Bonus Compensation and Real Earnings Management : Audit Committee Effectiveness as Moderation Variable

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Suhardjo; Nicholas Renaldo; Andi; Sudarno; Marice Br. Hutahuruk; Suharti; Kristy Veronica.

Bonus Compensation and Real Earnings Management: Audit Committee Effectiveness as Moderation Variable

Page : 89 Research.

Bonus Compensation and Real Earnings Management : Audit Committee Effectiveness as Moderation Variable

Suhardjo^1*), Nicholas Renaldo²⁾, Andi³⁾, Sudarno⁴⁾, Marice Br. Hutahuruk⁵⁾, Suharti⁶⁾, Kristy Veronica⁷⁾

Institut Bisnis dan Teknologi Pelita Indonesia^1,2,3,4,6, Institut Teknologi dan Bisnis Master⁵ [email protected]^1*, [email protected]², [email protected]³, [email protected]⁴, [email protected]⁵,

*Corresponding author

Received: February 7 ,2022; Accepted: June 6 ,2022 Published: June 30, 2022

To cite this article: Suhardjo; Renaldo, N. Andi; Sudarno; Hutahuruk, MBr; Suharti; Veronica, K.(2022). Bonus Compensation and Real Earnings Management: Audit Committee Effectiveness as Moderation Variable.

The Accounting Journal of BINANIAGA. 7 (1) 89 – 102. doi: 10.33062/ajb.v7i1.495

Abstract. This study analyzes the effect of bonus compensation on real earnings management, with the audit committee effectiveness as a moderating variable in manufacturing companies in Indonesia. The sample of this research is manufacturing companies listed on the Indonesia Stock Exchange from 2018 to 2020. The research sample was selected by the purposive sampling method. Hypothesis testing is done by using panel data regression and Moderated Regression Analysis (MRA). The results showed that bonus compensation had a positive effect on real earnings management, while the effectiveness of the audit committee did not weaken the effect of bonus compensation on real earnings management. The findings of this study provide an overview to the company's stakeholders that bonus compensation is one of the factors that motivates company management to practice earnings management, especially earnings management related to the company's real activities. In addition, this study also provides an overview of the effectiveness of the implementation of corporate governance mechanisms in the sample companies, in particular the ineffectiveness of the supervisory function related to earnings management practices carried out by the audit committee.

Keywords: Real Earnings Management, Compensation Bonus, Audit Committee Effectiveness

INTRODUCTION

One form of accountability of a company is to provide information (Chandra, Renaldo, & Putra, 2018) to internal and external parties regarding all achievements and performance of the entity during a certain period. Financial reports are the main media for conveying financial information and company performance (Kusumawardani and Dewi, 2017). Information about earnings in financial statements is often used as an important indicator in assessing the company's performance and success, as well as being considered by investors in making investment decisions (Agustia, 2013).

Recently, financial statements are considered no longer able to describe the actual state of a company because they are often used as a source of misuse of information that can harm shareholders. Managers often do engineering in the presentation of accounting profit information or commonly referred to as earnings management, because there is asymmetry of information and the tendency of external parties to the company that often uses profit figures as a measure of a company's performance (Agustia, 2013).

Cases regarding earnings management are still widely found and become a topic that attracts the attention of researchers in various countries. In Indonesia, a case that recently emerged is an indication of manipulation of financial statements involving four leading State-Owned Enterprises (BUMN), namely PT Perusahaan Listrik Negara (PLN), PT Asuransi Jiwasraya, PT. Garuda Indonesia (GI), and PT Pertamina. The company is

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considered to be carrying out opportunistic earnings management by recording profits that are too high and considered unreasonable, even PT Asuransi Jiwasraya is suspected of having done window dressing or accounting engineering so that all reported profits since 2006 are considered false profits.

Moradi et al. (2015) said that managers use the accrual method and real activities in manipulating financial statements as an effort to achieve their goals. In accrual-based earnings engineering (accrual earnings management), managers use a choice of accounting methods in financial reporting, while in real earnings management managers try to achieve their goals by manipulating real activities such as increasing sales, reducing discretionary costs, and doing overproduction.

The principle of fair value, which is the basic concept of IFRS, is considered capable of reducing accrual and real earnings management (Ahmar et al., 2016).

