Effect of Family Control on Earnings Management: The Role of Leverage

Abstract

This study aims to examine whether family control has a positive effect on earnings management of manufacturing companies and whether leverage weakens the positive effect of family control on earnings management. This study uses panel data for the 2015–2019 observation year. The research population consists of companies listed on the Indonesian capital market. Sample selection was performed with a purposive sampling approach using certain criteria, namely: the company was not delisted during the observation period; the company has complete research data; and that the company is included in the criteria for family companies. The sample of the study consists of 84 companies with a total of 419 observations. We use panel data regression to prove our hypotheses. The findings of our research show that family control has a positive effect on earnings management and leverage weakens the positive effect of family control on earnings management. Additional tests confirm the main test. The implications of our research are expected to be input for determining regulations and policies related to restrictions on majority shareholders to protect minority shareholders.