IDEAS home Printed from https://ideas.repec.org/a/sae/sagope/v13y2023i4p21582440231220051.html
   My bibliography  Save this article

The School-ties Between Top Management Executive and Audit Partner: Exploring From Earnings Management in Indonesia

Author

Listed:
  • Raden Roro Widya Ningtyas Soeprajitno
  • Sri Ningsih
  • Iman Harymawan
  • Bablu Kumar Dhar
  • Suham Cahyono

Abstract

The objective of this study is to investigate the impact of school ties between top management executives, such as the Chief Executive Officer and Chief Financial Officer, and external parties, including auditors, on a company’s earnings management practices. This study uses fixed effect regression method to test the hypotheses, whether school ties between top management executives and audit partner will affect on the practical earnings management. The authors obtained sample from Indonesia Stock Exchange Commission during 2010 to 2022 and includes several causality tests to robust the empirical result from current study. Our findings suggest a noteworthy positive association between school-ties linking the Chief Executive Officer (CEO) and the Auditor with Earnings Management. However, our analysis reveals that other combinations of school ties exhibit an opposite effect. The findings of this study suggest that ties between internal and external parties within a company may be a factor that investors should carefully consider when evaluating the accuracy and reliability of financial reports. As such, it may be prudent to avoid investing in such companies. Despite prior research extensively examining the measurement of accrual-based earnings management, the literature lacks discussion regarding its association with the potential influence of ties. Thus, this study aims to fill this gap by investigating the relationship between top management school ties and earnings management.

