THE EFFECT OF MANAGERIAL OWNERSHIP, INSTITUTIONAL OWNERSHIP, FAMILY OWNERSHIP, AND FREE CASH FLOW MANAGEMENT TOWARD EARNINGS MANAGEMENT
Rina Mudjiyanti1, Erina Anggita Agustin2, Erny Rachamwati3, Hardiyanto Wibowo4
Muhammadiyah University of Purwokerto Email: rinamudjiyantie17@gmail.com1 Email: erina.anggyta98@gmail.com2
Abstract
This study aims to find empirical evidence of the effect of managerial ownership, institutional ownership, family ownership and free cash flow on earnings management. The population used in this study is manufacturing companies listed in Indonesia Stock Exchange in 2015-2018. the sampling technique used is purposive sampling, in order to obtain a sample of 64 that met the criteria. The result showed that free cash flow has a negative effect on earnings management, managerial ownership, institutional ownership, and family ownership has no effect on earnings management.
Keyword: earnings management, managerial ownership, institutional ownership, family ownership, free cash flow
INTRODUCTION
Reports Financial is a form of accountability of management to the internal company. The parameter used to measure management performance in the financial statements is the profit information contained in the income statement. Earnings information can be used as a guide in making investments that help investors or other parties in assessing the earnings power (ability to generate profit) companies in the future that will come (Pujiati and Arfan, 2013). Management can increase profits in accordance with the desired and beneficial parties certain to perform manipulation of financial statements, (Mahiswari and Nugroho, 2014).
Management profit that is an ability to manipulate the options that are available and take the choice that is right for can reach the level of profit that is expected (Belkaoui, 2006). Management profit is the decision of the manager to choose certain accounting policies that are considered to achieve the desired goal, whether it is to increase profits or reduce the level of losses that were reported (Scott, 2011: 423). When management does not succeed in achieving its earnings targets, management will conduct a change in reporting by way of selecting and applying the accounting method that can show a better profit achievement in order to show good performance. Earnings management can arise because accounting earnings can be used as a measure of manager performance (Scott, 2006), so that the attention of shareholders is concentrated on the earnings information without regard to the procedures, methods and judgments used by company managers to generate these profits.
Management earnings interesting to study, because it gives an idea of behaviour of managers in the financial reports in a given period, namely the possibility of motivation certain that encourage them to organize the data are reported. Earnings management not always associated with efforts to manipulate accounting information, but it can also be done with the selection of allowed accounting methods, Puji and Arfan (2013). Can be concluded that the management of profit is a behavior manager to manage the profits from the company and reported in the statement of financial to have a goal to show the performance of the company are good.
To minimize earnings management actions there are several factors that affect earnings management, the first factor is managerial ownership. Owners managerial is the ownership of company shares by managerial. In general it can be stated that the percentage of certain ownership of shares by the management (managerial ownership) tend to affect the actions of management earnings (Boediono, 2005). Jensen and Meckling (1976) states that the practise of management profit can be minimized by aligning the difference interest between owners and management by way of enlarging the managerial ownership.
The second factor that the influence earnings management is institutional ownership, is can part of the company’s share owned by institutional investors or companies. Ownership by institutional rated to reduce the practise of management considers the institutional as shopisticated investor can monitor the impact of management will reduce the motivation of managers to manage earnings, (Institution and Mas' ud, 2003). Institutional ownership has the ability to control earnings management through monitoring so as to reduce earnings management.
The third factors that affect the management of profit is the ownership of the family. Owners family is the ownership of shares of the company by the family. In family firms, members of the family are generally not simply status as an owner but also positions the company management.
This leads to members The fourth factor that affects earnings management is free cash flow . Free cash flow is the remaining cash flow calculation generated by a company at the end of a financial period. According to Ross et. al., (2000) the flow of cash -free is the cash the company that can be distributed to creditors or holders of shares that are not used for working capital ( working capital ) or an investment in an asset nonetheless.
