THE ROLE OF REAL EARNINGS MANAGEMENT IN THE VALUE RELEVANCE OF ACCOUNTING INFORMATION IN INDONESIA

Yıl 2023, Cilt: 10 Sayı: 3, 182 - 190, 30.09.2023

Ratnaningrum Ratnaningrum

https://doi.org/10.17261/Pressacademia.2023.1816

Öz

Purpose- One feature that should be integrated in financial statements to be relevant to decision-makers is the relevance of the information to the users. When the value and usefulness of accounting information used to gauge business financial performance are undermined by earnings management methods, problems arise. As a result, the information presented may deceive financial statement users about the corporation's financial performance. Because IFRS demands managerial judgment in the accounting process by definition, its adoption may even increase the chance for real earnings management (REM). This study aims to examine the impact of REM to the value relevance of accounting information before and after IFRS adoption.
Methodology- The population was manufacturing companies listed on the IDX, with samples 230 firm year observations consists of one hundred fifteen firms year before adoption of IFRS and one hundred fifteen firms year after IFRS adoption. this study used firms’ abnormal levels of cash flows, production costs, and discretionary expenditures as proxies for real earnings management. Using a price model and panel data, the main result confirms that real-based earnings management has an impact on the value relevance of earnings and book value of equity before IFRS adoption, but has no effect after IFRS adoption.
Findings- The findings revealed that prior to the adoption of IFRS, real earnings management was employed by companies that had higher earnings value relevance and lower equity book value relevance than companies that did not apply earnings management. After the adoption of IFRS, there is no significant effect of real earnings management on the value relevance of earnings and equity book value.
Conclusion- The results show that investors believe that earnings are a signal from managers with the implementation of real earnings management prior to the adoption of IFRS, but after the adoption IFRS, they may not be able to do so.

Anahtar Kelimeler

Real earnings management, value relevance, accounting information, earnings, equity book value

