The Influence of Related Party Transactions on Earnings Management in Indonesian Food and Beverage Sub-Sector Companies: Ownership Concentration as a Moderating Variable
1Kurnia Deasy Putri A, 2Setianingtyas Honggowati
1,2Sebelas Maret University Surakarta
https://doi.org/10.47191/jefms/v7-i10-23ABSTRACT:
This research tests how transactions among related parties influence the management of earnings, considering ownership concentration as a moderating factor. The research specifically targets businesses inside of the food and beverage sub- division that are registered on the Indonesia Stock Exchange (IDX) during the phase by 2016 to 2022. Earnings management, a tactic frequently utilized by corporate executives to manipulate reported financial outcomes, is associated by both accrual-based and real earnings management techniques. This research emphasizes how transactions by related parties can enable accrual earnings management, especially in circumstances defined by significant ownership concentration, where major stockholders might leverage their influence to the disadvantage of smaller group stockholders. Through moderated regression analysis, this research investigates the extent to which ownership concentration can enhance or reduce the influence of related party transactions on earnings management. The outcomes reveal that a high concentration of ownership intensifies earnings manipulation, particularly in less regulated settings such as Indonesia, where conflicts of interest among majority and smaller group stockholders are prevalent. These outcomes add to the expanding literary works on corporate governance and offer valuable empirical insights for stakeholders concerning the monitoring of related party transactions.
KEYWORDS:
Earnings Management, Related Party Transactions, Ownership Concentration, Accrual Earnings Management, Corporate Governance
REFERENCES:
1) ACFE. (2020). Survei Fraud Indonesia 2019. Jakarta : ACFE Indonesia Chapter
2) Afriani Utama, C., & Utama, S. (2009). Stock Price Reactions to Announcements of Related Party Transactions *. Asian Journal of Business and Accounting,2(2), 1–23.
3) Alhadab, M., Clacher, I., & Keasey, K. (2020). Related party transactions and earnings management in Jordan: The influence of audit quality. International Journal of Accounting, Auditing and Performance Evaluation, 16(3), 245-264. https://doi.org/10.1504/IJAAPE.2020.100372
4) Al-Dhamari, R.A., Al-Gamrh, B., Ismail, K.N.I.K. and Ismail, S.S.H. (2018), “Related party transactions and audit fees: the role of the internal audit function”, Journal of Management and Governance, Vol. 22 No. 1, pp. 187-212.
5) Alves, S. (2012). Ownership structure and earnings management: Evidence by Portugal. Australasian Accounting, Business and Finance Journal, 6(1), 57-74. https://doi.org/10.14453/aabfj.v6i1.5
6) Astuti, D., & Indriani, E. (2018). Determinan Manajemen Laba Akrual pada Perusahaan Sektor Manufaktur Yang Terdaftar Di Bursa Efek Indonesia. Jurnal Studi Akuntansi dan Keuangan , 105-122.
7) Ayuningtyas, Dwi. (2019). Ini Awal Masalah Laporan Keuangan Garuda. Cnbcindonesia. Diakses pada 04 September 2023, darihttps://www.cnbcindonesia.com/market/20190628105306-17-81299/ini-awal-biang-kerok-masalah-laporan- keuangan-garuda
8) Azizah, W. (2017). Opportunistic perspective off accrual and real earnings management in Indonesia. IOSR Journal of Business and Management,19(11), 1-05.
9) Badan Pusat Statistik. (2023). Produk Domestik Bruto : Lapangan Usaha. Bps.go.id.Diakses pada 04 Spetember 2023, dari https://www.bps.go.id/subject/11/produk-domestik-bruto--lapangan-usaha- .html#subjekViewTab3
10) Benjamin, S. J., Wasiuzzaman, S., Mokhtarinia, H., and Nejad, N. R. 2016. International Journal of Managerial Finance,12 (3), pp. 314-334.
11) Bennedsen M, Wolfenzon D (2000). “The balance of power in closely held corporations. J. Finan. Econ., 58: 113-139
12) Choi, J. H., Kim, J. B., & Yoon, S. S. (2004). The value of outside directors: Evidence by corporate governance reform in Korea. Journal of Financial and Quantitative Analysis, 39(3), 617-642. https://doi.org/10.1017/S0022109000004132
13) Claessens, S., Djankov, S., Lang Larry, H.P. (2000). “The separation of ownership and control in East Asian Corporations”. Journal of Financial Economics 58 (2000) 81-112
14) Coffee, C.J., Jackson, J.R., Mitts, R.J. and Bishop, E.R. (2018), “Activist directorsand agency costs: what happens when an activist director goes on the board?”, Columbia Business School Research Paper No. pp. 18-15.
