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The implementation of good corporate governance model and auditor independence in earnings' quality improvement

Author

Listed:
  • Tutik Arniati

    (STIE Malangkucecwara, Indonesia)

  • Dyah Aruning Puspita

    (STIE Malangkucecwara, Indonesia)

  • Aminul Amin

    (STIE Malangkucecwara, Indonesia)

  • Kashan Pirzada

    (University Utara Malaysia, Malaysia)

Abstract

The general objective of this research is to explore the model of earnings quality monitoring and to examine the effect of auditor independence on the relationship between corporate governance mechanism and earnings quality. Specifically, this research is aimed to investigate the impact of ownership structure, commissioner board structure, audit committee structure, internal audit function, and internal control activity, on earnings quality by involving an interaction of these variables with auditor independence. Earnings quality is measured with two proxies. The first proxy is performance-adjusted discretionary accruals or also called Total Accrual, while the second utilizes Total Current Accrual. Achieving all objectives above, the author develops a model and analyses this model in two stages. In the first stage, the model is explored using analysis technique of correlation and regression. Second, fittingness of model is attested using regression analysis with a variety of variable controls and sample controls. Research object is the manufacture companies listed in Indonesia Stock Exchange in period 2011-2015. The Sample includes 112 companies with 560 data of research. After conducting outlier test, the suitable amount of data is 553. The Result of hypothesis test indicates that the model of earnings quality monitoring is constructed from the interaction of many variables. Corporate governance mechanism consists of variables such as ownership structure (managerial ownership and institutional ownership), commissioner board structure, audit committee structure, internal audit function, and internal control activity. Adjusted R-Square value is reaching for 3.3% with significance-value of 0.001. Partially, commissioner board structure, internal audit function, and internal control activity have a significant effect on earnings quality. Auditor independence does not moderate the impact of corporate governance components on earnings quality.

Suggested Citation

  • Tutik Arniati & Dyah Aruning Puspita & Aminul Amin & Kashan Pirzada, 2019. "The implementation of good corporate governance model and auditor independence in earnings' quality improvement," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 7(1), pages 188-200, September.
    • Handle: RePEc:ssi:jouesi:v:7:y:2019:i:1:p:188-200
    DOI: 10.9770/jesi.2019.7.1(15)
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    Citations

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    Cited by:

    1. Proença, Catarina & Augusto, Mário & Murteira, José, 2023. "The effect of earnings management on bank efficiency: Evidence from ECB-supervised banks," Finance Research Letters, Elsevier, vol. 51(C).
    2. Khleef A. Alkhawaldeh, 2021. "Institutional Governance Practices in Jordan Government Units," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(1), pages 52-65.
    3. Enni Savitri & Andreas Andreas & Almasdi Syahza & Tatang Ary Gumanti & Nik Herda Nik Abdullah, 2020. "Corporate governance mechanism and financial performance: role of earnings management," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 7(4), pages 3395-3409, June.
    4. Rafael Ravina-Ripoll & María-José Foncubierta-Rodríguez & Eduardo Ahumada-Tello & Luis Bayardo Tobar-Pesantez, 2021. "Does Entrepreneurship Make You Happier? A Comparative Analysis between Entrepreneurs and Wage Earners," Sustainability, MDPI, vol. 13(18), pages 1-19, September.

    More about this item

    Keywords

    auditor independence; corporate governance; discretionary accrual; earnings quality;
    All these keywords.

    JEL classification:

    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M49 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Other

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