Suggested Citation

  • Raden Roro Widya Ningtyas Soeprajitno & Sri Ningsih & Iman Harymawan & Bablu Kumar Dhar & Suham Cahyono, 2023. "The School-ties Between Top Management Executive and Audit Partner: Exploring From Earnings Management in Indonesia," SAGE Open, , vol. 13(4), pages 21582440231, December.
    • Handle: RePEc:sae:sagope:v:13:y:2023:i:4:p:21582440231220051
    DOI: 10.1177/21582440231220051
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/21582440231220051
    Download Restriction: no
    File URL: https://libkey.io/10.1177/21582440231220051?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Feng, Mei & Ge, Weili & Luo, Shuqing & Shevlin, Terry, 2011. "Why do CFOs become involved in material accounting manipulations?," Journal of Accounting and Economics, Elsevier, vol. 51(1), pages 21-36.
    2. Young Kyun Chang & Won-Yong Oh & Jee Hyun Park & Myoung Gyun Jang, 2017. "Exploring the Relationship Between Board Characteristics and CSR: Empirical Evidence from Korea," Journal of Business Ethics, Springer, vol. 140(2), pages 225-242, January.
    3. Wu, Jie, 2011. "Asymmetric roles of business ties and political ties in product innovation," Journal of Business Research, Elsevier, vol. 64(11), pages 1151-1156.
    4. Matthew Blackwell & Stefano Iacus & Gary King & Giuseppe Porro, 2009. "cem: Coarsened exact matching in Stata," Stata Journal, StataCorp LP, vol. 9(4), pages 524-546, December.
    5. Dante Baiardo C. Viana Jr & Isabel Lourenço & Ervin L. Black, 2022. "Financial distress, earnings management and Big 4 auditors in emerging markets," Accounting Research Journal, Emerald Group Publishing Limited, vol. 35(5), pages 660-675, March.
    6. Sri Ningsih & Iman Harymawan & Nurul Fitriani & Brian Lam, 2021. "Pessimistic Tone in Earnings Announcement and CSR Disclosure: Exploring the Interacting Role of CEO Busyness," Sustainability, MDPI, vol. 13(24), pages 1-19, December.
    7. Iman Harymawan & Aditya Aji Prabhawa & Mohammad Nasih & Fajar Kristanto Gautama Putra, 2021. "Risk Management Committee, Auditor Choice and Audit Fees," Risks, MDPI, vol. 9(9), pages 1-16, August.
    8. Hariem Abdullah & Turgut Tursoy, 2021. "Capital structure and firm performance: evidence of Germany under IFRS adoption," Review of Managerial Science, Springer, vol. 15(2), pages 379-398, February.
    9. Park, Yun W. & Shin, Hyun-Han, 2004. "Board composition and earnings management in Canada," Journal of Corporate Finance, Elsevier, vol. 10(3), pages 431-457, June.
    10. Griffin, Paul A. & Hong, Hyun A. & Liu, Yun & Ryou, Ji Woo, 2021. "The dark side of CEO social capital: Evidence from real earnings management and future operating performance," Journal of Corporate Finance, Elsevier, vol. 68(C).
    11. Suham Cahyono & Iman Harymawan & Khairul Anuar Kamarudin, 2023. "The impacts of tenure diversity on boardroom and corporate carbon emission performance: Exploring from the moderating role of corporate innovation," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(5), pages 2507-2535, September.
    12. Utari Dian Pratiwi & Erwin Saraswati & Arum Prastiw, 2021. "Stock price synchronicity, sustainability reports, and earnings quality," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 10(1), pages 139-148, January.
    13. Zhang, Karen & Truong, Cameron, 2019. "What’s the value of politically connected directors?," Journal of Contemporary Accounting and Economics, Elsevier, vol. 15(3).
    14. Maria Kontesa & Rayenda Brahmana & Ashley Hui Hui Tong, 2021. "Narcissistic CEOs and their earnings management," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 25(1), pages 223-249, March.
    15. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    16. Cesare Fracassi & Geoffrey Tate, 2012. "External Networking and Internal Firm Governance," Journal of Finance, American Finance Association, vol. 67(1), pages 153-194, February.
    17. Hwang, Byoung-Hyoun & Kim, Seoyoung, 2009. "It pays to have friends," Journal of Financial Economics, Elsevier, vol. 93(1), pages 138-158, July.
    18. Jing A. Zhang & Xiling Cui, 2017. "In Search Of The Effects Of Business And Political Ties On Innovation Ambidexterity," International Journal of Innovation Management (ijim), World Scientific Publishing Co. Pte. Ltd., vol. 21(02), pages 1-27, February.
    19. Yiyi Qin & Jun Cai & Steven Wei, 2021. "Earnings management when firms face mandatory contributions," China Finance Review International, Emerald Group Publishing Limited, vol. 11(4), pages 522-551, June.
