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Corporate governance mechanism and financial performance: role of earnings management

Author

Listed:
  • Enni Savitri

    (University of Riau, Indonesia)

  • Andreas Andreas

    (University of Riau, Indonesia)

  • Almasdi Syahza

    (University of Riau, Indonesia)

  • Tatang Ary Gumanti

    (University Bhayangkara Jakarta Raya, Indonesia)

  • Nik Herda Nik Abdullah

    (Taylor's University, Malaysia)

Abstract

The mechanism of good corporate governance is used to prevent the management of the company from engaging in unethical actions, such as the earnings management. It can be an effective way to control management. This study aims to analyse corporate governance, consisting of the size of the board of commissioners, the size of the sharia supervisory board, and the audit committee on financial performance, measured as return on assets (ROA), with earnings management as the mediating variable. The sample used for the study consists of nine Indonesian shariah banks and the period of analysis is 2013-2017. The results of the path analysis show that the size of the board of commissioners has a negative effect on the company’s ROA. The study also finds that the size of the sharia supervisory board, audit committee and earnings management do not have significant effects on financial performance. Earnings management has a positive mediating role on the relationship between the board of commissioners, the audit committee and ROA. This finding indicates that the existence of the board of commissioners is effective in supervising the management. Thus the mechanism corporate governance can limit the managers’ discretionary behavior and prevent earnings management.

Suggested Citation

  • 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.
    • Handle: RePEc:ssi:jouesi:v:7:y:2020:i:4:p:3395-3409
    DOI: 10.9770/jesi.2020.7.4(54)
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    References listed on IDEAS

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    Cited by:

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    More about this item

    Keywords

    board of commissioners; sharia supervisory board; audit committee; financial performance; earnings management;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation
    • M49 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Other

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