However, Firmansyah and Irawan's research (2018) provides evidence that the adoption of IFRS in Indonesia has not been able to reduce the practice of accrual-based earnings management or based on real activities. Similar results were also seen in the research of Ahmar et al. (2016) which shows the fact that after Indonesia adopted IFRS there was an indication of an increase in the number of real activity-based earnings management. This fact is consistent with the results of research by Ferentinou and Anagnostopoulou (2016) in Greece which also provides evidence of a shift in earnings management behavior from the accrual basis to real activities after adopting IFRS.

One of the motivations of managers to practice earnings management according to positive accounting theory is bonus compensation. Basically, in agency theory, it has been stated that the provision of bonus compensation is one of the owner's efforts to motivate managers to perform in accordance with the interests of the owner. In addition, it is also an effort to minimize dishonesty in financial reporting by company managers.

However, some research results state that bonus compensation actually encourages company managers to carry out opportunistic earnings management through earnings manipulation. This is consistent with positive accounting theory, particularly the bonus plan hypothesis. The differences in theoretical perspectives and the results of previous research make this research topic important to do.

Several previous research results have tested the bonus compensation variable as a factor that influences company management to manipulate earnings. However, the results are not consistent. Li and Thibodeau (2019), Kusumawardani and Dewi (2017), Simanjuntak and Anugerah (2019), Bergstresser and Philippon (2006) recorded a positive effect of bonus compensation on earnings management. However, the research results of Sosiawan (2012), Adut et al. (2013), and Kalbuana et al. (2019) found evidence of a negative effect of the bonus compensation variable on earnings management practices. In Indonesia, research on the effect of the mechanism of giving bonus compensation to company managers on real earnings management practices is still very rarely studied. In 2015, Jiwandono and Rahmawati analyzed bonus compensation and real activity-based earnings management in Indonesia. The results of this research prove that bonus compensation is an important factor influencing company management in choosing the option to practice real earnings management. However, the research results of Moradi et al. (2015) actually prove that bonus compensation for managers is not able to encourage them to practice earnings management using real activities.

According to agency theory, the implementation of good corporate governance (commonly called good corporate governance) is one of the mechanisms that can reduce information asymmetry and opportunistic behavior of company management, one of which is earnings management practices. Companies are expected to implement good corporate governance because entities that have good governance are proven to be able to reduce and even prevent earnings management actions (Almadi and Lazic, 2016). One of the important elements in the implementation of corporate governance which is considered to be able to contribute to reducing agency problems is the audit committee.

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Page : 91 This is because the audit committee is considered capable of increasing transparency and accountability by improving the quality of financial reporting.

Therefore, this study seeks to prove the effect of the effectiveness of the audit committee in minimizing earnings management practices caused by management motivation in obtaining bonus compensation. In addition, this study not only analyzes real earnings management using all components in one value but also analyzes each component or activity of real earnings management. Thus, it can be seen which activities have the strongest relationship with bonus compensation.

Identification of the Problem

Based on the above phenomenon, the formulation of the problem is: (1) Bonus compensation has a positive effect on real earnings management; (2) The effectiveness of the audit committee weakens the effect of bonus compensation on real earnings management.

LITERATURE REVIEW Agency Theory

Agency theory views the agency relationship as a contractual relationship between the company owner (principal) and management (agent) to provide services which then involves the delegation of authority from the owner to management (Jensen and Meckling, 1976). Agency theory implies the existence of information asymmetry between owners and management. In this context, management has more information than owners or shareholders. Furthermore, agency theory explains that company management does not always work in accordance with the interests of the principal. If management does not carry out its obligations in accordance with the interests of the principal, it can cause a conflict of interest between management and the owner, which can lead to high agency costs (Sosiawan, 2012). This is in accordance with the assumption of three basic human traits stated by Eisenhardt (1989), namely having a selfish tendency, having limited reasoning power for the perception of the future, and always trying to avoid risk. Based on these assumptions, humans in general will act opportunistically, which tends to be selfish. One of the opportunistic behavior of management in a company is to practice earnings management. The literature shows that earnings management practices are often carried out by ignoring the actual economic reality of the company and are considered unethical because they can

"mislead" users of the company's financial statements (Healy and Wahlen, 1999). In addition, earnings management practices can also lead to a decrease in the credibility of the company and the capital market (Abdullah and Ismail, 2016) and reduce the company's performance in the future (Tabassum et al., 2015).

