Multiple Blockholders, Audit Committee’s Power and Earnings Management: Evidence from Indonesia

Abstract

Objective – The purpose of this study is to empirically analyze the impact of the power status of audit committees and multiple blockholders on accrual earnings management. Methodology – This study applied a quantitative research method with secondary data from the annual report. In this research, manufacturing companies were used as samples listed on the Indonesia Stock Exchange with a total of 4 years ranging from the period of 2018 – 2021. This research used multiple regression with fixed effect driscoll-kraay standard error. Findings – It is revealed that multiple blockholders have a positive impact on accrual and real earnings management, while the power status of the audit committee has no impact on accrual and real earnings management. It can be implied that in Indonesia, multiple blockholders play a significant role in increasing earnings management, and audit committees’ power cannot reduce earnings management in the presence of multiple blockholders. Novelty – Previous literature argues that the power of audit committees should be bigger than management to control earnings management. However, in the context of Indonesia, where a concentrated ownership structure is prevalent, multiple blockholders can play a significant role in earnings management. This study is the first to analyze the negative effect of multiple blockholders in the country, which is dominant with a concentrated ownership structure. If multiple blockholders enjoy the private benefits of control through earnings management, the audit committee’s power over management would be useless. Type of Paper: Empirical JEL Classification: C33, D22, G34 Keywords: Earnings Management; power status of audit committee; multiple blockholder; monitoring; ownership. Reference to this paper should be made as follows: Rudyanto, A.; Hidagusti, R.R. (2023). Multiple Blockholders, Audit Committee’s Power and Earnings Management: Evidence from Indonesia, J. Fin. Bank. Review, 8(2), 105 – 115. https://doi.org/10.35609/jfbr.2023.8.2(3)