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234
JoSS:
Journal of Social Science
THE EFFECT OF REAL EARNING MANAGEMENT, EARNING QUALITY, AND
LEVERAGE ON COMPANY PERFORMANCE WITH COMPANY AGE AS A
MODERATION VARIABLE
Ipan Adi Putra¹, Melinda Malau²
Universitas Trisakti
1
, Universitas Kristen Indonesia
2
[email protected]¹, melinda.mal[email protected]²
KEYWORDS
Real Earning
Management,
Earning Quality,
Leverage, Company
Age, Company
Performance.
ARTICLE INFO
Accepted:
19 January 2023
Revised:
22 January 2023
Approved:
24 January 2023
ABSTRACT
The purpose of this study is to analyze whether real earnings
management, earning quality, and leverage affects companies'
performance with company age as a moderation variable. The method
used in this study was panel data regression analysis. The sample used
in this study consisted of 124 listed manufacturing companies listed
on the Indonesian Stock Exchange for the period 2017-2021. As a
result, real earning management (ACFO) and real earning
management (ADISX) negatively affect company performance, while
earning quality positively affects company performance, and
company age strengthens the relationship between earning quality
and company performance. Company age enhances the relationship
between leverage and company performance. This study implies that
companies need to limit real earning management because it
significantly negatively affects the company's performance, and then
the company can increase.
INTRODUCTION
Company performance is a reflection of all company activities or activities that measure
the company's success. Information on the development of the company can be found in the
annual financial statements. This information is essential for various users of financial
statements. One of them is for the company's management to make decisions and policies.
Therefore, it is essential to continue to monitor performance from year to year along with
company’s performance trends. This information is beneficial not only for managers but also
for investors to monitor the performance of the company (Apriliani & Dewayanto, 2018).
The existence of information about the company's performance for shareholders can be
difficult to understand because of its reliability and accuracy. One of the causes is the
existence of conflicts of interest between management and shareholders that reflect
information asymmetry (Leland & Pyle, 1977) According to agency theory, insider managers
obtain information at the expense of outsider shareholders (Huang & Skantz, 2016). The
principal needs information about the performance of the company achieved by management.
However, because managers want to maximize their earnings, the information they convey
Volume 2 Number 1 January, 2023
p- ISSN 2963-1866- e-ISSN 2963-8909
Vol 2, No 1 January 2023
The Effect Of Real Earning Management, Earning Quality, And
Leverage On Company Performance With Company Age As A
Moderation Variable
http://joss.al-makkipublisher.com/index.php/js
often varies from the actual circumstances (Jensen & Meckling, 1979).
Company performance information can be influenced by several factors, including real
earning management, real earning management is earning manipulation through operational
activities, which directly affects cash flow (Sun et al., 2014). In addition, there is also the
quality of earning that can affect the company's performance information. Earnings quality
is one of the most important metrics to properly evaluate a company (Liang, Liu, Asiri, Sun,
& Luo, 2014). (Patricia Dechow, Ge, & Schrand, 2010) High earnings quality status provides
more information about company performance in relation to specific decisions by specific
decision makers. (Demerjian, Lev, Lewis, & McVay, 2013) believe that the high quality
earnings are an accurate reflection of our company's performance. Furthermore, leverage
factors can affect the company's performance information. Leverage is the level of a
company's ability to use assets from loans and share issuance to achieve the company's goal
of optimizing the source (Malau, 2018).
Based on previous research literature, real earning management can negatively affect
future operational performance (Gunny, 2005). Then the quality of earnings by measuring
the levelling of earnings does not affect the company's performance, while with the
measurement of accrual quality, the results affect the company's performance (Machdar,
DRM, & Murwaningsari, 2017). Furthermore, leverage affects the company's performance
(Malau, 2018).
The purpose of this study is to analyze (i) whether real earning management negatively
affects the company's performance; (ii) whether the quality of earnings has a positive effect
on the company's performance; (iii) whether leverage negatively affects the company's
performance (Anandamaya & Hermanto, 2021).
The theoretical contributions of this research to science include (i) the effect of real
earning management, earning quality, and leverage on company performance and (ii) the age
of the company moderating (strengthening or weakening) the influence of real earning
management, earning quality, and leverage on company performance. The practical
contribution of this research is to improve the understanding of business performance. The
practical contribution of accounting as a result of this research can be applied to improve the
company's performance. A practical contribution to regulators is to improve understanding
of the factors affecting business performance. A practical contribution to the company and
other interested parties is that the results of this research can provide information and
assessments related to improving the company's operations.