    20. Iacus, Stefano & King, Gary & Porro, Giuseppe, 2009. "cem: Software for Coarsened Exact Matching," Journal of Statistical Software, Foundation for Open Access Statistics, vol. 30(i09).
    21. Marianne Bertrand & Antoinette Schoar, 2003. "Managing with Style: The Effect of Managers on Firm Policies," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(4), pages 1169-1208.
    22. Guan, Yuyan & Su, Lixin (Nancy) & Wu, Donghui & Yang, Zhifeng, 2016. "Do school ties between auditors and client executives influence audit outcomes?," Journal of Accounting and Economics, Elsevier, vol. 61(2), pages 506-525.
    23. Fang, Ming & Francis, Bill & Hasan, Iftekhar & Wu, Qiang, 2022. "External social networks and earnings management," The British Accounting Review, Elsevier, vol. 54(2).
    24. Cohen, Daniel A. & Zarowin, Paul, 2010. "Accrual-based and real earnings management activities around seasoned equity offerings," Journal of Accounting and Economics, Elsevier, vol. 50(1), pages 2-19, May.
    25. Jeffrey E. McGee & Michael J. Dowling & William L. Megginson, 1995. "Cooperative strategy and new venture performance: The role of business strategy and management experience," Strategic Management Journal, Wiley Blackwell, vol. 16(7), pages 565-580.
    26. Klein, April, 2002. "Audit committee, board of director characteristics, and earnings management," Journal of Accounting and Economics, Elsevier, vol. 33(3), pages 375-400, August.
    27. Gary K. Meek & Ramesh P. Rao & Christopher J. Skousen, 2007. "Evidence on factors affecting the relationship between CEO stock option compensation and earnings management," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 6(3), pages 304-323, August.
    28. Xie, Biao & Davidson, Wallace III & DaDalt, Peter J., 2003. "Earnings management and corporate governance: the role of the board and the audit committee," Journal of Corporate Finance, Elsevier, vol. 9(3), pages 295-316, June.
    29. ChungMing Lau & Yuan Lu & Qiang Liang, 2016. "Corporate Social Responsibility in China: A Corporate Governance Approach," Journal of Business Ethics, Springer, vol. 136(1), pages 73-87, June.
    30. Jared Harris & Philip Bromiley, 2007. "Incentives to Cheat: The Influence of Executive Compensation and Firm Performance on Financial Misrepresentation," Organization Science, INFORMS, vol. 18(3), pages 350-367, June.
    31. Jian Huang & Henriëtte Maassen van den Brink & Wim Groot, 2012. "Does education promote social capital? Evidence from IV analysis and nonparametric-bound analysis," Empirical Economics, Springer, vol. 42(3), pages 1011-1034, June.
    32. Yu Flora Kuang & Xiaotao Kelvin Liu & Srikanth Paruchuri & Bo Qin, 2022. "CFO social ties to non-CEO senior managers and financial restatements," Accounting and Business Research, Taylor & Francis Journals, vol. 52(2), pages 115-149, February.
    33. Bruynseels, L.M.L. & Cardinaels, E., 2014. "The audit committee : Management watchdog or personal friend of the CEO?," Other publications TiSEM 4efbab67-3b44-4eab-9f17-0, Tilburg University, School of Economics and Management.
    34. Hoitash, Rani & Hoitash, Udi & Kurt, Ahmet C., 2016. "Do accountants make better chief financial officers?," Journal of Accounting and Economics, Elsevier, vol. 61(2), pages 414-432.
    35. Mohammad Badrul Muttakin & Arifur Khan & Dessalegn Getie Mihret, 2018. "The Effect of Board Capital and CEO Power on Corporate Social Responsibility Disclosures," Journal of Business Ethics, Springer, vol. 150(1), pages 41-56, June.
    36. Jeffrey Cohen & Ganesh Krishnamoorthy & Arnold Wright, 2017. "Enterprise Risk Management and the Financial Reporting Process: The Experiences of Audit Committee Members, CFOs, and External Auditors," Contemporary Accounting Research, John Wiley & Sons, vol. 34(2), pages 1178-1209, June.
    37. Ranto Partomuan Sihombing & I Made Narsa & Iman Harymawan, 2023. "Big data analytics and auditor judgment: an experimental study," Accounting Research Journal, Emerald Group Publishing Limited, vol. 36(2/3), pages 201-216, April.
    38. Gang Wang & Xu Jiang & Chang-Hong Yuan & Ya-Qun Yi, 2013. "Managerial ties and firm performance in an emerging economy: Tests of the mediating and moderating effects," Asia Pacific Journal of Management, Springer, vol. 30(2), pages 537-559, June.
    39. Clive S. Lennox & Chul W. Park, 2007. "Audit Firm Appointments, Audit Firm Alumni, and Audit Committee Independence," Contemporary Accounting Research, John Wiley & Sons, vol. 24(1), pages 235-258, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fang, Ming & Francis, Bill & Hasan, Iftekhar & Wu, Qiang, 2022. "External social networks and earnings management," The British Accounting Review, Elsevier, vol. 54(2).
