Earnings Management of Firms Reporting Long Term Debt: An Alternative Method

Authors

  • Yulius Jogi Christiawan Faculty of Economic, Petra Christian University Jl. Siwalankerto 121-131, Surabaya 60236
  • Alfa Rahmiati Faculty of Economics and Business, Airlangga University Jl. Airlangga 4-6, Surabaya 60286

:

https://doi.org/10.9744/jak.16.2.113-120

Keywords:

Foreign exchange loss, earnings management, positive accounting theory

Abstract

This study aims to apply an alternative detection model to prove that the earnings management will be occured when a company has long-term debts as well as the pressure of operating income. Generally, the literature study of earnings management indicates that the detection of earnings management can be grouped into two objectives, 1] to find variables for detecting earnings management (accruals, real activity and classification shifting) and 2] to use some advanced statistical or mathematical models to detect earnings management. This study applies a quantitative approach using secondary data of financial statements. The study was conducted on 50 companies with the largest market capitalization, 50 of the most active companies based on trading volume, 50 of the most active companies based on the value of trade and 50 of the most active companies by frequency trading. All of them are 200  public company (listed in the Indonesia Stock Exchange-ID) based on IDX statistical report 2013. The results of this study are expected to provide a new method to detect earnings management and its application in the context of positive accounting theory (PAT). The results of the study proves that the model is able to detect earnings management by utilizing foreign exchange transaction losses and use these models to support PAT (particularly on debt covenant hypothesis). These results contribute that earnings management can be done by using the foreign exchange gain / loss. However, the limitation of this study is the model has not been able to capture the phenomenon of earnings management if a company does not report any long-term debt nor foreign exchange gain/ loss.

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Published

2015-07-27

How to Cite

Christiawan, Y. J., & Rahmiati, A. (2015). Earnings Management of Firms Reporting Long Term Debt: An Alternative Method. Jurnal Akuntansi Dan Keuangan, 16(2), 113-120. https://doi.org/10.9744/jak.16.2.113-120

Issue

Vol. 16 No. 2 (2014): NOVEMBER 2014

Section

Articles

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