Jurnal Akuntansi ISSN 2303-0356 Vol. 13, No.1, February 2023 Hal.58-68 THE EFFECT OF OWNERSHIP CONCENTRATION AND LEVERAGE AGAINST EARNINGS MANAGEMENT WITH FIRM SIZE AS A MODERATING VARIABLE Elly Septiana, Ruhul Fitrios, Supriono Faculty of Economics and Business, Riau University ARTICLE INFO ABSTRACT Article history: Received: April 18th,2022 Revised: May 30th,2022 Accepted: February 23rd, 2023 This research aims to assign the respective effects of ownership concentration and leverage on earnings management with firm size as the moderating variable. There are 12 data on State-Owned Companies Listed on the Indonesia Stock Exchange from 2017 to 2020 that were used as research data samples, so 48 samples were obtained using purposive sampling. This study uses data analysis techniques using Eviews—12 Student Lite program. The partial test results (t-test) show that ownership concentration and leverage affect earnings management. The output of the MRA test proves that firm size can moderate the relationship midst leverage and earnings management. However, this research does not prove that firm size can moderate the respective intercourse between ownership concentration in earnings management. Keywords: Ownership Concentration Leverage Earnings Management Firm Size Correspondence: Elly Septiana septiana0338@gmail.com How to cite (APA Style): Septiana, E., Fitrios, R., & Supriono. (2023). The Effect Of Ownership Concentration And Leverage Against Earnings Management With Firm Size As A Moderating Variable. Jurnal Akuntansi , 58-68. INTRODUCTION Investors use one public, which is critical in evaluating the performance of companies that have gone public by looking at the company's financial statements. In the statements of Financial Accounting Standards Number 1 of 2009, financial statements are an established presentation derived from the assertion of financial position and overall economic performance of an entity that exerts provide the effects of control's duty for the usage of the resources entrusted to it. Many parties use financial reports prepared by management, including owners and business managers, regulatory agencies such as stock exchanges and securities, and creditors and investors (Kramer & Johnson, 2009). In the presentation of financial statements, there is information related to company profits that the wearer of financial statements can use to serve conclusions about the performance of a company, and this can be done by looking at profit growth over several periods (Ghozali & Chairi, 2014) Management can use information about company profits for personal gain by affecting income reporting (Kieso et al., 2017). Users of information in financial statements encourage management to engage in earnings management, have better, traditionally less transparent financial statements, and reduce reliability. Management can choose to use specific accounting policies in managing earnings in a company according to what it wants, known as earnings management (Alexander & Hengky, 2017). Earnings management occurs when managers provide different understandings or manipulate the content of financial statements and economic performance to several stakeholders to predispose contractual outcomes that hinge on the accounting number policy that managers will report (Ronen & Yaari, 2008). Furthermore, (Healy & Wahlen, 1999) found that earnings management happens for a spread of reasons: influencing the stock market, increasing management compensation, lowering the chance of mortgage breaches, and keeping off intervention from government rules. Consistent with (Watts & Zimmerman, 1990) in The Theory of Positive Accounting, three driving factors are related to the emergence of earnings management practices: Bonus Plans, Debt- Equity, and the Political Cost Hypothesis. The company general ly showed four aspects or patterns of earnings management (Sulistyanto, 2018): taking a bath, income maximisation, income minimisation, and income smoothing. This condition can be seen in the case of earnings management in a State-Owned Company Listed, namely PT Garuda Indonesia Tbk (GIAA), with 58 mailto:septiana0338@gmail.com THE EFFECT OF OWNERSHIP CONCENTRATION AND LEVERAGE AGAINST EARNINGS MANAGEMENT WITH FIRM SIZE AS A MODERATING VARIABLE Elly Septiana, Ruhul Fitrios, Supriono an income smoothing pattern. In this case, Garuda Indonesia recorded a net profit of US$ 809.85 thousand (exchange rate of Rp. 14,000) in 2018 after previously making losses. The situation occurs because of the recognition of revenue, which is receivable. The existence of revenue recognition on transactions from the Cooperation Agreement for the Provision of In-flight Connectivity Services is deemed not under the Statement of Financial Accounting Standards (PSAK) Number. 