One example of an earnings management case that recently occurred at PT Tiga Pilar Sejahtera Food Tbk (AISA) an investigation into the 2017 financial statements found allegations of inflating the value of 4 billion by the old management in several accounting posts. In a report based on facts PT Ernst & Young Indonesia (EY) to the management of new AISA dated 12 March 2019, the alleged inflation of identified occur in accounts receivable business, inventory and fixed assets of the Group AISA. The new management in question is the management that was decided at the Extraordinary General Meeting of Shareholders (EGMS) October 22, 2018, which contained Hengky Koestanto as the main director and Charlie Dungga as the director. The old management who managed the EGMS company consisted of Joko Mogoginta as the main director and three other directors, namely Budhi Istanto, Hendra Adisubrata and Jo Tjong Seng.
In addition to the Rp 4 trillion inflated, there were also findings of alleged revenue inflation of Rp 662 billion and other inflation of Rp 329 billion in the EBITDA (earnings before interest, tax, depreciation and amortization) of the food business entity of the issuer. Found also the relationships and transactions with parties affiliated who do not use the mechanism of disclosure ( disclosure ) which is sufficient to stakeholders is relevant. It it is considered EY potentially violate the decision of Bapepam and Institutions (Bapepam-LK) No. KEP-412 / BL / 2009 concerning the Transaction Affiliates and Conflict of Interest on Certain Transactions (www.cnbcindonesia.com).
Based on the above cases of earnings management, explain the lack of ownership concentration can cause an opportunity for management to perform manipulation of data. By strengthening managerial ownership, institutional ownership, family ownership and free cash flow is expected to prevent earnings management behavior by management. The concentration of ownership from the institution and from the managerial side is considered to reduce the tendency of managers to manipulate earnings.
Several previous studies that affect earnings management are research conducted by Murtini and Mansyur (2012), Larastomo et,al (2016) found empirical evidence that managerial ownership has a negative effect on earnings management. Meanwhile, according to the research that is carried out by Mawardi et,al (2019) found empirical evidence that managerial ownership has positive effect on earnings management. Difference with research that is conducted by Agustia (2013) showed that managerial ownership does not affect the magnitude of earnings management.
Research from Mahiswari and Nugroho (2014) which state that institutional ownership has a negative effect on earnings management practices. According to Emi and Mawardi (2019), institutional ownership has a significant positive effect on earnings management. Meanwhile, according to research conducted by Agustia (2013) and Widyaningsih (2017) found empirical evidence of institutional ownership has no effect on the amount of earnings management. The results of according to Dwiyanti and Astriena (2018), it is stated that family ownership has a negative effect on earnings management. In contrast to the research conducted by Rezeki (2015) which states that family ownership has no effect on the amount of earnings management.
The research conducted by Agustia (2013), Yogi and Damayanthi (2016) stated that free cash flow had a significant negative effect on earnings management. This is different from the research conducted by Emy and Cholid (2019) which states that free cash flow has a significant positive effect on earnings management . Meanwhile, according to the research that is carried out by Fitria et. al., (2017) stated that free cash flow has no effect on earnings management .
The study is referring to the research that is carried out by Dwiyanti and Astriena (2018). The variables used in previous research are family ownership and the audit committee. The results showed that managerial ownership and the audit committee had a negative effect on earnings management.
Differences of research is to study before hand that researchers replace variables committee audit with variable ownership of managerial and institutional ownership as a mechanism of corporate governance is the reason researchers audit committee as based on research that is performed by Firman et,al (2016), Apriliani and Aloysius (2017) and Lestari and Murtanto (2017), state that the audit committee has no effect on earnings management and the researchers adda the free cash flow variable. As well as the period of the study were carried out, which was in 2015-2018. The motivation of this study is to try to find the empirical evidence of new variables that might influence man agers decisions to perform earnings management.
Agency Theory
Jensen and Meckling (1976) suggested that agency conflict occurs because of misalignment between the owner and manager of the company. This discrepancy occurs because of differences in goals between the owner and manager of the company, namely that one of them has a goal to maximize personal wealth. Managers as a manager of the company have more information about the company than the owner of the company. It 's resulted in the asymmetry of information.
