FREE CASH FLOW AND EARNINGS MANAGEMENT: BOARD OF COMMISSIONER, BOARD INDEPENDENCE AND AUDIT QUALITY

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Yulius Kurnia Susanto ORCID logo, Arya Pradipta, Indra Arifin Djashan

DOI:10.22495/cocv14i4c1art10

Abstract

The purpose of the research is to provide empirical evidence about the effect of board of commissioner, board independence and audit quality on relationship between free cash flow and earnings management. This research used 290 data from manufacturing companies listed in Indonesia Stock Exchange, selected using purposive sampling method, during 2012 until 2014. Earnings management calculated using Modified Jones (1991) Model include ROA from Kothari et al. (2005). Data for the research were analyzed using multiple regression analysis. The results of the research showed that the effect of board of commissioner, board independence and audit quality on relationship between free cash flow and earnings management is negative and significant. Board of commissioners, board independence and audit quality can reduce earnings management problems arising from free cash flow. Board of commissioners, board independence and audit quality oversee the opportunistic behavior of managers that arises from free cash flow problem.

Keywords: Earnings Management, Free Cash Flow, Board of Commissioner, Board Independence, Audit Quality.

Received: 21.02.2017

Accepted: 19.05.2017

How to cite this paper: Susanto, Y. K., Pradipta, A., & Djashan, I. A. (2017). Free cash flow and earnings management: Board of commissioner, board independence and audit quality. Corporate Ownership & Control, 14(4-1), 284-288. http://doi.org/10.22495/cocv14i4c1art10