Investigate the relationship between earnings management and dividend payout ratio in other industries and markets

Oct 13, 2025 by wbrum.org 65 views

Introduction

In the world of finance, profit management is a crucial aspect of a company's success. It involves the strategic planning and execution of financial decisions to maximize profits and minimize losses. However, profit management is not a straightforward process, and various factors can influence its effectiveness. One such factor is the dividend payout ratio, which has been identified as a moderating variable in the context of profit management in manufacturing companies listed on the Indonesia Stock Exchange. This study aims to explore the various factors that influence earnings management with dividend payout ratio as a moderating variable in manufacturing companies listed on the Indonesian Stock Exchange during the 2012 to 2015 period.

Background

Earnings management is a critical aspect of corporate finance, and it involves the manipulation of financial statements to achieve specific goals. In the context of manufacturing companies, earnings management can be influenced by various factors, including institutional ownership, the proportion of the Board of Commissioners Independent, company size, leverage, free cash flow, profitability, and cost of equity capital. These factors can have a significant impact on a company's financial performance and its ability to manage profits effectively.

Research Methodology

The method used in this study is associative causal, where researchers try to find the relationship between independent variables and earnings management. The population consisted of 125 companies, and samples were taken as many as 56 companies through proportional sampling techniques. The total observation unit obtained was 224 units. Data analysis was carried out using multiple linear regression and residual tests to ensure the accuracy of the results.

Research Result

From the results of the first hypothesis testing, it was found that simultaneously, independent variables such as institutional ownership, the proportion of the Board of Commissioners, company size, leverage, free cash flow, profitability, and cost of equity capital have an influence on earnings management. However, partially, only the size of the company shows a significant effect on earnings management. Meanwhile, other variables such as institutional ownership, the proportion of the Board of Commissioners of Independent, Leverage, Free Cash Flow, Profitability, and Cost of Equity Capital have no significant effect on earnings management.

The second hypothesis testing revealed that the dividend payout ratio does not have the ability to moderate the relationship between institutional ownership, the proportion of the board of commissioners, company size, leverage, free cash flow, profitability, and cost of equity capital with earnings management. This shows that the dividend payout ratio is not a factor that reinforces or weakens the effect of these factors on earnings management.

Additional Analysis

This finding indicates that the company's size has an important role in earnings management, which may be caused by the amount of resources and the scale of operations owned by the company. Companies with a larger size tend to have more opportunities to manage profits, maybe because of better access to more structured management of information and management. On the other hand, factors such as institutional ownership and the proportion of the Board of Commissioners Independent did not show a significant effect, perhaps due to lack of effective control or transparency in company management.

The inability of the Dividend Payout Ratio to moderate the relationship also provides insight that the decision to distribute dividends is not always directly related to earnings management. This indicates the need for further research to understand the dynamics between dividend decisions and earnings management practices in Indonesian companies.

Conclusion

Overall, the results of this study made a significant contribution to the understanding of the factors that influence earnings management in manufacturing companies listed on the Indonesia Stock Exchange. Further research is needed to explore more deeply about this relationship, as well as to identify other variables that may affect in a broader context. With a better understanding of earnings management, it is expected that companies can make wiser decisions related to corporate governance and dividend distribution.

Implications

The findings of this study have several implications for corporate governance and dividend distribution. Firstly, the results suggest that company size is a critical factor in earnings management, and companies with larger sizes tend to have more opportunities to manage profits. Secondly, the study highlights the importance of effective control and transparency in company management, as factors such as institutional ownership and the proportion of the Board of Commissioners Independent did not show a significant effect on earnings management.

Limitations

This study has several limitations that need to be addressed in future research. Firstly, the study only focused on manufacturing companies listed on the Indonesia Stock Exchange, and future research should explore other industries and markets. Secondly, the study used a specific time period (2012-2015), and future research should examine the relationship between earnings management and dividend payout ratio over a longer period.

Future Research Directions

Future research should explore the following directions:

Investigate the relationship between earnings management and dividend payout ratio in other industries and markets: This study only focused on manufacturing companies listed on the Indonesia Stock Exchange, and future research should explore other industries and markets to generalize the findings.
Examine the relationship between earnings management and dividend payout ratio over a longer period: This study used a specific time period (2012-2015), and future research should examine the relationship between earnings management and dividend payout ratio over a longer period to identify any changes or trends.
Investigate the impact of other variables on earnings management: This study only examined the impact of institutional ownership, the proportion of the Board of Commissioners Independent, company size, leverage, free cash flow, profitability, and cost of equity capital on earnings management. Future research should investigate the impact of other variables, such as board composition, executive compensation, and audit committee effectiveness, on earnings management.