(Dwiyanti and Astriena, 2018). Asymmetry of information is a condition of imbalance acquisition of information between the management and shareholders.
Jensen and Meckling (1976) define relations agency as a control between the owner and the manager to perform a task for the sake of the interests of the owner to delegate the authority making the decision to the manager ( agent ). In order for the relationship between managers and shareholders goes well, they will make the right planning contracts to align the interests of managers and holders of shares in terms of conflict of interest.
Earnings management
Earnings management is defined as an effort by company managers to intervene or influence the information in the financial statements with the aim of deceiving stakeholders who want to know the performance and condition of the company (Sulistyanto, 2008:47). According to Widyaningsih (2017) earnings management occurs when managers use judgment in financial reporting and in structuring transactions to change financial statements that aim to mislead internal and external parties.
According to (Copelannd, 1968:10), earnings management includes management's efforts to maximize or minimize profits, including income smoothing in accordance with the wishes of management. Earnings management is defined by Mulford and Comiskey (2002: 82) is the manipulation of accounting with the purpose of creating the performance of the company in order to impress much better. Management profit is one of the factors that can reduce the quality of
financial reporting, management profit distort reports finances and can interfere with users reporting financial that trust digit earnings results such engineering as profit figure without engineering.
Managerial ownership
Weston and Brigham (1994: 17-23) states that the potential for conflicts in the agency relationship is very large, which is when the management company has less than 100% of ordinary shares belonging to the company the potential for conflict and even then arise. Meckling (1976) states to minimize conflicts agency by way of increasing managerial ownership in the company, so that the problem of agency is assumed to be reduced when the manager at once become the owner.
Managerial ownership against the stock company is seen to align the potential difference between the interests of holders of shares with the manager. Managerial ownership is an important internal monitoring tool for resolving agency conflicts between ownership is an important internal monitoring tool for resolving agency conflicts between external stockholders and management (Chen and Steiner 1999). Owners managerial is "a condition in which the manager has a stock company or in other words the manager as well as the holders of shares of the company" (Tarin and Christiawan, 2007: 2).
Institutional ownership
According to Sugiarto (2011) institutional ownership is the proportion of holders of shares of companies by investors institutional as company insurance, bank, company investment, and ownership by other institutions in the form of companies that can increase the monitoring that is more optimal to the agent manager. This is due to institutional investors involved in any decision- making that is not easily believe to action manipulation of earnings. Total holdings of institutional pretty significant to monitor the management impact on reducing the motivation of the manager to perform management earnings (and Veronica Ward, 2013).
Family ownership
One way to minimize agency problems is by family ownership. Their ownership shareholding structure of the family in a fairly dominant are considered to produce performance that is more efficient than companies with public ownership (Astuti et. Al., 2015). According to Pukthuanthong (2013) revealed that companies with family ownership can be identified from two aspects. First, the founders and/ or family members of the company's founders own at least 20% of the shares and are the highest shareholders in the company. Second, one of the family members serves as CEO or holds the position of chairman on the company's board of directors. In Indonesia, it was revealed that 71% of company ownership that concentrated in family ownership according to Lukviarman (2016: 56).
Research that is done by Lukviarman (2004), found that the owner of a controlling placing members of the family they are as part of the agency board of commissioners. Studies that identify that company with these characteristics indicate performance better than companies that do not involve the owners in the management of the company (Lukviarman, 2016: 178). It is expected that family ownership can reduce the occurrence of earnings management .
Free Cash Flow
Free cash flow is which means the flow of cash that is actually available to be paid to all investors after the company put the entire investment in fixed assets, new products and capital work required to maintain operations is running, Brigham and Houston (2010: 108). According to Guinan (2010:
131) that the free cash flow is very important for the company because it allows companies take advantage of the opportunities that could increase the value of shareholders. The greater the free cash flow is provided in a company, the more healthy companies such as have cash available for growth, debt repayment and dividend (White, 2003: 68).