METHOD RESEARCH
The types of research used are hypothesis test of the influence of real earning
management, earning quality and leverage on company performance. Testing the hypothesis
is causal. The period used in the study is from the period 2017-2021. The setting environment
is the real environment. The analysis unit uses financial report data of manufacturing
companies listed on the Indonesia Stock Exchange, has a website and submits annual reports
for the period 2017-2021.
A. Dependent Variables
The Effect Of Real Earning Management, Earning Quality,
And Leverage On Company Performance With Company Age
As A Moderation Variable
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Company performance is a description of the condition of a company that shows both
the financial and operational condition of the company (Jensen & Meckling, 1976). The
study used Tobins'Q to measure company performance. Which is calculated using the
following formula:
Tobin’s Q = Market Cap + Total Debt
Total Assets ………………………………. (1)
B. Independent Variables
The first dependent variable is real earning management, in this study the
measurement of real earning management is measured by two measurements, namely
abnormal operating cash flow (ACFO), to look at the manipulation of real earning
management on fraudulent actions involving operating cash and abnormal discretionary
costs (ADISX) tested to see real earning management actions on fraudulent discretionary
cost expenditures (Baghdady & Schug, 2019) The ACFO method is measured by the
following measurements:
……………………….…………. (2)
Information:
CFOt = Operating cash flow in the t period
TAₜ = Operating cash flow in the t period
Sₜ = Total sales in period t
The ADISX method is measured by the following measurements:
Keterangan:………………………………………………………………… (3)
DISXₜ = Discretionary costs include sales, general and administrative expenses, R&D and
advertising.
TAₜ = Total assets in the period t
Sₜ = Total sales in period t
The second free variable is the quality of earnings, the quality of earnings is measured
using discretionary accrual because this model can show the accuracy of reported earnings
reflecting the company's current operating performance (Tong & Miao, 2011), which uses the
modified Jones Discretionary Accrual (DA) model (Modified Jones Model). Such calculation
models are as follows:
Total Accrual Counting (TAC)
TAC = NIᵢₜ - CFOᵢₜ ……………………………………………………… (4)
Vol 2, No 1 January 2023
The Effect Of Real Earning Management, Earning Quality, And
Leverage On Company Performance With Company Age As A
Moderation Variable
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Total Accrual Value (TA) estimated by OLS regression persaman
…….………… (5)
Using the regression coefficient above the next step is to calculate the value of non
discretionary accruals (NDA The final step is to calculate discretionary accruals (DA)
………………… …………….…………………………………... (7)
Information:
DAᵢₜ = Discretionary Accruals Company I in the Tth period
NDAᵢₜ = NonDiscretionary Accruals Company I in the Tth period
TAᵢₜ = Total Accrual Company I in the Tth period
NIᵢₜ = Net Earning of the company i in the t-th period
CFOᵢₜ = Cash flow from the operating activities of the company i in the t-th period
Aᵢₜ-₁ = Total assets of the company i in the t-1st period
ΔRevᵢₜ = Changes in the income of the company i in the t-th period
PPEᵢₜ = Fixed assets of the company in the t-th period
ΔRecᵢₜ = Changes in accounts receivable of the company i in the period to t
ɛ = error
The next free variable is leverage; Leverage ratio is a metric used to measure how
strong a company's capital structure is (Malau, 2018). The debt ratio level describes the
extent to which the owner's equity can cover its obligations to third parties and a ratio that
measures the time it takes a company to raise funds from its debt (Anandamaya &
Hermanto, 2021). The leverage ratio in this study uses the Debt to Asset Ratio (DAR). A
calculation to see how much of the company's assets are funded by liabilities. The
calculation of this ratio is carried out by dividing the total debt by the total assets owned
by the company.
…………………………………… (8)
The moderation variable for this study was firm age (AGE),(Alsaeed, 2006) The age
of the company is the number of years since its establishment, and it has been clarified that
it is still in business.
C. Research Models
The effects of real earnings management, earnings quality, leverage on company
performance and company life as moderation variables is shown by equation 9.
CP it= β₀ +β₁ACFOit+β₂ADISXᵢₜ+β₃DAit+β₄DARit+β₅AGEit +εᵢₜ ………….……… (9)
DAR = Total Utang / Total Aset
The Effect Of Real Earning Management, Earning Quality,
And Leverage On Company Performance With Company Age
As A Moderation Variable
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Information:
CP = Company’s Performance (Company Performance)
CFO = Real earning management
DISX = Real earning management
DA = Discretionary Accrual (DA) modified Jones model (Modified Jones Model).