23. In addition, the case of earnings management also occurred at PT Bank Bukopin Tbk (BBKP) with the income maximisation pattern. PT Bank Bukopin Tbk revised its financial statements for 2015, 2016, and 2017. The adjusted net profit of Bank Bukopin for 2016 became Rp183.56 billion from the previous Rp1.08 trillion. The most significant decline was in the income of fees and commissions, which was credit card revenues from last Rp1.06 trillion to Rp317.88 billion. Many factors influence earnings management, but it has to be examined; the authors chose Ownership Concentration and Leverage. The concentration of ownership quantifies the presence of large shareholders in the company (Anelia & Prasetyo, 2020). Previous studies have shown inconsistent and mixed results, even showing that the results have no effect. (Amalia & Didik, 2017) Research shows no significant effect between ownership concentration and earnings management, while (Wirayana & Sudana, 2018) and (Grimaldi & Muserra, 2017) show an influence between ownership concentration on earnings management. This also happened in previous studies examining leverage's effect on earnings management. (Fandriani, 2019) Furthermore, (Nalarreason et al., 2019) show an effect of leverage on earnings management, but it differs from the (Satiman 2019) study, which shows that leverage does not affect earnings management. Because there are still inconsistencies in the results of previous studies, the researcher wants to re-examine the effect of ownership concentration and leverage on earnings management by adding a moderating variable, namely firm size in state-owned companies listed on the Indonesia Stock Exchange from 2017 to 2020. THEORETICAL FRAMEWORK AND HYPOTHESES Agency theory denotes the availability of a relationship between shareholders and managers. Earnings management emerges from agency problems due to misaligning interests among shareholders (principals) and company management (agents). Earnings management can be hooked up to agency theory because it can make or worsen agency costs (Davidson et al., 2004). The concentration of ownership can have a negative impact because dominant shareholders can abuse their position to control minority shareholders and impose their personal preferences even though they are contrary to minority shareholders (Madyan et al., 2019). On the other hand, a significant percentage of share ownership gives shareholders access to vital information to counterbalance the informational advantages of managers so that earnings management practices may be subtracted (Amalia & Didik, 2017). (Wirayana & Sudana, 2018) Furthermore, (Grimaldi & Muserra, 2017) prove that possession awareness has an advantageous effect on earnings management where high share possession affords advantages for interested parties such as majority shareholders and capital marketplace players. Based on this description, the authors formulate the first hypothesis as follows: H1: Concentration of ownership affect earnings management Leverage is the usage of belonging assets funds by way of organisations with fixed charges intending to grow the capability income of shareholders. (Sartono, 2008). The greater the company's debt, the greater the risk the company faces, so this condition encourages management to practice income smoothing (Tampubolon, 2005). Therefore, the more the debt ratio owned by the business enterprise, the greater the tendency of managers to take earnings management actions explained by the debt-equity hypothesis (Ita, 2020). Research (Fandriani, 2019) and (Nalarreason et al., 2019) prove t hat leverage has an absolute effect on earnings management, where increasing 59 Jurnal Akuntansi ISSN 2303-0356 Vol. 13, No.1, February 2023 Hal.58-68 leverage provides an impetus for managers to manipulate earnings. This explanation shows that an excessive level of leverage will motivate managers to carry out earnings management to increase company profits. Based on this description, the authors formulate the second hypothesis as follows: H2: Leverage affects earnings management The size of a firm also affects earnings management. Company size is a term for the company whose measured expenses are reported or rated in total sales, total assets, total earnings, taxes, etc. Larger companies are more encouraged to do income smoothing than smaller companies because they incur more significant political costs (Moses, 1987). The bigger the company, the more likely the company is to choose to account for methods that reduce profits (Watts & Zimmerman, 1990). Studies (Cahyani & Hendra, 2020) and (Mawardi, 2019) prove that firm size has a decisive impact on earnings management. These outcomes conclude that the larger the scale of the organisation, the extra opportunities for managers to execute earnings management. The company’s scale is a critical aspect associated with the concentration of ownership because the more significant the corporation, the greater the information investors have approximately investments to be made (Michelson et al., 1995). Research conducted by (Hendi & Erika, 2022) proves that firm size can moderate the relationship between the influence of institutional and managerial ownership on earnings management. Where