15) Coghlan, D. (2019). Doing action research in your own organization. DoingAction Research in Your Own Organization, 1-240
16) Cohen, Daniel A dan Paul Zarowin. 2010. Accrual-Based and Real Earning Management Activities Around Seasoned Equity Offerings. Journal ofAccounting and Economics 50, 2–19
17) Dechow, P. M., Sloan, R. G., & Sweeney, A. P. (1995). Detecting earnings management. The Accounting Review, 70(2), 193-225. https://www.jstor.org/stable/248303
18) El-Helaly, M. (2018). Related-party transactions: a review of the regulation,governance and auditing literature. In Managerial Auditing Journal (Vol. 33, Issues 8–9, pp. 779–806)
19) Fan, J.P.H. and Wong, T.J. (2002), “Corporate ownership structure and the informativeness of accounting earnings in EastAsia”, Journal of Accounting and Economics, Vol. 33 No. 3, pp. 401-425
20) Firmanzah, A., & Marsoem, B. S. (2023). The Effect of Profitability, Leverage, Firm Size, and Related Party Transactions on Tax Avoidance with EarningsM. anagement as a Moderating Variable. ISSN , 258-268
21) Gama, A. P. M., and Rodrigues, C. 2013. The Governance-Performance Relations in Publicly Listed Family Controlled Firms: An Empirical Analysis. Journal of Corporate Governance, 13(4), pp. 439-456.
22) Gulzar, M. A., Wang, Z. (2011). Corporate Governance Characteristics and Earnings Management: Empirical Evidence from Chinese Listed Firms, International Journal of Accounting and Financial Reporting, 1(1), 2162-3082
23) Habbash, M., & Alghamdi, S. (2015). The perception of earnings managementmotivations in Saudi public firms. Journal of Accounting in Emerging Economies, 5(1), 122–147
24) Habib, A., Muhammadi, A. H., & Jiang, H. (2017). Political Connections and Related Party Transactions: Evidence from Indonesia. International Journal of Accounting, 52(1), 45–63
25) Herawati, H., Zulyanto, A., & Wahyudi, D. G. (2022). Pengaruh Transaksi Pihak–Pihak Istimewa Terhadap Kinerja Keuangan Perusahaan Properti. Jurnal Riset Akuntansi dan Manajemen, 11(3).
26) Huang, D. and Liu, Z. (2010), “A study of the relationship between related party transactions and firm value in high technology firms in Taiwan and China”,African Journal of Business Management, Vol. 4 No. 9, pp. 1924-1931
27) Isakov, D., and Weisskopf, J. P. 2015. Pay-Out Policies in Founding Family Firms. Journal of Corporate Finance, 33(2015), pp. 330-344
28) Jalan, A., Badrinath, S. G., & Al‐Gamrh, B. (2020). Women on audit committees and the relationship between related party transactions and earnings management. Strategic Change, 29(3), 389-406
29) Jao, R., Tangke, A., Holly, P., Thungadi, T., & Agustuty, D. (2023). The influence of related party transactions on earnings management: Empirical evidence by Indonesia. Journal of Financial Reporting and Accounting, 21(1), 25-40. https://doi.org/10.1108/JFRA-10-2022-0118
30) Jensen, Michael C dan Meckling. (1976). Theory of the Firm: Managerial Behavior,Agency Cost and Ownership Structure.Journal of Financial Economics, 3(1), 305-360
31) Kim, J. B., & Yoon, S. S. (2008). Corporate governance, earnings management, and businesses value: Evidence by Korea. Journal of Business Finance & Accounting, 35(5-6), 573-600. https://doi.org/10.1111/j.1468-5957.2008.02134.x
32) La Porta R, Lopez De Silanes F, Shleifer A (1999), Corporate ownership around the world, J. Financ., 54 (2): 471-517
33) Mao, X., Sun, H., Zhu, X., & Li, J. (2022). Financial fraud detection using the related-partytransaction knowledge graph. Procedia Computer Science,733-740.