References

[1] Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. American Economic Review, 76(2), 323-329.
[2] Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. Journal of Law and Economics, 26(2), 301-325.
[3] La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. (1999). Corporate ownership around the world. Journal of Finance, 54(2), 471-517.
[4] Shleifer, A., & Vishny, R. W. (1997). A survey of corporate governance. Journal of Finance, 52(2), 737-783.

Keywords

Earnings management
Dividend payout ratio
Manufacturing companies
Indonesia Stock Exchange
Corporate governance
Dividend distribution
Company size
Institutional ownership
Board of Commissioners Independent
Leverage
Free cash flow
Profitability
Cost of equity capital

Q: What is earnings management, and why is it important in the context of manufacturing companies listed on the Indonesia Stock Exchange?

A: Earnings management is the manipulation of financial statements to achieve specific goals, such as increasing profits or reducing losses. It is a critical aspect of corporate finance, and it can have a significant impact on a company's financial performance and its ability to manage profits effectively.

Q: What are the factors that influence earnings management in manufacturing companies listed on the Indonesia Stock Exchange?

A: The factors that influence earnings management in manufacturing companies listed on the Indonesia Stock Exchange include institutional ownership, the proportion of the Board of Commissioners Independent, company size, leverage, free cash flow, profitability, and cost of equity capital.

Q: What is the role of the dividend payout ratio in earnings management?

A: The dividend payout ratio is a moderating variable that can influence the relationship between earnings management and other factors. However, the results of this study suggest that the dividend payout ratio does not have a significant impact on earnings management.

Q: What are the implications of the findings of this study for corporate governance and dividend distribution?

A: The findings of this study suggest that company size is a critical factor in earnings management, and companies with larger sizes tend to have more opportunities to manage profits. Additionally, the study highlights the importance of effective control and transparency in company management.

Q: What are the limitations of this study, and what are the directions for future research?

A: This study has several limitations, including the focus on manufacturing companies listed on the Indonesia Stock Exchange and the use of a specific time period (2012-2015). Future research should explore other industries and markets, examine the relationship between earnings management and dividend payout ratio over a longer period, and investigate the impact of other variables on earnings management.

Q: What are the key takeaways from this study for investors, analysts, and corporate executives?

A: The key takeaways from this study are that company size is a critical factor in earnings management, and companies with larger sizes tend to have more opportunities to manage profits. Additionally, the study highlights the importance of effective control and transparency in company management.

Q: What are the potential applications of this study in practice?

A: The findings of this study can be applied in practice by investors, analysts, and corporate executives to better understand the factors that influence earnings management and to make more informed decisions about corporate governance and dividend distribution.

Q: What are the potential implications of this study for regulatory bodies and policymakers?

A: The findings of this study can be used by regulatory bodies and policymakers to develop more effective regulations and policies that promote transparency and accountability in corporate governance and dividend distribution.

Q: What are the potential future research directions based on the findings of this study?

A: The potential future research directions based on the findings of this study include investigating the relationship between earnings management and dividend payout ratio in other industries and markets, examining the relationship between earnings management and dividend payout ratio over a longer period, and investigating the impact of other variables on earnings management.

Q: What are the potential implications of this study for the development of corporate governance and dividend distribution policies?

A: The findings of this study can be used to develop more effective corporate governance and dividend distribution policies that promote transparency and accountability in company management.

Q: What are the potential implications of this study for the development of financial reporting standards?

A: The findings of this study can be used to develop more effective financial reporting standards that promote transparency and accountability in company management.

Q: What are the potential implications of this study for the development of dividend distribution policies?

A: The findings of this study can be used to develop more effective dividend distribution policies that promote transparency and accountability in company management.

Q: What are the potential implications of this study for the development of corporate governance policies?

A: The findings of this study can be used to develop more effective corporate governance policies that promote transparency and accountability in company management.

Q: What are the potential implications of this study for the development of financial analysis and forecasting models?