the level of assets contained in a company, the lower the possibility of a company practising earnings management. Based on this description, the authors formulate the third hypothesis as follows: H3: Firm size can moderate the effect of ownership concentration on earnings management Leverage is linked to earnings management practices; when an organisation has an excessive leverage ratio, the corporation tends to exercise earnings management because there is a threat that the organisation will now not be capable of meeting its responsibilities via paying off its money owed on time, as explained via the debt-equity hypothesis (Ita, 2020). On the other hand, larger companies reflect more significant total assets, which will overwhelm or weaken the relationship between leverage and earnings management. Studies by (Rosena et al., 2016) prove that company size can moderate the relationship-between leverage and earnings management. When the size of the enterprise gets more significant, an inclination of a company to perform earnings management to preserve the attention of buyers and creditors of organisation funds increases. Based on this description, the authors formulate the fourth hypothesis as follows: H4: Firm size can moderate the effect of leverage on earnings management Based on the description of the hypothesis, the conceptual framework is as follows: Figure 1 Conceptual Framework Ownership Concentration (X1) Leverage (X2) Earnings Management (Y) Firm Size (Z) 60 THE EFFECT OF OWNERSHIP CONCENTRATION AND LEVERAGE AGAINST EARNINGS MANAGEMENT WITH FIRM SIZE AS A MODERATING VARIABLE Elly Septiana, Ruhul Fitrios, Supriono RESEARCH METHODS This research uses quantitative data using secondary data, which refers to information obtained from sources in the form of company financial statements, textbooks, journal research, and online media as material for theoretical research, as well as research concepts and results earlier to build a research model. This study uses a data collection method-panel data, a compound of cross-sectional data with time series. This study, time-series data used for four years, from 2017 to 2020. This study uses cross-section data from public State-Owned Companies Listed on the Indonesian Stock Exchange with a total sample of 12 companies. In this research, data were collected by downloading the annual financial statements of State-Owned Companies Listed on the Indonesia Stock Exchange, accessed from the Indonesia Stock Exchange (www.IDX.co.id) and the official yard of each company. Population and Sample State-Owned Companies Listed on the Indonesia Stock Exchange during 2017-2020 are population data in this research. Consist of 20 companies listed on the IDX. This research uses a purposive sampling technique to write off incomplete data samples and avoid companies that do not have specific data. The purposive sampling technique uses several criteria used in this study: 1. State-Owned Company Listed on the Indonesia Stock Exchange in 2017-2020 2. The company was not delisted during the research period, excluding companies relisting or IPO 2017-2020. 3. Companies that consistently issue financial statements clear and complete. 4. The company presents financial statements in Rupiah currency. 5. All data needed in the research are available in the financial statements. Table 1 Stages of Sample Selection With Criteria Criteria Number of Companies The state-owned company was listed on the Indonesia Stock Exchange (IDX) during 2017-2020. 20 Companies that do not present the data needed during the study. (5) Companies that do not gift financial statements in Rupiah (3) Number of Samples 12 Observation Year 4 Total Research Sample for Research Period 2017-2020 48 Operational Definition of Research Variables A study variable is a symptom, nature, or grade of an item or activity, specific particular a specific variant that the researcher has decided to look at, and then conclusions are drawn. The operational definitions and metering variables used in this study are as follows: 61 Jurnal Akuntansi ISSN 2303-0356 Vol. 13, No.1, February 2023 Hal.58-68 Table 2 Operational Definition of Research Variables Research Variable Operational Definition Measurement Scale Ownership Concentration (X1) The concentration of ownership is when a small number of individuals or organisations own most shares. As a result, this group has a very dominant number of shares compared to different shareholders. Own = the most significant percentage of share ownership/percentage of total outstanding shares Ratio Leverage (X2) Leverage determines how much an organisation's assets are funded using debt. Debt to Equity Ratio = total debt/total equity Ratio Earnings Management (Y) earnings management is the intervention of the statistics contained within the monetary statements. DAit = ( 𝑇𝐴𝑖𝑡 Ait−1 ) - NDAit Ratio Firm Size (Z) The size of a firm is the number of assets owned by a company in a given period. Size = LN(Total Assets) Ratio RESULTS AND DISCUSSION Descriptive Statistics Table 3 Descriptive Statistical Analysis Results Source: Output Eviews. 