Positive Accounting Theory

Management has the authority to determine the choice of accounting policies and methods in the process of preparing and reporting company finances. The selection of these policies and methods provides an opportunity for management to act in its own interests, one of which is earnings management (Watts and Zimmermann, 1978). Watts and Zimmermann (1978) stated that earnings management can occur because there are several motivations or incentives, namely bonus motivation, debt contracts, and political costs. One of the motivations that are directly related to the welfare of individual management is bonuses. The literature shows that bonus compensation is an important factor influencing real earnings management practices (Jiwandono and Rahmawati, 2015).

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The Effect of Bonus Compensation on Real Earnings Management

The mechanism for giving bonuses to company management is a form of motivation for employees to increase company performance, which is usually done when employees have achieved the targets or profits that have been set. Performance measurement based on profit is often an impetus for managers to try to manage company profits through various ways with the aim of getting the maximum bonus.

In positive accounting theory (especially the bonus plan hypothesis) it is explained that bonuses are motivations or factors that encourage managers to initiate earnings management. In this context, managers will tend to choose the company's operational policies that are able to make the profit value in the financial statements high, for example by increasing sales and reducing discretionary costs. The reason is clear because, with high profits, the bonuses received are also high. Some research results such as Kusumawardani and Dewi (2017), Simanjuntak and Anugerah (2019), Moradi et al.

(2015), and Jiwandono and Rahmawati (2015) have provided evidence of the positive effect of bonus compensation on earnings management. Therefore, the first hypothesis in this study is formulated as follows:

H1: Compensation bonuses have a positive effect on real earnings management.

The Moderation Effect of the Audit Committee on the Relationship between Bonus Compensation and Real Earnings Management

The literature shows that information asymmetry is one of the important factors that lead to opportunistic earnings management practices. Bonus compensation is one of the factors that motivate company management to practice earnings management. This is because the company's management will benefit directly from these activities. Several research results have proven the effect of positive compensation on real earnings management (Jiwandono and Rahmawati, 2015; Tahir et al., 2019). However, several other studies have proved otherwise (see Moradi et al., 2015; Liu and Tsai, 2015). The results of these studies indicate that the relationship between bonus compensation and real earnings management is still inconsistent. This means that there is a possibility that there are other factors that influence the relationship.

One important factor that is considered capable of reducing information asymmetry and management's opportunistic behavior is good corporate governance. The audit committee is one of the elements in the corporate governance mechanism which is expected to increase the transparency and accountability of a company. The audit committee ensures that the company's financial statements are in accordance with accounting standards and applicable government regulations. Thus, it is hoped that the monitoring carried out by the audit committee can reduce earnings management practices. Research by Badolato et al. (2014), Inaam and Khamoussi (2016) have provided evidence that the existence of an audit committee organ in a company is able to minimize or limit the opportunistic behavior of managers through earnings management practices.

Pamudji and Trihartati (2010) have proven that the independence of the audit committee has a negative effect on earnings management practices. Research by Sun et al. (2014) also proves that the expertise of audit committee members in finance and accounting can reduce earnings management practices. Furthermore, Sun et al. (2014) also provides support for the results of these studies. If all of the above characteristics can be met, then the role of the audit committee will be more effective and can reduce the opportunistic behavior of the company's management. Therefore, the second hypothesis in this study is stated as follows:

H2: The effectiveness of the audit committee weakens the effect of bonus compensation on real earnings management.

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Page : 93 Conceptual Framework

Source: Researcher recapitulation, 2022

Figure 1.Conceptual Framework

RESEARCH METHODOLOGY Population and Sample

The population in this study are all manufacturing companies listed on the Indonesia Stock Exchange (IDX) for the 2018-2020 period. The sample criteria used are:

1) The company's financial statements are stated in rupiah currency, 2) all necessary data are available in full during the observation period. The following table presents the selection of research samples, and 3) do not have outlier.

Table 1. Sample Selection Procedure

No Criteria Number

1 Manufacturing companies registered during the study period 196

2 Incomplete data (55)

3 Financial statements are not presented in rupiah currency (29) 4 The data has a skewness and kurtosis value above the critical value (31)

Total 81

Firm-Years 243

Source: Researcher recapitulation, 2022

Independent Variable Dependent Variable

H₁ (+)

H₂ (-)

Moderating Variable Control Variable

Bonus Compensation (COM)

Real Earnings Management (REM)

Audit Commitee Effectiveness (ACE)

Leverage (LEV) Firm Size (Size)

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Operational Definition and Measurement of Variables Dependent Variable

Measurement of real earnings management refers to the research of Sun et al.

