Earnings Management and Annual Report Readability: The Moderating Effect of Female Directors

Elvia R. Shauki and Eva Oktavini ()
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Elvia R. Shauki: Department of Accounting, Faculty of Economics and Business, Universitas Indonesia, Depok 16424, Indonesia
Eva Oktavini: Department of Accounting, Faculty of Economics and Business, Universitas Indonesia, Depok 16424, Indonesia

IJFS, 2022, vol. 10, issue 3, 1-11

Abstract: The purpose of this study is to examine the influence of earnings management on the readability of annual reports while also examining the moderating role of a female director. In particular, the readability of a company’s annual report will be seen from the management perspective using the FOG index on the annual reports of companies listed on the Indonesia Stock Exchange during 2015–2018 (excluding the financial sector), with a total sample of 996. This research confirms that companies that conduct earnings management can make complex company annual reports that are difficult to read as these companies tend to hide earnings management practices. Thus, the users of annual reports will find it difficult to identify these practices. This study confirms the mathematical theory of communication that annual reports are a communication tool for companies and, therefore, must be free from financial manipulation such as earnings management because this action will give a bad signal. Moreover, the moderating effect of female directors was not proven. This implies that female directors in Indonesia had not been able to moderate the readability of annual reports; one possibility might be due to the composition of female directors, which was relatively small.

Keywords: female directors; earnings management; annual report readability (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2022
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