Moderation of Managerial Ownership on the Effect of Leverage, Profitability, and Company Size on Earnings Management

Abstract

This study aims to analyze how leverage, profitability, and company size affect earnings management and analyze the ability of managerial ownership to influence leverage, profitability, and company size on earnings management in service companies listed on the Indonesia Stock Exchange from 2018 to 2020. Techniques sampling in this study was using the purposive sampling method. The data analysis method used is Moderated Regression Analysis (MRA) to determine the relationship between the two variables that are influenced by the moderating variable. In this study, there are three independent variables, one dependent variable, and one moderating variable. The dependent variable in this study is earnings management measured by Modified Jones (1995) because this measure has the best estimation ability of earnings management activity and minimum standard error and standard deviation. The dependent variable consists of three variables, namely leverage, profitability, and company size. While the moderating variable in this study is managerial ownership where managerial ownership is one of the Good Corporate Governance mechanisms. The results showed that leverage and firm size did not affect earnings management, while profitability had a positive effect on earnings management. The managerial ownership moderating variable cannot moderate the relationship of leverage, profitability, or company size to earnings management.