(2014) which focuses on three real earnings management activities. The proxies used are abnormal cash flow operations, abnormal production costs, and abnormal discretionary expenses. The following is a calculation of each real earnings management activity.

a. Abnormal Cash Flow Operation (ABN_CFO)

b. Abnormal Production Costs (ABN_PROD)

c. Abnormal Discretionary Expenses (ABN_DISX)

Information:

= Cash Flow from Operating Activities (operating cash flow) in year t = Production cost is cost of goods sold plus changes in inventory in year t = Discretionary expenses, namely research and development costs plus

advertising costs, sales costs, and general and administrative costs in year t = Total assets of company i year t-1

= Total sales of company i in year t = Total sales of firm i in year t-1

= Change in total sales of firm i in year t = Change in total sales of firm i in year t-1

The three proxies are then added together as an overall proxy for real earnings management practices. This is done in order to accommodate all real earnings management activities. Firmansyah and Irawan (2018) stated that in the addition the measurement of abnormal Cash Flow Operations and abnormal discretionary expenses was first multiplied by minus one (-1) to equalize the direction. Thus the real earnings management variable can be calculated by the following formula.

REM = ABN_CFO (-1) + ABN_PROD+ ABN_DISX (-1) Information:

REM = Real earnings management ABN_CFO = Abnormal Cash Flow Operation ABN_PROD = Abnormal Production Costs ABN_DISX = Abnormal Discretionary Expenses Independent Variable

In this study, bonus compensation is measured by the natural logarithm of the amount of compensation or bonuses and remuneration received by company executives.

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Page : 95 Moderating Variables

The audit committee effectiveness variable is a dummy variable. The criteria used are if the audit committee has carried out its duties effectively it will be given a score or value of 1, while those that have not been effective will be given a score or value of 0. To determine whether the audit committee is effective or not, it will first be assessed and tested for reliability. The instrument for assessing the effectiveness of the audit committee in this study used the index developed by Hermawan (2011). The audit committee effectiveness assessment index consists of 3 indicators, namely: 1) audit committee activity, 2) audit committee size, and 3) audit committee expertise and competence. The three indicators are divided into 11 question items. The scores for each question are then summed to obtain the final score on the effectiveness of the audit committee. If the score obtained is above the median value, then the audit committee is considered effective, and vice versa (Chandra, 2011).

Control Variable

This study uses two control variables, namely leverage and firm size. The leverage variable is measured through the ratio of total debt and total assets (Sosiawan, 2012;

Hasty and Herawaty, 2017). Company size is measured by the number of assets owned by the company (Renaldo, Suhardjo, Putri, Juventia, & Nur, 2021). To reduce the data variance that is too high, the total assets are transformed into the form of a natural logarithm (Suyono, Renaldo, Sevendy, Putri, & Sitompul, 2021).

Hypothesis test

We use panel regression to test the hypothesis of the effect of bonus compensation on real earnings management and the effect of audit committee effectiveness as a moderating variable. The following is the regression equation used.

First model regression equation:

REMit = α0 + β1COMit + β2LEVit + β3Sizeit + ԑit

Second model regression equation:

REMit = α0 + β1COMit + β2ACEit + β3COMit x ACEit + β4LEVit + β5Sizeit + ԑit

Information:

REM = Real Earnings Management α = Constant

β = Regression Coefficient COM = Bonus Compensation

ACE = Audit Committee Effectiveness LEV = Leverage

Size = Firm Size ԑ = Error

Before performing the panel regression analysis, we performed the Chow test, Hausman test, and the Lagrange Multiplier test (LM-test) to determine the appropriate estimation model. Furthermore, the classical assumption test is carried out to ensure that the regression model is free from problems of normality, multicollinearity, and heteroscedasticity.

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RESULTS AND DISCUSSION

Descriptive Analysis Based on the sampling criteria obtained a total of 243 observations during the observation period. The results of the descriptive statistical analysis in Table 1 show that the real earnings management variable (REM) has an average of 0.059, a median value of 0.108, a maximum value of 0.773, and a minimum value of -0.693, with a standard deviation of 0.268. Bonus compensation (COM) has an average of 23,402, a median of 23,386, a maximum value of 27,605, and a minimum value of 17,496, with a standard deviation of 1,579. The effectiveness of the audit committee (ACE) in this study has a mean value of 0.433, a median of 0.0000, a maximum value of 1, a minimum value of 0, and a standard deviation of 0.501. Leverage (LEV) has a mean value of 0.424, a median value of 0.393, a maximum value of 0.918, a minimum value of 0.083, and a standard deviation of 0.206. Firm size (SIZE) has a mean value of 28.734, the median is 28.499, the maximum value is 32.208, the minimum value is 25.669, and the standard deviation is 1.562.