12, 2021. According to the output E-views in the table above, the data descriptions for each research variable are: 1. The average earnings management of State-Owned for the 2017 to 2020 period is -0.200476, while the median value is -0.272188. The maximum value of 0.659244 occurred at PT Bank Negara Indonesia Tbk (BBNI) in 2017, and the minimum value was -0.645790, which occurred at PT Telekomunikasi Indonesia Tbk (TLKM) in 2017. At the same time, the standard deviation value is 0.312334. 2. The average concentration of ownership of State-Owned companies from 2017 to 2020 is 0.637980, while the median value is 0.600000. The maximum value of 0.981363 occurred at PT Bank Negara Indonesia Tbk (BBNI) in 2017, and the minimum value was 0.510004, which happened in PT Adhi Karya Tbk (ADHI) from 2017 to 2020. While the std. The deviation value is 0.128027. 62 THE EFFECT OF OWNERSHIP CONCENTRATION AND LEVERAGE AGAINST EARNINGS MANAGEMENT WITH FIRM SIZE AS A MODERATING VARIABLE Elly Septiana, Ruhul Fitrios, Supriono 3. The average leverage of State-Owned companies for the 2017 to 2020 period is 4,027869, while the median value is 3.300687. The maximum value of 16.07858 occurred at PT Bank Tabungan Negara Tbk (BBTN) in 2020, and the minimum value of 0.482726 occurred at PT Jasa Marga Tbk (JSMR) in 2020. In comparison, the standard deviation value was 3.199903. Based on the table values, the distribution of these values is even because it is indicated by an average value more significant than the standard deviation value. Classic Assumption Test Results The estimation model used is the Random Effect Model, so there is no need to test the classical assumptions because this model is a generalised least square (GLS) estimation model. The estimation method known as GLS (generalised least squares) takes the information into account explicitly and is, therefore, capable of producing a BLUE estimator (Gujarati, 2003). Coefficient of Determination Results Table 4 Coefficient of Determinant Results Source: Output Eviews.12, 2021 Table 4 shows an Adjusted R2 value of 0.319933. Therefore, it is concluded that variables of ownership concentration can explain earnings management, and leverage of 31.9%, with the remaining 68.1% being elucidated by other variables not observed in this study. Multiple Regression Analysis Results Table 5 Multiple Regression Analysis Results Source: Output Eviews.12, 2021 Y = α + βlxl + β2x2 + e Y = (1.213776) + 1.460057 + 0.020311 + e Hypothesis Testing Results It is known that the t-table value is at a significant level of 5% = 0.05, the value with the number of samples (n) = 48, the sum of independent variables (k) = 2 t-tabel = n-k-1 : α/2 = 48-2-1 : 0.05/2 = 45: 0.025 = 2.01410 (on t-tabel) Description n: Number of samples k: Number of independent 1: Constant 63 Jurnal Akuntansi ISSN 2303-0356 Vol. 13, No.1, February 2023 Hal.58-68 Table 6 T-test Result Source: Output Eviews.12, 2021 On the t-table results, the following hypothesis can be generated: 1. The significance value of the X1 variable is 0.0001 < 0.05 with a t-count of 4.438792 > t-table 2.01410. Thus, it can be taken a decision that: H1 is accepted. 2. The significance value of the X2 variable is 0.0141 < 0.05 with a t-count of 2.553116 > t-table 2.01410. Thus, it can be taken the decision that: H2 is accepted. Moderated Regression Analysis (MRA) Test Results Table 7. MRA Test of Concentration of Ownership Variable of Random Model Source: Output Eviews.12, 2021 Table 8. MRA Test of Leverage Variable of Random Model Source: Output Eviews.12, 2021 From testing the moderation test in the table, the following hypotheses can be generated: 1. The significance value of the variable is 0.7962 > 0.05. With a t-count value of -0.259776. Thus, it can be concluded that: H4 is rejected. 2. The significance value of the variable is 0.0177 > 0.05. With a t-count value of 2.463512. Thus, it can be concluded that: H5 is accepted. Hypothesis Testing 1 Based on data analysis and hypothesis testing performed in this study, it can be seen that ownership concentration affects earnings management in State-Owned Companies Listed on the Indonesia Stock Exchange from 2017 to 2020. The results of the statistical test show that the t-count is 4.438792 > t-table 2.01410. This resulted in the decision to accept the first hypothesis, which means that the concentration of ownership affects earnings management which has a significant level of 0.0001 below the value of 0.05. Therefore, the results of this research conclude that the more concentrated shares dominate the shareholding of a company, the greater the potential for earnings management practices to occur. 