Market and Economic Conditions

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Analysis of the Effect of the Application of Good Corporate Governance on Profit Management in Go Public Banking Companies on the Indonesia Stock Exchange (2009-2011)

Introduction

The application of Good Corporate Governance (GCG) is a crucial aspect of business operations, particularly for companies listed on the stock exchange. This study aims to analyze the effect of GCG on earnings management in banking companies listed on the Indonesia Stock Exchange (IDX) during the period 2009 to 2011. The implementation of GCG is expected to increase company transparency and accountability, but its effectiveness in controlling earnings management practices is still a topic of debate.

Background

The Indonesian economy was in a period of recovery after the global crisis in 2009-2011. This change can affect the company's strategy in reporting profits, regardless of the application of GCG. In addition, understanding and compliance with regulations in Indonesia is still diverse between companies, which can affect the effectiveness of GCG in controlling earnings management. Strong company culture and high business ethics can further influence management decisions in terms of profit, rather than relying on the existing GCG structure.

Methodology

This study uses a purposive sampling method, which is a sample selection method based on certain criteria. Of the total criteria specified, this study succeeded in gathering 23 banking companies that met the requirements, produced a total of 69 observation data. To analyze data, a descriptive statistical and multiple regression techniques are used, as well as testing hypotheses with F-Test and T-Test.

Independent Variables

Several independent variables used as GCG proxies include:

Leverage: The use of debt financing to fund business operations.
Institutional ownership: The percentage of shares held by institutional investors.
Independent Commissioner: The presence of independent commissioners on the company's board of directors.
Audit Committee: The presence of an audit committee to oversee the company's financial reporting.

Dependent Variable

Earnings management is measured using the accrual working capital ratio as a dependent variable.

Results

The results of this study indicate that simultaneously, the application of GCG has no significant influence on earnings management. In addition, each GCG (Leverage, Institutional Ownership, Independent Commissioner, and Audit Committee) program also showed no significant effect on partial earnings management.

Additional Analysis and Explanation

The results found in this study reflect that although GCG is expected to increase company transparency and accountability, its implementation in banking companies in Indonesia during the period under study has not been able to influence earnings management practices. Some factors may contribute to this phenomenon, including:

Market and Economic Conditions: The Indonesian economy was in a period of recovery after the global crisis in 2009-2011, which can affect the company's strategy in reporting profits.
Compliance with regulations: Understanding and compliance with regulations in Indonesia is still diverse between companies, which can affect the effectiveness of GCG in controlling earnings management.
Company Internal Factors: Strong company culture and high business ethics can further influence management decisions in terms of profit, rather than relying on the existing GCG structure.
Auditor Independence: If the auditor is not independent or less professional, the application of GCG may not have a significant impact.

Conclusion

This study provides insight that the application of Good Corporate Governance is not the only factor that guarantees good profit management. The parties concerned, such as regulators, shareholders, and company management need to understand existing dynamics, as well as trying to strengthen other elements that also contribute to the practice of transparent and accountable financial statements.

Recommendations

Based on the findings of this study, the following recommendations are made:

Regulators should strengthen the implementation of GCG in banking companies in Indonesia.
Shareholders should be more active in monitoring the company's financial reporting and earnings management practices.
Company management should prioritize the development of a strong company culture and high business ethics.
Auditors should be independent and professional to ensure the accuracy and reliability of financial statements.

Limitations

This study has several limitations, including:

The study only focuses on banking companies listed on the IDX during the period 2009 to 2011.
The study uses a purposive sampling method, which may not be representative of all banking companies in Indonesia.
The study only uses secondary data obtained from financial statements, which may not provide a comprehensive picture of earnings management practices.

Future Research Directions

Future research should focus on:

Investigating the effectiveness of GCG in controlling earnings management practices in other industries.
Examining the impact of market and economic conditions on earnings management practices.
Developing a more comprehensive model of earnings management practices that takes into account multiple factors.

References

[List of references cited in the study]

Appendix

[Appendix containing additional tables, figures, and data]
Q&A: Analysis of the Effect of the Application of Good Corporate Governance on Profit Management in Go Public Banking Companies on the Indonesia Stock Exchange (2009-2011)

Q: What is Good Corporate Governance (GCG) and how does it relate to profit management?

A: Good Corporate Governance (GCG) refers to the practices and procedures that a company follows to ensure that its operations are transparent, accountable, and responsible. GCG is essential for profit management as it helps to ensure that a company's financial statements are accurate and reliable, and that its earnings management practices are transparent and compliant with regulations.

Q: What are the independent variables used as GCG proxies in this study?

A: The independent variables used as GCG proxies in this study include:

Leverage: The use of debt financing to fund business operations.
Institutional ownership: The percentage of shares held by institutional investors.
Independent Commissioner: The presence of independent commissioners on the company's board of directors.
Audit Committee: The presence of an audit committee to oversee the company's financial reporting.

Q: What is the dependent variable used in this study?

A: The dependent variable used in this study is earnings management, which is measured using the accrual working capital ratio.

Q: What are the results of this study?

A: The results of this study indicate that simultaneously, the application of GCG has no significant influence on earnings management. In addition, each GCG (Leverage, Institutional Ownership, Independent Commissioner, and Audit Committee) program also showed no significant effect on partial earnings management.

Q: What are some factors that may contribute to the phenomenon that GCG has no significant influence on earnings management?

A: Some factors that may contribute to this phenomenon include:

Market and Economic Conditions: The Indonesian economy was in a period of recovery after the global crisis in 2009-2011, which can affect the company's strategy in reporting profits.
Compliance with regulations: Understanding and compliance with regulations in Indonesia is still diverse between companies, which can affect the effectiveness of GCG in controlling earnings management.
Company Internal Factors: Strong company culture and high business ethics can further influence management decisions in terms of profit, rather than relying on the existing GCG structure.
Auditor Independence: If the auditor is not independent or less professional, the application of GCG may not have a significant impact.

Q: What are the implications of this study?

A: The implications of this study are that the application of GCG is not the only factor that guarantees good profit management. The parties concerned, such as regulators, shareholders, and company management need to understand existing dynamics, as well as trying to strengthen other elements that also contribute to the practice of transparent and accountable financial statements.

Q: What are the recommendations of this study?

A: Based on the findings of this study, the following recommendations are made:

Regulators should strengthen the implementation of GCG in banking companies in Indonesia.
Shareholders should be more active in monitoring the company's financial reporting and earnings management practices.
Company management should prioritize the development of a strong company culture and high business ethics.
Auditors should be independent and professional to ensure the accuracy and reliability of financial statements.

Q: What are the limitations of this study?

A: This study has several limitations, including:

The study only focuses on banking companies listed on the IDX during the period 2009 to 2011.
The study uses a purposive sampling method, which may not be representative of all banking companies in Indonesia.
The study only uses secondary data obtained from financial statements, which may not provide a comprehensive picture of earnings management practices.

Q: What are the future research directions?

A: Future research should focus on:

Investigating the effectiveness of GCG in controlling earnings management practices in other industries.
Examining the impact of market and economic conditions on earnings management practices.
Developing a more comprehensive model of earnings management practices that takes into account multiple factors.