A: The findings of this study can be used to develop more effective financial analysis and forecasting models that take into account the factors that influence earnings management.

Q: What are the potential implications of this study for the development of risk management policies?

A: The findings of this study can be used to develop more effective risk management policies that take into account the factors that influence earnings management.

Q: What are the potential implications of this study for the development of financial planning and budgeting models?

A: The findings of this study can be used to develop more effective financial planning and budgeting models that take into account the factors that influence earnings management.

Q: What are the potential implications of this study for the development of financial reporting and disclosure policies?

A: The findings of this study can be used to develop more effective financial reporting and disclosure policies that promote transparency and accountability in company management.

Q: What are the potential implications of this study for the development of dividend distribution and corporate governance policies?

A: The findings of this study can be used to develop more effective dividend distribution and corporate governance policies that promote transparency and accountability in company management.

Q: What are the potential implications of this study for the development of financial analysis and forecasting models?

A: The findings of this study can be used to develop more effective financial analysis and forecasting models that take into account the factors that influence earnings management.

Q: What are the potential implications of this study for the development of risk management policies?

A: The findings of this study can be used to develop more effective risk management policies that take into account the factors that influence earnings management.

Q: What are the potential implications of this study for the development of financial planning and budgeting models?

A: The findings of this study can be used to develop more effective financial planning and budgeting models that take into account the factors that influence earnings management.

Q: What are the potential implications of this study for the development of financial reporting and disclosure policies?

A: The findings of this study can be used to develop more effective financial reporting and disclosure policies that promote transparency and accountability in company management.

Q: What are the potential implications of this study for the development of dividend distribution and corporate governance policies?

A: The findings of this study can be used to develop more effective dividend distribution and corporate governance policies that promote transparency and accountability in company management.

Q: What are the potential implications of this study for the development of financial analysis and forecasting models?

A: The findings of this study can be used to develop more effective financial analysis and forecasting models that take into account the factors that influence earnings management.

Q: What are the potential implications of this study for the development of risk management policies?

A: The findings of this study can be used to develop more effective risk management policies that take into account the factors that influence earnings management.

Q: What are the potential implications of this study for the development of financial planning and budgeting models?

A: The findings of this study can be used to develop more effective financial planning and budgeting models that take into account the factors that influence earnings management.

Q: What are the potential implications of this study for the development of financial reporting and disclosure policies?

A: The findings of this study can be used to develop more effective financial reporting and disclosure policies that promote transparency and accountability in company management.

Q: What are the potential implications of this study for the development of dividend distribution and corporate governance policies?

A: The findings of this study can be used to develop more effective dividend distribution and corporate governance policies that promote transparency and accountability in company management.

Q: What are the potential implications of this study for the development of financial analysis and forecasting models?

A: The findings of this study can be used to develop more effective financial analysis and forecasting models that take into account the factors that influence earnings management.

Q: What are the potential implications of this study for the development of risk management policies?

A: The findings of this study can be used to develop more effective risk management policies that take into account the factors that influence earnings management.

Q: What are the potential implications of this study for the development of financial planning and budgeting models?

A: The findings of this study can be used to develop more effective financial planning and budgeting models that take into account the factors that influence earnings management.

Q: What are the potential implications of this study for the development of financial reporting and disclosure policies?

A: The findings of this study can be used to develop more effective financial reporting and disclosure policies that promote transparency and accountability in company management.

Q: What are the potential implications of this study for the development of dividend distribution and corporate governance policies?

A: The findings of this study can be used to develop more effective dividend distribution and corporate governance policies that promote transparency and accountability in company management.

Q: What are the potential implications of this study for the development of financial analysis and forecasting models?

A: The findings of this study can be used to develop more effective financial analysis and forecasting models that take into account the factors that influence earnings management.

Q: What are the potential implications of this study for the development of risk management policies?

A: The findings of this study can be used to develop more effective risk management policies that take into account the factors that influence earnings management.

Q: What are the potential implications of this study for the development of financial planning and budgeting models?

A: The findings of this study can be used to develop more effective financial planning and budgeting models that take into account the factors that influence earnings management.

Q: What are the potential implications of this study for the development of financial reporting and disclosure policies?

A: The findings of this study can be used to develop more effective financial reporting and disclosure policies that promote transparency and accountability in company management.