Earnings management in state-owned enterprises in Indonesia

Abstract

This research aims to examine the effect of bonus contracts that use financial and non-financial performance measures and examine the impact of implementing AKHLAK culture on earnings management in state-owned enterprises. In addition, this research aims to evaluate the effectiveness of implementing GCG in mitigating earnings management behaviour. To achieve the objectives of this research, we used a sample of 32 state-owned companies from 2017 to 2022 with a total of 178 data points. The analysis uses path examination to measure the influence between variables. We have found that Chief Executive Officer (CEO) career and culture negatively influence earnings management, whereas bonuses have no effect. We have also found that GCG moderates bonuses on earnings management but does not moderate CEO career and culture on earnings management. These findings have demonstrated that CEO bonus contracts based on financial and non-financial performance measures do not motivate CEOs to manage accrual earnings. The results of this research provide input for the government to increase the implementation of AKHLAK culture and appoint career directors in state-owned companies. The results of this research also provide empirical evidence that giving bonuses does not affect earnings management behaviour of the bonus contract is based on financial and non-financial performance. The results of this research are expected to provide advice to shareholders on how to use financial and non-financial measures in bonus contracts simultaneously.