Table 2. Descriptive Statistical Test Results

Variable Mean Median Maximum Minimum Standard Deviation n

REM 0,059 0,108 0,773 -0,693 0,268 243

COM 23,402 23,386 27,605 17,496 1,579 243

ACE 0,433 0,000 1,000 0,000 0,501 243

LEV 0,424 0,393 0,918 0,083 0,206 243

SIZE 28,734 28,499 32,208 25,669 1,562 243

Source: Data processing results, 2022 Regression Analysis

The results of the model specification test show that the most suitable estimation model is the fixed effect. Furthermore, the results of the classical assumption test prove that there is no classical assumption problem in the developed regression model. This means that the residuals of the first and second regression models are normally distributed, there is no very high correlation between the independent variables, and there is no indication of heteroscedasticity. After the model specifications are determined and the classical assumptions in the regression model are met, then panel regression analysis is carried out to test the research hypotheses.

The results of the analysis in Table 3 show the coefficient of the bonus compensation variable is 0.032 with a probability or significance of 0.005. This means that the bonus compensation variable positively affects the real earnings management variable at a significance level of 1%. Furthermore, the results of the analysis also show that the leverage and firm size variables have a probability value greater than 1%. This means that the two control variables do not have a significant effect on real activity-based earnings management. The F-statistic value of 12.539 with a probability value of 0.000 proves that the regression model is feasible and in accordance with the data used. This means that the goodness of fit regression model is fulfilled. Based on the results of the analysis, it can be said that the first hypothesis in this study can be accepted at a significance level of 1%.

Table 3. Results of the First Hypothesis Testing

Variable B t Sig.1 VIF Sig.2

Constant -1,200 -1,049 0,296 0,509

COM 0,032 2,872 0,005 1,143 0,650

LEV 0,020 1,109 0,269 1,072 0,196

SIZE 0,018 1,441 0,152 1,084 0,725

Adjusted R Square 0,455 OS-KS Test 0,122

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F test 12,539 Run Test 0,441

Sig. of F test 0,000 Source: Data processing results, 2022

Furthermore, the results of the analysis and testing of the second hypothesis are presented in Table 4. The results of the regression analysis in Table 3 show that the interaction between the bonus compensation variable and the effectiveness of the audit committee has a coefficient of 0.030 with a probability value or p-value of 0.045. This result means that the interaction of the two variables has a positive and significant effect on the real activity-based earnings management variable. This result contradicts the second hypothesis that we stated, namely the effectiveness of the committee attenuating the effect of bonus compensation on real earnings management. Thus, our second hypothesis is not accepted. All classical assumptions have been met.

Table 4. Results of the Second Hypothesis Testing

Constant -0,835 -0,734 0,464 0,573

COM 0,009 0,454 0,650 2,644 0,873

ACE -0,733 -2,088 0,038 2,083 0,545

COM x ACE 0,030 2,020 0,045 3,180 0,683

LEV 0,038 2,021 0,045 1,945 0,204

SIZE 0,024 0,589 0,557 1,957 0,775

Adjusted R Square 0,475 OS-KS Test 0,168

F test 12,617 Run Test 0,708

Sig. of F test 0,000 Source: Data processing results, 2022

The Effect of Bonus Compensation on Real Earnings Management

Based on the results of data processing and analysis described in the previous section, there is evidence that bonus compensation affects real earnings management positively and significantly at the level of 1%. The results of this research provide support for positive accounting theory, that one of the motivations or factors that influence management to practice earnings management is the bonus compensation promised by the company owner. The results of this study support the research of Jiwandono and Rahmawati (2015). Bonus compensation to company executives is a form of appreciation given by the company for the performance achieved by management. This means that the higher the recorded profit value, the higher the bonus compensation received by the company's management.