As told by Jensen (1986) that the free cash flow are to improve the welfare of the holders of shares through an increase in the payment of dividends or buy back shares. Although on one side of the free cash flow is to improve the welfare of the holders of shares through an increase in the payment of dividends or buy back stock, the existence of free cash flow normally lead to a
conflict of interest (self-interest) between managers and shareholders. To monitor the terms of the necessary controls by both the companies, it raises the agency cost which costs are incurred by the holders of shares to carry out the supervision of the manager.
Companies with free cash flow is high without proper supervision can occur because the manager does not utilize it optimally cash that is available in the right, or use it for investments that benefit her own, this results in an increase in earnings management practices to improve the reporting of income, so that the discrepancy inefficiencies in the use of cash flow can be covered (Bukit and Iskandar, 2009).
Effect of managerial ownership on earnings management
Managerial ownership is one of the factors that are considered influential in earnings management . Managers who have access to information about the company will have the initiative to manipulate the information that if they feel the information is detrimental to the interests of their (Febrianto, 2005). According to research by Murtini and Mansyur (2012), Mahariana and Ramantha (2014), Aryanti and Kristanti (2017) managerial ownership has a negative effect on earnings management. By enlarging the ownership of shares that are owned by the manager expected dapet far earnings management action. If the interests of managers and owners can be aligned, it will reduce the behavior of managers to manipulate information or carry out earnings management so that the quality of accounting information will increase. Based on this explanation , the following hypothesis can be formulated :
H1: managerial ownership has a negative effect on earnings management .
The effect of institutional ownership on earnings management
Owners institutional is the ownership of shares were owned by institutions other. According to research by Indriastuti (2012), Pujiati and Arfan (2013), Mahiswari and Nugroho (2014) stated that institutional ownership has a negative effect on earnings management. This means that institutional ownership is one way to monitor the performance of managers in managing company profits so that it is expected to reduce earnings management behavior . Based on this explanation, the following hypothesis can be formulated :
H2: institutional ownership has a negative effect on earnings management .
Effect of family ownership on earnings management
Family ownership is share ownership owned by the family. Families as investors and company owners have the power to monitor managers in maintaining their wealth. Family ownership can oversee the activities of the manager by placing family members in the manager's position so that the manager can behave in accordance with the interests of the family. So family ownership can reduce earnings management actions. This is in line with research conducted by Dwiyanti and Astriena (2018), Warsini (2013), Dwiyanti (2017) which found empirical evidence that family ownership has a negative effect on earnings management. Based on this explanation, the following hypothesis can be formulated:
H3: family ownership has a negative effect on earnings management .
Effect of free cash flow on earnings management
Based on research by Herlambang (2017), Agustia (2013), Widianingrum and Sunarto (2018) that free cash flow has a negative effect on earnings management. Explain that companies that have free cash flow will not make managers take earnings management actions. This is because free cash flow is an important determinant in determining the value of the company, so the company focuses more on activities to increase free cash flow. Based on this explanation, the following hypothesis can be formulated:
H4: free cash flow has a negative effect on earnings management .
METHOD
Population and Sample
The population which became the target of the research it is manufacturing companies listed in Indonesia Stock Exchange period 2015-2018. The sample in this study are companies listed on the Indonesia Stock Exchange for the 2015-2018 period. Intake of sample done by using the method of purposive sampling. The criteria for selecting the sample are companies manufacturing are listed in the Stock Exchange Indonesia period 2015-2018.
Type of data that is used in the research is the data of secondary sources of data obtained indirectly, namely in the form of records or documentation of the company that has been published. Secondary data is obtained from the annual reports and financial statements of manufacturing companies listed on the Indonesia Stock Exchange (IDX) for the 2015-2018 period . The data is obtained from the annual reports and financial statements of manufacturing companies listed on the Indonesia Stock Exchange (IDX) for the 2015-2018 period.