    2. Florackis, Chris & Sainani, Sushil, 2021. "Can CFOs resist undue pressure from CEOs to manage earnings?," Journal of Corporate Finance, Elsevier, vol. 67(C).
    3. Agnes Aurora Ngelo & Yani Permatasari & Siti Zaleha Abdul Rasid & Iman Harymawan & Wulandari Fitri Ekasari, 2022. "Ex-Auditor CEOs and Corporate Social Responsibility (CSR) Disclosure: Evidence from a Voluntary Period of Sustainability Report in Indonesia," Sustainability, MDPI, vol. 14(18), pages 1-23, September.
    4. Hoitash, Udi & Mkrtchyan, Anahit, 2022. "Internal governance and outside directors’ connections to non-director executives," Journal of Accounting and Economics, Elsevier, vol. 73(1).
    5. Fan, Yaoyao & Jiang, Yuxiang & John, Kose & Liu, Frank Hong, 2021. "From watchdog to watchman: Do independent directors monitor a CEO of their own age?," Journal of Empirical Finance, Elsevier, vol. 61(C), pages 206-229.
    6. Dauth, Tobias & Pronobis, Paul & Schmid, Stefan, 2017. "Exploring the link between internationalization of top management and accounting quality: The CFO’s international experience matters," International Business Review, Elsevier, vol. 26(1), pages 71-88.
    7. Huang, Qianqian & Jiang, Feng & Lie, Erik & Yang, Ke, 2014. "The role of investment banker directors in M&A," Journal of Financial Economics, Elsevier, vol. 112(2), pages 269-286.
    8. Xi Zhong & Liuyang Ren & Tiebo Song, 2022. "Beyond Market Strategies: How Multiple Decision-Maker Groups Jointly Influence Underperforming Firms’ Corporate Social (Ir)responsibility," Journal of Business Ethics, Springer, vol. 178(2), pages 481-499, June.
    9. Nooraisah Katmon & Omar Al Farooque, 2017. "Exploring the Impact of Internal Corporate Governance on the Relation Between Disclosure Quality and Earnings Management in the UK Listed Companies," Journal of Business Ethics, Springer, vol. 142(2), pages 345-367, May.
    10. Kambar Farooq & Muhammad Azeem & Chin Man Chui & Jun (Tony) Ruan, 2023. "Board Connections and Dividend Policy," Abacus, Accounting Foundation, University of Sydney, vol. 59(4), pages 983-1040, December.
    11. Xingqiang Du & Liang Xiao & Yingjie Du, 2023. "Does CEO–Auditor Dialect Connectedness Trigger Audit Opinion Shopping? Evidence from China," Journal of Business Ethics, Springer, vol. 184(2), pages 391-426, May.
    12. Armstrong, Christopher S. & Guay, Wayne R. & Weber, Joseph P., 2010. "The role of information and financial reporting in corporate governance and debt contracting," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 179-234, December.
    13. Xu, Qiuhua & Deng, Li & Li, Sen & Huang, Wen, 2021. "Do hometown connections affect corporate governance? Evidence from Chinese Listed Companies," International Review of Economics & Finance, Elsevier, vol. 73(C), pages 290-302.
    14. Mohammad Nasih & Raden Roro Widya Ningtyas Soeprajitno & Iman Harymawan & John Nowland, 2023. "Top Company Officers and Auditor School-ties on Audit Fee: Evidence From Indonesia," SAGE Open, , vol. 13(4), pages 21582440231, December.
    15. Saeed Rabea Baatwah & Adel Ali Al-Qadasi, 2020. "Determinants of outsourced internal audit function: a further analysis," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 10(4), pages 629-659, December.
    16. Lauren A. Cooper & Jimmy F. Downes & Ramesh P. Rao, 2018. "Short term real earnings management prior to stock repurchases," Review of Quantitative Finance and Accounting, Springer, vol. 50(1), pages 95-128, January.
    17. Tri Tri Nguyen & Chau Minh Duong & Sunitha Narendran, 2021. "CEO profile and earnings quality," Review of Quantitative Finance and Accounting, Springer, vol. 56(3), pages 987-1025, April.
    18. Eman F. Attia & Tariq H. Ismail & Messaoud Mehafdi, 2022. "Impact of board of directors attributes on real-based earnings management: further evidence from Egypt," Future Business Journal, Springer, vol. 8(1), pages 1-22, December.
    19. Ferramosca, Silvia & Allegrini, Marco, 2018. "The complex role of family involvement in earnings management," Journal of Family Business Strategy, Elsevier, vol. 9(2), pages 128-141.
    20. Balachandran, Balasingham & Faff, Robert, 2015. "Corporate governance, firm value and risk: Past, present, and future," Pacific-Basin Finance Journal, Elsevier, vol. 35(PA), pages 1-12.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:sagope:v:13:y:2023:i:4:p:21582440231220051. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.