variables are free cash flow and financial leverage. The dependent variable is earnings management which is projected through discretionary accruals using the modified Jones model. The moderate variable is corporate governance. Data collected in this study is using documentation method. The objects of this study are Consumer Goods Industries listed on Indonesia Stock Exchange during 2018-2020 periods. This study is descriptive study conducted under the quantitative approach using secondary data in the form of financial statements. The sampling method used in this research is purposive sampling method, with a total sample of 20 companies from the total of 65 listed companies. The analysis is conducted using two regression models; multiple linear regression model and moderated multiple linear regression model with the SPSS 25.0 program. The result of this study indicates that free cash flow has a significant effect on earnings management partially, while financial leverage does not have a significant effect on earnings management partially. Simultaneously, those two independent variables have a significant effect towards earnings management. Lastly, corporate governance as a moderating variable cannot moderate the effect of free cash flow towards earnings management and financial leverage towards earnings management./ Laporan keuangan merupakan alat yang penting karena berisi informasi penting yang secara akurat mencerminkan kinerja bisnis dan posisi keuangan perusahaan. Dengan adanya kecenderungan investor untuk lebih memperhatikan informasi laba sebagai parameter kinerja perusahaan, akan mendorong manajemen untuk melakukan tindakan perbaikan laporan keuangan dengan cara mengelola dan memanipulasi laba perusahaan, yang dikenal dengan istilah earnings management. Earnings management adalah intervensi yang disengaja dalam batasan kebijakan akuntansi untuk mencapai beberapa tujuan laba tertentu yang dilaporkan. Penelitian ini bertujuan untuk mempelajari pengaruh free cash flow dan financial leverage terhadap earnings management dengan corporate governance sebagai variabel pemoderasi. Dalam penelitian ini, variabel independennya adalah free cash flow dan financial leverage. Variabel terikatnya adalah earnings management yang diproyeksikan melalui akrual diskresioner dengan menggunakan model Jones yang dimodifikasi. Variabel moderat adalah corporate governance. Data yang dikumpulkan dalam penelitian ini menggunakan metode dokumentasi. Objek penelitian ini adalah perusahaan barang konsumsi yang terdaftar di Bursa Efek Indonesia pada periode 2018-2020. Penelitian ini merupakan penelitian deskriptif yang dilakukan dengan pendekatan kuantitatif dengan menggunakan data sekunder berupa laporan keuangan. Metode pengambilan sampel yang digunakan dalam penelitian ini adalah metode purposive sampling, dengan jumlah sampel sebanyak 20 perusahaan dari total 65 perusahaan yang terdaftar. Analisis dilakukan dengan menggunakan dua model regresi; model regresi linier berganda dan model regresi linier berganda yang dimoderasi dengan program SPSS 25.0. Hasil penelitian ini menunjukkan bahwa free cash flow berpengaruh signifikan terhadap earnings management secara parsial, sedangkan financial leverage tidak berpengaruh signifikan terhadap earnings management secara parsial. Secara simultan kedua variabel bebas tersebut berpengaruh signifikan terhadap earnings management. Corporate governance sebagai variabel pemoderasi tidak dapat memoderasi pengaruh free cash flow dan financial leverage terhadap earnings management.

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