Effect of Good Corporate Governance (GCG) Mechanism on Earning Management Practices and the Impact on Stock Returns (Case Study on LIQUID (lQ 45) Companies Listed in Indonesia Stock Exchange Period 2013-2017)

M. Noor Salim and M. Rusman Hn

Business and Management Studies, 2019, vol. 5, issue 3, 11-20

Abstract: This study aims to analyze the effect of the mechanism of good corporate governance (GCG) on earnings management practices and their impact on stock returns. The population used in this study is the companies included in the go public LQ 45 group listed on the Indonesia Stock Exchange in 2017. The analytical tool used in this study is Eviews software version 8.0. The results of the analysis in this study indicate that (1) Institutional Ownership has a negative and significant effect on Earning Management Practices, (2) Managerial Ownership has a negative and significant effect on Earning Management Practices, (3) Independent Board of Commissioners has a negative and significant effect on Earnings Management, (4) The Audit Committee has a negative and significant effect on Earning Management Practices, (5) Institutional Ownership, Managerial Ownership, Independent Board of Commissioners and Simultaneous Audit Committee (Together) have a significant effect on earnings management, (6) Earning Management Practices have a negative and significant effect on stock returns(7) Institutional Ownership has a positive and significant effect on stock returns, (8) Managerial ownership has a positive and significant effect on stock returns, (9) The Independent Board of Commissioners has a positive and significant effect on stock returns, (10) The Audit Committee has a positive and significant to stock returns, and (11) Earning Management is able to mediate the influence of Institutional Ownership, Managerial Ownership, Independent Board of Commissioners, and the Audit Committee simultaneously (jointly) on Stock Returns. It is recommended that the LQ45 company increase the portion of Institutional ownership as part of a supervision for management in managing the company so as to increase stock returns on an ongoing basis.

Keywords: agency theory; good corporate governance; earning management; stock return; institutional ownership; managerial ownership; Independent Board of Commissioners; the Audit Committee; LQ 45 company; discretionary accrual (search for similar items in EconPapers)
Date: 2019
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