34) Marchini, P. L., Mazza, T., & Medioli, A. (2018). The impact of related party transactions on earnings management: Some insights from the Italian context. Journal of Management and Governance, 22, 981-1014.
35) Narsa, N. P., Afifa, L. M., & Wardhaningrum, O. A. (2023). Fraud triangle and earnings management based on the modified M- score: A study on manufacturing company in Indonesia. Heliyon9(2023)e13649, 1-14
36) Nindita, F. K., Rahman, A., dan Rosyafah, S. (2021). Pengaruh Debt to Equity Ratio, Return on Assets, Related Party Transaction terhadap Penghindaran Pajak. UBHARA Accounting Journal, 1(2), 418–428
37) Noor, N. M., Sanusia, Z. M., Heang, L. T., Iskandar, T. M., & Isa, Y. M. (2015). Fraud Motives and Opportunities Factors on Earnings Manipulations.Procedia Economics and Finance , 28 : 126-135.
38) Pacces, A. M. (2018). Procedural and substantive review of related party transactions (RPTs): The case for non-controlling shareholder-dependent (NCS-dependent) directors. A version of this paper will appear as achapterin Luca Enriques and Tobias Tröger, eds., The Law and Finance of Related Party Transactions (Cambridge University Press, Forthcoming), European Corporate Governance Institute (ECGI)-Law Working Paper, (399).
39) Panda, B., & Leepsa, N. M. (2017). Agency theory: Review of theory and p-evidence on problems and perspectives. IndianJournal of Corporate Governance, 10(1), 74–95.
40) Peryataan Standar Akuntansi (PSAK) No. 15 “Akuntansi Investasi Pada Perusahaan Asosiasi” Ikatan Akuntansi Indonesia 2015.
41) Pernyataan Standar Akuntansi (PSAK) No. 7 “Pengungkapan Pihak-Pihak Berelasi” Ikatan Akuntansi Indonesia 2019.
42) Prasetyo, Bagus. (2014). Menilik Kesiapan Dunia Ketenagakerjaan Indonesia Menghadapi MEA. Jurnal RechtsVinding Online (Media Pembinaan Hukum Nasional).
43) Ramsay I, Blair M (1993). “Ownership Concentration, Institutional Investment and Corporate Governance: An Empirical Investigation of 100 Australian Companies”, Melbourne University Law Rev., (19): 153-194.
44) Rankin, M., Stanton, P., McGowan, S., Ferlauto, K. and Tilling, M. (2012),Contemporary Issues in Accounting, John Wiley and Sons Australia, Milton.
45) Roychowdhury, S.(2006).Earnings management throug real activitiesmanipulation. Journal of Accounting and Economics, 42(3), 335–370.
46) Scott, W. R. 2015. Financial Accounting theory. 7th edition. Canada Inc: Pearson Edu- cation
47) Subastian, L. U., Widagdo, A. K., & Setiawan, D. (2021). Related party transactions, family ownership, and earnings management in Indonesia. Jurnal Keuangan dan Perbankan, 25(3), 688-700.
48) Supatmi, S., Sutrisno, T., Saraswati, E., & Purnomosidhi, B. (2019). The effect of related party transactions on firm performance: The moderating role of political connection in Indonesian banking. Business: Theory and Practice,20(1), 81-92.
49) Supatmi, S., & Wukirasih, K. (2022). Pengaruh Struktur Kepemilikan Terhadap Transaksi Pihak Berelasi. Owner: Riset dan Jurnal Akuntansi, 6(2), 1398- 1411.
50) Tareq, M., Houqe, M.N., van Zijl, T., Taylor, D.W. and Morley, C. (2017),“Discriminatory related party transactions: a new measure”, International Journal of Accounting and Information Management, Vol. 25 No. 4, pp. 395-412.
51) Winarto, Yudho . 2019. Investor AISA: Kasus AISA adalah skandal dalam pasarmodal Indonesia. Investasikontan. Diakses pada 04 September 2023, dari https://investasi.kontan.co.id/news/investor-aisa-kasus-aisa-adalah- skandal-dalam-pasar-modal- indonesia.
52) Villalonga, B., & Amit, R. (2006). How do family ownership, control and management affect firm value? Journal of Financial Economics, 80(2), 385–417.
53) Zang, A.Y. (2012), “Evidence on the trade-off between real activities manipulationand accrual-based earnings management”,The Accounting Review, Vol. 87No. 2, pp. 675-703.