Operational Definition and Measurement of Variables Dependent variable
The dependent variable in this study is earnings management. Earnings management is an act of managers who choose accounting policies to achieve specific objectives and the accounting policy in question is the use of accruals in preparing financial statements (Scott, 2006:344). According Sulistyanto (2008) earnings management is an attempt to manipulate the figures in the financial statements with playing methods and procedures of accounting are used by the company. Based on some understanding of the above can be concluded that earnings management is an action undertaken by managers to manipulate earnings were acquired during the period specified using the method of accounting. According Dwiyanti and Astriena (2018) calculation of management profit is calculated using discretionary accruals as a proxy for management profit is calculated by using the Modified Jones Model.
Independent Variable Managerial ownership
Managerial ownership is a factor that affects earnings management. Managerial ownership is measured by the percentage of the number of shares owned by management of the company's total share capital (Dewa and Wayan, 2014).
KM = Number of shares owned by management × 100% of total outstanding shares Institutional ownership
Investors Institutional have a role that is large in the supervision that effective in every decision that is taken manager. Investors Institutional involved in making the decision that is located within the company so that the supervision of the institution, the manager will be more careful in managing and likely very little to do manipulation of financial (Pujiati, 2015: 42). Indicators are used to measure the ownership of institutional is the percentage of shares owned by the institutional of the entire capital stock of companies that supply.
KI = number of shares are owned by institutional × 100% the number of shares outstanding
Family ownership
Family ownership is share ownership owned by the family. Companies family can be defined a a company whose structure ownership is concentrated on members of the family, where the family apart as the owner and become managements firms, also have interest to participate and in making decisions regarding corporate policy (Shyu, 2011). according to Tabalujan (2002) states if there is more than one person who has the same last name and occupies the position of director or commissioner in the same company, then this is a feature of the family relationship between this people.
KK = the number of shares are owned by family × 100% total shares outstanding
Free cash flow
According to Brigham and Houston (2010: 109), the free cash flow is the flow of cash that is really really available to be paid to the whole investors (shareholders and owners of debt) after the company put the entire investment in fixed assets, products of new and capital work that is required to maintain operations that are being run.
Analysis Regression Regression
In analyzing the data of this study using multiple linear regression. And the equation model:
ML = α + β1.KM + β2.KI + β3.KK +β4.AKB + ε
Information:
Y : Earnings management α : Constants
β : Coefficient Variable X KM : Managerial ownership KI : Institutional ownership KK : Family ownership AKB : Free cash flow ε : Term error
RESULTS AND DISCUSSION
Research Results
Population companies listed on the Stock Exchange Indonesia in year 2015-2018 are as many as 165 companies. Based on the criteria of the sample, the company manufactures that do not publish and publicize the complete financial reports and successively as many as 45 companies, the company manufactures that do not have complete information on the variables examined as many as 94 companies, companies manufacturing which suffered losses as much as 10 companies, thus obtained samples are 16 companies per year in which the period of observation that is used is the period from 2015 to 2018, the total overall sample were used in the study is as much as 64. The stages of sample selection based on the criteria that have been carried out are presented in table 4.1:
Research Data Analysis Method Descriptive Statistics Test
Descriptive statistical analysis is used to view the description or descriptive data seen from the average, standard deviation, maximum, and minimum values. To provide an overview of descriptive statistical analysis, the following are the results of descriptive statistical on the dependent variable earnings management (ML) and the independent variables managerial ownership (KM), institutional ownership (KI), family ownership (KK), and free cash flow (IMR).
Descriptive statistics of each research variable will be presented in table 1.
Table 1. Descriptive Statistical Analysis
N Minimum Maximum mean Std. Deviation
ML 64 -1.1410 2.9385 0.459691 1.0658762
KM 64 0.0157 38.0094 9.329230 11.1323319
KI 64 5,1432 96.0912 63.307775 19.6655827
KK 64 0.0151 61.9054 9.979591 14.5352464
AKB 64 -12.4969 36.0157 11.139029 10.3654993
Valid N (listwise) 64
Source: Processed Secondary Data (2019), appendix 8.