Kaynakça

• Alshyoukh, F. M., & Manaf, K. B. A. (2018). IFRS adoption and earnings quality in Jordan. International Journal of Research in Business, Economics and Management, 2(6), 78–90.
• Altintas, A. T., Sari, E. S., & Otluoglu, E. (2017). The impact of earnings management on the value relevance of earnings: Empirical evidence from Turkey. Journal of International Social Research, 10(51), 885–891.
• Andreas, A. (2017). Analysis of operating cash flow to detect real activity manipulation and its effect on market performance. International Journal of Economics and Financial Issues, 7(1), 39-48.
• Azaria, K., & Muslichah, M. (2021). Pengaruh Tata Kelola Perusahaan terhadap Nilai Perusahaan dengan Manajemen Laba sebagai Variabel Mediasi. Monex: Journal of Accounting Research, 10(1), 81–93.
• Balagobei, S. (2017). Audit committee and value relevance of accounting information of listed hotels and travels in Sri Lanka. Asian Journal of Finance & Accounting, 9(2), 387–398.
• Ball, R., & Shivakumar, L. (2006). The role of accruals in asymmetrically timely gain and loss recognition. Journal of Accounting Research, 44(2), 207–242.
• Bhatia, M., & Mulenga, M. J. (2019). Value relevance of accounting information: A review of empirical evidence across continents. Jindal Journal of Business Research, 8(2), 179–193.
• Black, R., & Nakao, S. H. (2017). Heterogeneity in earnings quality between different classes of companies after IFRS adoption: evidence from Brazil. Revista Contabilidade & Finanças, 28, 113–131.
• Boujelben, S., Khemakhem-Feki, H., & Alqatan, A. (2020). Real earnings management and the relevance of operating cash flows: A study of french listed firms. International Journal of Disclosure and Governance, 17(4), 218–229.
• Burgstahler, D. C., & Dichev, I. D. (1997). Earnings, adaptation and equity value. The Accounting Review, 72(2), 187–215.
• Callao, S., Cimini, R., & Jarne, J. I. (2016). Value relevance of accounting figures in presence of earnings management. Are enforcement and ownership diffusion really enough ? Journal of Business Economics and Management, 17(6), 1286–1299.
• Chen, C.-L., Weng, P.-Y., & Fan, H.-S. (2016). Institutional ownership, income smoothing and the value-relevance of accounting numbers. Accounting, 35(3), 109–134.
• Cohen, D., & Zarowin, P. (2010). Accrual-based and real earnings management activities around seasoned equity offerings. Journal of Accounting and Economics, 50(1), 2-19.
• Dechow, P. M., & Skinner, D. J. (2000). Earnings management: reconciling the views of accounting academics, practitioners, and regulators. Accounting Horizons, 14(2), 235–250.
• Dedman, E., Jiang, W., & Stark, A. (2017). The value relevance and information content of cash and stock dividends in China. The European Journal of Finance, 23(7–9), 648–673.
• Dosamantes, C. A. D. (2013). The relevance of using accounting fundamentals in the Mexican stock market. Journal of Economics Finance and Administrative Science, 18, 2–10.
• Erin, O., Olojede, P., & Ogundele, O. (2017). Value relevance of accounting data in the pre and post IFRS era: evidence from Nigeria. International Journal of Finance and Accounting, 6(4), 95–103.
• Ernawati, D., & Aryani, Y. A. (2019). Empirical evidence of IFRS studies in Indonesia. Jurnal Akuntansi Dan Auditing Indonesia, 23(2), 65–77.
• Feltham, G. A., & Ohlson, J. A. (1995). Valuation and clean surplus accounting for operating and financial activities. Contemporary Accounting Research, 11(2), 689–731.
• Filip, A., & Raffournier, B. (2013). The value relevance of earnings in Europe after IFRS implementation: why do national differences persist? International Journal of Accounting, Auditing and Performance Evaluation, 9(4), 388–415.
• García, M. del P. R., Alejandro, K. A. C., Sáenz, A. B. M., & Sánchez, H. H. G. (2017). Does an IFRS adoption increase value relevance and earnings timeliness in Latin America? Emerging Markets Review, 30, 155–168.
• Habib, A. (2004). Impact of earnings management on value-relevance of accounting information: Empirical evidence from Japan. Managerial Finance, 30(11), 1–15.
• Healy, P. M., & Wahlen, J. M. (1999). A Review of the earnings management literature and its implications for standard setting. Accounting Horizons, 13(4), 365–383.
• Ho, L. J., Liao, Q., & Taylor, M. (2015). Real and accrual‐based earnings management in the pre‐and post‐IFRS periods: Evidence from China. Journal of International Financial Management & Accounting, 26(3), 294–335.
• IASB. (2018). Conceptual framework for financial reporting. International Accounting Standards Board. https://www.iasplus.com/en/news/2018/03/cf
• Isaboke, C., & Chen, Y. (2019). IFRS adoption, value relevance and conditional conservatism: evidence from China. International Journal of Accounting & Information Management, 27(4), 529–546.
• Kadri, M. H., Aziz, R. A., & Ibrahim, M. K. (2010). Value relevance of book value and earnings: Evidence from two different financial reporting regimes. Journal of Financial Reporting and Accounting, 7(1), 1–16.
• Klann, R. C., & Beuren, I. M. (2018). Earnings management IFRS adoption in Brazilian and British companies. International Journal of Disclosure and Governance, 15(1), 13–28.
• Leal, L. T. Y., Girao, L. F. D. A. P., Lucena, W. G. L., & Martins, V. G. (2017). Persistence, value relevance, and accruals quality in extreme earnings and cash flow situations. Mackenzie Management Review, 18(3), 203–231.
• Marquardt, C. A., & Wiedman, C. I. (2004). The Effect of earnings management on the value relevance of accounting information. Journal of Business & Accounting, 31(3 & 4), 297–332.
• Mirza, A., Malek, M., & Abdul-hamid, M. A. (2018). Value relevance of earnings and book value of equity : evidence from Malaysia. Global Business Management Review, 10(2), 19–40.
• Mirza, A., Malek, M., & Abdul-Hamid, M. A. (2020). Value relevance of earnings and book value of equity: Evidence from Malaysia. Global Business Management Review, 10(2), 19–40.
• Mostafa, W. (2017). The impact of earnings management on the value relevance of earnings: Empirical evidence from Egypt. Managerial Auditing Journal, 32(1), 50–74.
• Natapura, C. (2009). Analisis perilaku investor institusional dengan pendekatan Analytical Hierarchy Process (AHP). Bisnis & Birokrasi, Jurnal Ilmu Administrasi Dan Organisasi, 16(3), 180–187.
• Negakis, C. I. (2013). The explanatory power of earnings for stock returns in the pre- and post-IFRS era Some evidence from Greece. Managerial Finance, 39(9), 814–824.
• Oraby, S. A. (2017). The impact of earnings management strategies on accounting information relevance. International Journal of Business and Social Science, 8(4), 125–135.
• Pelucio-Grecco, M. C., Geron, C. M. S., Grecco, G. B., & Lima, J. P. C. (2014). The effect of IFRS on earnings management in Brazilian non-financial public companies. Emerging Markets Review, 21, 42–66.
• Roychowdhury, S. (2006). Earnings management through real activities manipulation. Journal of Accounting and Economics, 42, 335–370.
• Shan, Y. G. (2015). Value relevance, earnings management and corporate governance in China. Emerging Markets Review, 23, 186–207.
• Suadiye, G. (2012). Value relevance of book value earnings under the local GAAP and IFRS : evidence from Turkey. Ege Academic Review, 12(3), 301–310.
• Sutopo, B., Kot, S., Adiati, A. K., & Adila, L. N. (2018). Sustainability reporting and value relevance of financial statements. Sustainability, 10(678), 1–14.
• Tahat, Y. A., & Alhadab, M. (2017). Have accounting numbers lost their value relevance during the recent financial credit crisis? The Quarterly Review of Economics and Finance, 66, 182–191.
• Zang, A. Y. (2012). Evidence on the trade-off between real activities manipulation and accrual-based earnings management. The Accounting Review, 87(2), 675–703