DAR = Rasio leverage, with the formula of total debt divided by total assets.
AGE = The age of the company, starting from the time the company was founded until
now
ε = Error
RESULT AND DISCUSSION
Table 1
Estimation Model Selection Test Results
Show Test
Housman Test
Decision
Cross – Section
Chi -Square
Probabilita
Chi -Square
Cross -Section
random
Probabilita
Chi - Square
1232,903904
0,0000
17,935949
0,0217
Fixed Effect
The test is to choose the most appropriate model to evaluate the model in this study. There
are several tests that can be done, first use the Chow test. The null hypothesis (H0) is a general
effects model that obtains probability values less than 0.05 from chi-square. Since this rejects
the null hypothesis (H0), the better model used is the estimate where the individual effects are
represented by a fixed effects model. The following test compares fixed and random effects
using the Hausman test. Based on the results of the Hausmann test, where the null hypothesis
(H0) is a random effects model, based on the processing results obtained, the Probability value
of Chi-square is smaller than 0.05, therefore, the null hypothesis (H0) is rejected. A better
model to use is the fixed effects estimate.
Table 2
Hypothesis Test Estimation Results
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The Effect Of Real Earning Management, Earning Quality, And
Leverage On Company Performance With Company Age As A
Moderation Variable
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D. Test Model
a. Coefficient of Determination (adj R2)
The coefficient of determination test is seen in the Adj R2 value of 0.937420; this
value indicates the ability of the independent variable to account for 93.74% of
TOBINSQ behavior, with the rest explained by other variables not included in the study;
these results show that the model used in this study is very good.
b. Global Test (Test F)
The global test was shown by the prob value of Fstat of 0.00000 < 0.05 (alpha 5%)
after which it was statistically concluded at the 95% confidence level that there was at
least one independent variable influencing TOBINSQ. In this study, the independent
variable earning Quality (KL) had a significant effect on Company Performance (CP)
with a coefience value of 2.043734 and a probability value of 0.0000 < 0.05 (alpha 5%),
which means Ha was received.
c. Hypothesis Test
1. H₁ A: Real earning management (ACFO) negatively affects the company's
performance.
Based on Table 2, we find that the magnitude of the coefficient of ACFO is -
0.521781, meaning that if the ACFO increases, the TOBINSQ will decrease; on the
other hand, if the ACFO decreases, it increases the TOBINSQ. This result is
consistent with the proposed hypothesis that ACFO negatively affects TOBINSQ.
Processing results showed a sig value of 0.0109 < 0.05 (alpha 5%), Ha accepted. It is
concluded that ACFO statistically negatively affects TOBINSQ with a 95 percent
confidence level.
2. H₁ B: Real earning management (ADISX) negatively affects the company's
performance.
Based on Table 2, we find that the magnitude of the coefficient of ADISX is -
1.577139, meaning that if ADISX rises, TOBINSQ will decrease; on the other hand,
if ADISX falls, it will increase TOBINSQ. This result is consistent with the proposed
hypothesis that ADISX negatively affects TOBINSQ. Processing results showed a
sig value of 0.0567 < 0.05 (alpha 5%), Ha accepted. It was statistically concluded
with a 95 percent confidence level that ADISX negatively affected TOBINSQ.
3. H₂: The quality of earning has a positive effect on the company's performance.
Based on Table 2, we find that the coefficient of KL is 2.043734, meaning that
if KL rises, TOBINSQ will increase; on the contrary, if KL falls, it will decrease
TOBINSQ. This result is consistent with the proposed hypothesis that KL positively
affects TOBINSQ. Processing results showed sig value of 0.0000 < 0.05 (alpha 5%)
Ha accepted. A positive effect of KL on TOBINSQ was statistically concluded at the
95% confidence level.
4. H₃: Leverage negatively affects the company's performance.
Based on Table 2, we find that the magnitude of the coefficient of LEV is
1.635988, meaning that if LEV increases, TOBINSQ will increase; on the other hand,
if LEV falls, it will decrease TOBINSQ. This result does not match the hypothesis
proposed, where LEV negatively affects TOBINSQ, so it is not continued to test
The Effect Of Real Earning Management, Earning Quality,
And Leverage On Company Performance With Company Age
As A Moderation Variable
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significantly. It is concluded statistically LEV has no negative influence on
TOBINSQ.