Multiple Linear Regression Analysis Test
Models are used to determine the effect of variable independent that ownership managerial (KM), the ownership of institutional (KI), the ownership of the family (KK) and the free cash flow (IMR) to the dependent variable earnings management (ML) is a multiple linear regression model. The following is a table of results of multiple linear regression analysis:
Table 2 . Multiple Linear Regression Test Results
Model Unstandardized Coefficients Sig.
B Std. Error
1 (Constant) 2,064 0,703 0,005
KM -0,006 0,026 0,823
KI -0,018 0,009 0,058
KK -0,025 0,023 0,283
AKB -0,025 0,011 0,032
a. Dependent Variable: ML
source: Data from the secondary are obtained (2019)
According to the table above, it can be seen regression linear multiple which can be formulated in the research of this is as follows:
ML = 2,064 – 0,006 KM – 0,018 KI – 0,025 KK – 0,025 IMR + e Hypothesis test
Coefficient of Determination Test (R²)
The coefficient of determination (R²) essentially measures how far the model's ability to explain the variation of the independent variable to the dependent variable, which can be detected by looking at the value of the coefficient of determination. The following is a table of the R² Determination Coefficient Test :
Table 3. Coefficient of Determination Test Results R²
R Square Adjusted R Square
0,194 0,137
a. Predictors: (Constant), IMR, KI, KM,KK
Source: Data Secondary were processed (2019), annex 12.
Based on table 3, it can be seen that the adjusted R2 value is 0,137 or 13,7%, this value shows that the independent variables are managerial ownership (KM), institutional ownership (KI), family ownership (KK), and free cash flow (IMR) on earnings management (ML) of 13,7% and remaining 0,863 or 86,3% is explained by other variables outside the regression model as in this study.
Model Test ( F Statistics Test )
The F statistical test shows whether all independent or independent variables referred to in the model have an influence on the dependent variable (Ghozali, 2013). The following results of the F test are presented in table 4:
Table 4. Model Test Results ( F Statistical Test )
a. Dependent Variable: ML
b. Predictors: (Constant), AKB, KI, KM, KK Source: Data Secondary were processed (2019)
Based on table 4, it shows that the calculated F value is 3.372 with a significance value obtained of 0,015 which means that the significance value is smaller than the significance value used, which is
Model F Sig.
1 Regression Total Residual
3,372 0,015
0,05 or 0,015 <0,05, it can be concluded that the regression model in this study can explain the relationship between the independent variables, namely managerial ownership (KM), institutional ownership (KI), family ownership (KK) and free cash flow (IMR) to the dependent variable, namely earnings management (ML).
Individual Parameter Significance Test (t statistic test)
Statistical test aims to show how far the influence of one variable individually to explain the variation of the independent variable. In this study, whether managerial ownership, institutional ownership , family ownership and current free cash really has an effect on earnings management.
Here is presented a table of test results of individual parameter significance (t statistical test) is as follows:
Table 5. Individual Parameter Significance Test (Test Statistical t)
Model Unstandardized
Coefficients
t Sig.
B
1 (constant) 2.064 2,938 0,005
KM -0.006 -0.224 0,823
KI -0.018 -1.934 0,058
KK -0.025 -1.084 0,283
AKB -0.025 -2.197 0,032
a. Dependent Variable: ML
Source: Data Secondary were processed (2019), annex 12.
Based on table 5, it can be seen that the t statistical test on the free cash flow variable shows the beta value as a negative coefficient of -0,025 with a significance value of 0,032. The significance value obtained in this study is less than 0,05. This shows the free cash flow variable has a significant negative effect on earnings management, while the variables managerial ownership, institutional ownership, and family ownership have no negative effect on earnings management.
This is evidenced by the significant value of managerial ownership 0,823, institutional ownership a significance value of 0,058 and family ownership a significance value of 0,283.
