EARNINGS MANAGEMENT AND FIRM VALUE WITH INVESTMENT OPPORTUNITY SET (IOS) AS MODERATING VARIABLE: COMPARATIVE STUDY IN INDONESIA AND MALAYSIA

Dewi Kusuma Wardani
Faculty of Economics Universitas Sarjanawiyata Tamansiswa
Email: d3wi_kusuma@yahoo.co.id
Sri Hermuningsih
Faculty of Economics, Universitas Sarjanawiyata Tamansiswa, Indonesia
Email: hermun_feust@yahoo.co.id

Abstract

There is the conflict between management and owners, called agency problems, which arises because of the separation of ownership and management of a firm. Management must enhance firm value. On the other hand, the management wants to achieve their own objectives with ignoring the owner interests. Accounting information that should be the management report to the owners is often used to perform the management’s opportunist action, maximizing their own interests by making earnings management. Therefore, necessary to study whether earnings management is carried out by management affect firm value. Earnings management here can be done in two ways, through the real activities manipulation and accrual manipulation (Roychowdhury, 2006). Investment Opportunity Set (IOS) are the opportunity to grow the company’s investment decisions in the form of a combination of owned assets and growth option in the future (Myers, 1977). According Kallapur and Trombley (1999), firms with high IOS has greater opportunities to grow in the future compared to companies with low IOS that cause firms with high growth opportunities will have a high information asymmetry between managers with owners and there is the high tendency of managers to manipulate the profit.
This study aims to examine the effect of earnings management, either through the real activities manipulation and accrual activity manipulation, to the value of the company with the IOS as a moderator variable in the Indonesia Stock Exchange. The sampling methods is by purposive sampling, with the criteria are companies that listed in Malaysia and Indonesia Stock Exchange and have complete research variable data 2008. We analyze with moderator regression analysis (MRA).
We found that there is the influence of earnings management, either through the real activities manipulation and accrual activity manipulation, to the value of the company with the IOS as a moderator variable in the Malaysia and Indonesia Stock Exchange.

Keywords: earnings management, firm value, Investment Opportunity Set (IOS)

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