5. H₄ A: Company age reinforces the effect of real earning management (ACFO)
on company performance
Based on Table 2, we find that the magnitude of the coefficient of indirect
influence of ACFO on TOBINSQ through AGE is 0.156793, meaning that if ACFO
rises, AGE will rise, causing TOBINSQ to rise. These results do not match the
proposed hypothesis, where ACFO negatively affects TOBINSQ through AGE, so it
does not proceed to significant testing. It is concluded statistically that ACFO has no
negative effect on TOBINSQ through AGE.
6. H₄ B: Company age reinforces the effect of real earning management (ADISX)
on company performance
Based on Table 2, we find that the magnitude of the coefficient of indirect
influence of ADISX on TOBINSQ through AGE is 0.478923, meaning that if ADISX
rises, AGE will rise, causing TOBINSQ to rise. These results do not match the
hypothesis proposed, where ADISX negatively affects TOBINSQ through AGE, so
it does not proceed to significant testing. It is concluded that statistically ADISX has
no negative effect on TOBINSQ through AGE.
7. H₅: The age of the company strengthens the effect of earning quality on the
company's performance
Based on Table 2, we find that the magnitude of the coefficient of indirect
influence of KL on TOBINSQ through AGE is 0.670790, meaning that if KL rises,
AGE will rise, causing TOBINSQ to rise. These result is consistent with the proposed
hypothesis that KL TOBINSQ is positively affected by AGEs. The processed results
showed sig values of 0.0000/2 < 0.05 (alpha 5%) Ha accepted. It was concluded that
statistically at a 95 percent confidence level KL affects TOBINSQ through AGE.
8. H₆: Company age strengthens the effect of leverage on company performance
Based on Table 2, we find that the magnitude of the coefficient of indirect
influence of LEV on TOBINSQ through AGE is -0.241309. These result is consistent
with the proposed hypothesis that LEV TOBINSQ is negatively affected by AGE.
The processed results showed sig values of 0.0395/2 < 0.05 (alpha 5%), Ha accepted.
It is statistically concluded with a 95 percent confidence level that LEV affects
TOBINSQ across AGE.
CONCLUSION
This study analyzes the effect of Real Earnings Management (ACFO and ADISX),
Earnings Quality (KL), and Leverage (LEV) on Firm Performance (CP) with Firm Age (AGE)
as a moderating variable. The results of this study prove that companies tend to carry out real
earnings management and management actions to increase profits for their interests according
to research (Wati & Lonika, 2022). Then for the quality of earnings in this study proves that if
the quality of earnings increases, the company's performance will also increase, in line with
research (Sloan-Lancaster & Allen, 1996) (Li, Salvador, & Rohrer, 2014) (Patricia M. Dechow
& Schrand, 2004) (Demerjian et al., 2013) Companies with relatively high earnings quality say
they reflect strong corporate performance. The limitations of this study are useful for future
Vol 2, No 1 January 2023
The Effect Of Real Earning Management, Earning Quality, And
Leverage On Company Performance With Company Age As A
Moderation Variable
http://joss.al-makkipublisher.com/index.php/js
researchers. A limitation of the problem is that the results of this study cannot be generalized
to all countries. The results of this study only apply to manufacturing sector companies from
several sub-sectors but not including the financial sector that are listed on the Indonesia Stock
Exchange (IDX) for the 2017-2021 period and submit annual reports during the study period.
Suggestions for further research are: (i) consider other new measures moderated or control
variables such as profit transparency, firm value, firm size, because this research only uses a
moderating variable, namely company age. (ii) increasing the observation period and research
samples from other countries, because this research is only limited to Indonesia. Future studies
may add other countries, such as Indonesia's neighbors, which may share the same cultural and
demographic characteristics as Indonesia. Further studies are expected to be more
comprehensive by using samples from other countries. This study provides theoretical
implications that both Real Earnings Management (ACFO) and Real Earnings Management
(ADISX) have a negative effect on Firm Performance (CP). In contrast, Earnings Quality (KL)
has a positive effect on Firm Performance (CP) and Firm Age (AGE). Strengthening the
relationship between Earning Quality (KL) and Company Performance (CP), then Firm Age
(AGE) strengthens the relationship between Leverage (LEV) and Company Performance (CP).
The managerial implication in this study is that it is essential for companies to limit real earnings
management because it has a very negative effect on company performance. Companies can
improve earnings quality by presenting financial reports in accordance with applicable
accounting standards to improve company performance.
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Leverage On Company Performance With Company Age As A
Moderation Variable
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