The results of testing the first hypothesis
The purpose of this study is to test or find empirical evidence that managerial ownership has a negative effect on earnings management. From table 5, the beta value as a regression coefficient is -0,006 with a negative direction, the test significance value is 0,823. The significance value obtained in this study is greater than 0.05 indicating that managerial ownership has no effect on earnings management. So the first hypothesis which says that managerial ownership has a negative effect on earnings management is rejected .
The results of this study are supported by descriptive statistics in Table 1, shows the value of the average variables ownership managerial amount that is equal to 9.329230 proves that managerial ownership in manufacturing companies is quite low with a standard deviation of height that is at 11.1323319 so that the distribution of the data small, but the data deviation on the managerial ownership variable is said to be less good. This means that the level of earnings management has no effect on earnings management .
This study is not consistent with agency theory which states that minimize conflicts agency can be done by way of increasing the ownership managerial within the company, so that the problems the agency is assumed to be reduced when the manager at once become the owner. Owners managerial seen to align the potential differences in interests between the holders of shares with the manager.
If there is no difference in interests between shareholders and managers, it can reduce the tendency of managers to manipulate earnings.
Research is showing that high- low percentage of shares held managerial compared to the number of shares issued or shares in circulation is not going to give the effect that means to practice
management earnings. So it can be concluded that managerial ownership has no effect on earnings management .
This study is in line with the results of research conducted by Agustia (2013), Mahiswari and Nugroho (2014), Yogi and Damayanthi (2016) which state that managerial ownership has no effect on earnings management . This study is not in line with the research results of Murtini and Mansyur (2012), Larastomo et. al., (2016) which states that managerial ownership has a negative effect on management.
The results of the second hypothesis testing
The purpose of this study is to test or find empirical evidence that institutional ownership has a negative effect on earnings management. From table 5, obtain the beta value as the coefficient of the regression of -0,018 with the direction of the negative, the value of the significance test of 0,058. Values of significance were obtained in the study is more substantial than 0,05 indicates that the ownership of institutional not negatively affect earnings management. So the second hypothesis which says that institutional ownership has a negative effect on earnings management is rejected .
The results of this study are supported by descriptive statistical data in table 1, which shows that the variable management profit has a standard deviation of 1,0658762 which means the data that has the diversity of the sample is quite small, while the views of the data variable institutional ownership have a diversity of data large enough to be seen from the standard deviation of 19,6655827. It explains that the value of holdings of institutional which fluctuate not affect earnings management. It that means, high to low ownership of institutional no effect on the management of profit.
This study is not consistent with agency theory which states that institutional ownership has a very important role in minimizing the agency conflict that occurred between the manager and the holder of the shares, where investors are institutional deemed capable become an effective monitoring mechanism in every decision taken by managers. This is because institutional investors are involved in every decision making so it is not easy to believe in earnings manipulation.
This study suggested that institutional investors are generally not perform its role effectively as sophisticated investors who can perform surveillance or monitoring of the performance of management to limit the management in taking action or policy that will have an impact on the actions of management earnings. Institutional investors only perform its role as a transient investors (owners while companies) that it only focuses on profits that are run short course, so that the ownership of institutional may not be able to improve monitoring effectively to the management that will affect the reduction of policy management in managing earnings.
This research is in line with research conducted by Yogi and Damayanthi (2016), Widyaningsih (2017) and Aryanti et. al., (2017) which states that institutional ownership has no effect on earnings management. This study is not in line with the research conducted by Mahiswari and Nugroho (2014) which states that institutional ownership has a negative effect on earnings management .
The results of testing the hypothesis that the third
The purpose of this study is to test or find empirical evidence that family ownership has a negative effect on earnings management. From table 5, the beta value as a regression coefficient is -0,025 with a negative direction, the test significance value is 0,283. Values of significance were obtained in the study is more substantial than 0,05 indicates that the ownership of the family does not negatively affect earnings management. So the third hypothesis which says that family ownership has a negative effect on earnings management is rejected .