Several studies have shown that earnings management through real activities is preferred by managers to increase profits. The difficulty of outsiders to detect fraud (Renaldo, Sudarno, et al., 2021) is probably one of the reasons why this method is more desirable than accrual earnings management. Another thing that is also the reason why the real method is mostly used to manage earnings is that earnings management can be carried out throughout the accounting period, while the accrual method is considered riskier because it can only be done at the end of the year, thus limiting the ability of managers to achieve the predetermined profit target (Ningsih, 2015). Therefore, managers engineer real activities during the current period to increase profits and obtain large bonus compensation, but the risk of being detected is smaller.

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The Effect of the Effectiveness of the Audit Committee in Weakening the Effect of Bonus Compensation on Real Earnings Management

This research provides evidence that the effectiveness of the audit committee has not been able to weaken or reduce the effect of bonus compensation on real earnings management practices in the sample companies. This indicates that the performance of the audit committee in monitoring financial governance and corporate financial reporting is still not optimal. The results of this research does not provide support for agency theory. The literature shows that the audit committee has an important role to ensure the quality and credibility of the company's financial reporting. The Audit Committee is one of the institutional elements or organs within the framework of good corporate governance.

The main task of the audit committee is to assist the board of commissioners in carrying out its supervisory function. The existence of an audit committee is expected to increase the effectiveness of the company's internal control (Renaldo, Sudarno, & Hutahuruk, 2020; Renaldo, Sudarno, Hutahuruk, Suyono, & Suhardjo, 2021), so as to reduce the opportunistic behavior of company managers.

This argument is supported by the research results of Pamudji and Trihartati (2010) which indicate that the formation of audit committees in manufacturing companies in Indonesia has not been fully effective in carrying out supervisory duties. In addition, this argument is strengthened by the data of this study which shows that there are only about 42% of companies whose audit committees have carried out their duties efficiently and effectively, meaning that most of the audit committees have not performed optimally.

Furthermore, the fact that real earnings management activities are difficult to detect can also be one of the causes of the difficulty of the audit committee to control management activities in earnings management through real activities.

Additional Analysis

Additional analysis carried out in this study is to examine the effect of bonus compensation on three real earnings management activities separately and examine the effect of audit committee moderation on the relationship between bonus compensation and three real earnings management activities. The three activities are sales manipulation as proxied by abnormal Cash Flow Operations, excessive production proxied by abnormal production costs, and reduction of discretionary costs proxied by abnormal discretionary expenses (Sun et al. 2014).

The results of testing the effect of the bonus compensation variable on three real earnings management activities show that the bonus compensation variable only has a significant effect on abnormal production costs. This indicates that one of the motivations of the company's management to produce excessively is to increase profits, so that management will receive bonus compensation for this performance. Production of goods in large quantities can reduce production costs per unit, so that the reported cost of goods sold is lower, thus companies can report better margins (Roychowdhury, 2006).

The results of this research provide an empirical picture for company owners to pay attention to the reasonableness of the amount of production and consider production control systems to mitigate earnings management practices through production activities.

The results of the moderating analysis of the effectiveness of the audit committee on the effect of bonus compensation on three real management activities show relatively the same results as the previous analysis. This means that the effectiveness of the audit committee has not been able to reduce the effect of bonus compensation on each real earnings management activity.

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Page : 99 CONCLUSIONS AND RECOMMENDATIONS

This research provides empirical evidence of the positive effect of bonus compensation on real earnings management practices in the sample companies.

Furthermore, the results of the analysis prove that bonus compensation has the strongest relationship with production activities as proxied by abnormal production costs. This research also shows evidence of the effectiveness of the audit committee in the sample companies that have not been able to weaken the effect of bonus compensation on real earnings management.

This research has several limitations. First, this research only analyzes the effectiveness of one of the organs of corporate governance, namely the audit committee.

This means that the effectiveness of the audit committee here does not reflect the effectiveness of corporate governance as a whole. Second, this research has not considered the ownership structure in the company. Earnings management practices are likely to be different if the company management is also the owner of the company. Real earnings management motivation in order to earn is certainly not very relevant for management who is also the owner of the company.

Based on these limitations, we suggest that future researchers analyze the effectiveness of corporate governance as a whole, for example using the ASEAN Corporate Governance Index to measure the effectiveness of corporate governance or green corporate governance (Renaldo, Suhardjo, Putri, Juventia, & Nur, 2021). In addition, the researcher also suggests conducting a more in-depth analysis by considering the company's ownership structure, especially managerial ownership, and profitability strategy (Putri et al., 2022).

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