Board structure and earning management: A comparative study between the pre-pandemic and during the COVID-19 pandemic periods

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Abstract

The agent is granted decision-making authority over the company’s operations to achieve the principal’s objectives (Jensen & Meckling, 1976). The economic crisis during the pandemic compelled managers to exert additional effort, such as earnings management. They aimed to achieve the desired profit and serve the principal’s best interests. Board structure elements such as board size, independence, women membership, and chief executive officer (CEO) duality correlate with board governance. The elements improve the quality of financial reports and reduce earnings management practices. Therefore, this study aimed to investigate the board structure’s influence on the earnings management of Indonesian firms before and during the pandemic. Covering a sample of 539 firms recorded on the Indonesia Stock Exchange (IDX) in Indonesia from 2019Q1 to 2020Q4, panel data regression is utilized to test the hypothesis. This study finds that only board size significantly impacted earnings management. The board size is less effective in overcoming earnings management in the normal period. However, the COVID-19 pandemic encouraged the board of directors to increase management monitoring. This means more board directors can reduce earning management effectively during the pandemic. It highlighted the significance of many board directors in reducing earnings management during the pandemic.

Keywords: Pandemic, Board Size, Earning Management

Authors’ individual contribution: Conceptualization — Y.U.; Methodology — Y.U., N.P.A., H., and R.Y.; Investigation — Y.U., N.P.A., H., R.Y., and D.L.; Resources — Y.U., N.P.A., H., and R.Y.; Data Curation — R.Y.; Writing — Original Draft — Y.U. and R.Y.; Writing — Review & Editing — Y.U., N.P.A., H., R.Y., and D.L.; Supervision — Y.U.; Project Administration — N.P.A. and H.; Funding Acquisition — Y.U.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

Acknowledgements: The Faculty of Economics and Business of Mulawarman University provided financial support for this research (number of contract 002/UN/2022).

JEL Classification: G01, M48, G32

Received: 06.07.2022
Accepted: 21.10.2022
Published online: 24.10.2022

How to cite this paper: Ulfah, Y., Ambarita, N. P., Hidayani, Yudaruddin, R., & Lesmana, D. (2022). Board structure and earning management: A comparative study between the pre-pandemic and during the COVID-19 pandemic periods. Corporate & Business Strategy Review, 3(2), 177–187. https://doi.org/10.22495/cbsrv3i2art16