The results of this study are supported by descriptive statistics in Table 1, which shows the value of the average variables ownership of the family that is at 9.979591, the number of those proving that family ownership in manufacturing companies is quite low. This can be seen in table 4.3
which shows a high standard deviation of 14,5352464 so that the data distribution is small, but the data deviation on the family ownership variable is said to be less good. This means, high to low ownership of the family no effect on the management of profit.
This study is not consistent with agency theory which states that one of the ways that is done to minimize the problem of agency is in possession of the family. Their ownership of the family in the arrangement of the holder of shares that sufficient dominance is considered to be able to produce more efficient performance so that it is expected that family ownership can reduce the occurrence of earnings management .
This study explains that the number of family shareholdings does not affect the actions of managers in carrying out earnings management practices on manufacturing companies listed on the BEI. Although the number of shares owned by the family increases, this does not guarantee that it will reduce the earnings management practices that occur in the company. This is evidenced by the ownership of a family of high-owned by PT Wismilak Inti Makmur Tbk in 2017-2018 amounted to 61.9054 with management earnings were high that the PT Gudang Garam Tbk amounting to 2.9385 in the year 2016. Ownership family of high owned by PT Wismilak Inti Makmur Tbk in year 2017-2018 amounted to 61.9054 with a low earnings management that is owned by PT Prydam Farma Tbk of -1.1410 in the year 2016. that is, the high- low ownership of a family on a firm no effect on earnings management.
The results of this study are in line with research conducted by Rezeki (2015) and Mathova (2017) which states that family ownership has no effect on earnings management. This study is not in line with the research that is carried out by Dwiyanti and Astriena (2018) which states that the family ownership of a negative effect on the amount of earnings management.
The results of testing the fourth hypothesis
The purpose of this study is to test or find empirical evidence that free cash flow has a negative effect on earnings management. From table 5, the beta value as a regression coefficient is -0.025 with a negative direction, the test significance value is 0.032. The significance value obtained in this study is less than 0.05 indicating that free cash flow has a negative effect on earnings management . So the first hypothesis which says that free cash flow has a negative effect on earnings management is accepted .
The results of this study are supported by descriptive statistics in Table 1, which shows that the high free cash flow is owned by PT Welcome Perfect Tbk amounted to 36.0157 in the year 2015 with earnings management as high as PT Gudang Garam Tbk 2.9385 in 2016. High free cash flow owned by PT Selamat Sempurna Tbk amounted to 36.0157 in 2015 with low earnings management which is owned by PT Prydam Farma Tbk amounted to -1.1410 in 2016. That is, the high and low free cash flow owned by a company the company has an effect on earnings management .
This study is in line with agency theory which states that the current cash -free can improve the welfare of holders of shares through increasing dividend payments or buy back shares.
Increasingly large flow of cash -free are available in a company, then the healthier the company. It is clear that companies that have a current cash -free height is not going to make managers perform actions earnings management.
This study suggested that companies that have a flow of cash are negative (the company has excess flow of cash free) indicates that the company is able to survive in a situation which is bad because it has the opportunity to make an investment and expenditure of capital in order to maintain operations that are being run. In addition, a positive free cash flow also gives a positive signal for investors, because investors perceive that the company has good performance and has more cash for dividend distribution. So, the company will be able to increase its share price without taking earnings management actions.
The results of this study are in line with research conducted by Agustia (2013), Widianingrum and Sunarto (2018), Yogi and Damayanthi (2016) which state that free cash flow has a negative effect on earnings management. This study is not in line with the research conducted by Fitria et. al., (2017) which states that free cash flow has no effect on earnings management.
CONCLUSION
Based on the result of data analysis from the discussions that have been carried out, several conclussion. the hypothesis that managerial ownership, institutional ownership, and family ownership has negative effect on earnings management is rejected. The hypothesis which states the flow of cash are non-impact negatively in the management of income received. Based the result the following suggestions can be given as further research can be expand the research in the financial and non-financial sectors, in order to obtain comprehensive result. For the further reseacrh, the measurement of earnings management can use other measurement models such as the revenue discretionary model (Stuben, 2010).
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