NAVIGATING EARNINGS MANAGEMENT: THE INTERPLAY OF EARNING POWER, SALES GROWTH, AND CORPORATE GOVERNANCE
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Abstract
This study examined whether earning power and sales growth influenced earnings management and whether corporate governance moderated these relationships among cyclical and non-cyclical companies listed on the Indonesia Stock Exchange. The research used a quantitative explanatory design and relied on secondary data obtained from annual reports and financial statements. Earnings management was proxied by the Beneish M-Score, earning power was measured by return on assets, sales growth was measured by the percentage change in net sales, and corporate governance was represented by a governance index based on board independence and audit committee effectiveness. The data were analyzed using regression models with interaction terms, supported by descriptive statistics and classical assumption testing. The results showed that earning power significantly affected earnings management at lower and median risk levels, while sales growth reduced earnings management at the higher risk level. Corporate governance weakened the effect of earning power on earnings management and strengthened the transparency effect of sales growth. These findings indicated that governance mechanisms functioned as an important monitoring device that constrained opportunistic reporting behavior. The study contributed to agency-based earnings management literature by showing that profitability and growth incentives should be interpreted together with governance quality in emerging market settings. The results implied that regulators and firms should strengthen board oversight, audit committee effectiveness, and disclosure discipline to improve financial reporting integrity.
Keywords:
Earnings Management Earning Power Sales Growth Corporate Governance Beneish M-ScoreReferences
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