64 THE EFFECT OF OWNERSHIP CONCENTRATION AND LEVERAGE AGAINST EARNINGS MANAGEMENT WITH FIRM SIZE AS A MODERATING VARIABLE Elly Septiana, Ruhul Fitrios, Supriono The significant results in the testing of this study show the failure of sizeable share ownership as a supervisory mechanism. The concentration of ownership affects earnings management by incorporating people into the company's management ranks to carry out profit engineering that benefits the majority shareholders and management but harms minority shareholders. The proceeds of this research are consistent with the study conducted by (Wirayana & Sudana, 2018) and (Grimaldi & Muserra, 2017) in terms of the content of high share; ownership can have an influence that can be allocated to the composing of generating financial statements in command to be able to take advantage of stakeholders such as majority shareholders and equity capital market participants in general. Hypothesis Testing 2 Based on records evaluation and hypothesis checking completed in this examination, it can be visible that leverage impacts earnings management in nation-Owned agencies listed at the Indonesia stock change for the 2017-2020 duration. The results of statistical tests obtained a t-count value of 2.553116 > t-table 2.01410. This resulted in the decision to accept the second hypothesis, which means that leverage affects earnings management with a significant level of 0.0141 below the value of 0.05. This condition means that the sum of debt the company owes is one of the grounds for executing earnings management. Therefore, the proceeds of this examination are in keeping with those expressed by way of (Watts & Zimmerman, 1990), which is explained by the debt-equity hypothesis, where the more significant the debt ratio owned by a company, the greater the tendency of managers to take earnings management actions by choosing specific accounting procedures so that there will be changes in reported earnings. Furthermore, this result is consistent with a study by (Fandriani, 2019) and (Nalarreason et al., 2019) in which a high level of financial leverage will motivate managers to exercise earnings management to increase company profits to avoid defaulting on debt as the company is at risk of default; namely, it cannot fulfil its obligations to repay the debt on time. Hypothesis Testing 3 Based on information analysis and hypotheses testing accomplished in this study, it changed into found that firm size could not moderate the connection between ownership concentration and earnings management in State-Owned groups indexed at the Indonesian Stock Exchange for the 2017-2020 period. The results of the MRA test in table 7 obtained a t-count value of -0.259776. This resulted in a decision to reject the third hypothesis, which means that the company’s size is not able to cannot moderate the relationship between the influence of ownership concentration on earnings management, which has a significant level of 0.7962 above a value of 0.05. The proceeds are not in line with research described by (Hendi & Erika, 2022), which proves that firm size can moderate the intercourse between institutional ownership and managerial ownership on earnings management. Moreover, suppose a high level of assets is contained in a company. In that case, there is a lower possibility of the company practising earnings management because large companies have strict supervision. These results explain that increasing firm size cannot strengthen or weaken the intercourse between ownership concentration and earnings management. Hypothesis Testing 4 Based on hypothesis testing that has been carried out in this study, it was found that firm size was able to moderate the intercourse among leverage and earnings management in State-Owned Companies Listed on the Indonesian Stock Exchange for the 2017-2020 period. The results of the MRA test in table 8 obtained a t-count value of 2.463512. This resulted in the decision to accept the fifth hypothesis, which means that firm size can moderate the intercourse between leverage and earning s management which has a significant level of 0.0177 below the value of 0.05. In other 65 Jurnal Akuntansi ISSN 2303-0356 Vol. 13, No.1, February 2023 Hal.58-68 words, firm size strengthens the relationship of leverage to earnings management. The high level of leverage motivates violating the debt contract agreement, which will result in very high costs and result in the company’s bankruptcy as described in Positive Accounting Theory, namely the debt- equity hypothesis. Suppose a large or small company faces a high natural logarithm of total assets. It will cause the company's management to practice earnings management because they do not want to harm the company and make the company value not good in the eyes of buyers for a long time. The yield of this research support research described by (Rosena et al., 2016) and (Hendi & Erika, 2022), which prove that firm size moderates the effect of leverage on earnings management. This result suggests that firm size affects the intercourse between leverage and earnings management. Furthermore, the outcome of this research suggests that the larger the organisation’s size, the higher the predisposition of the company to carry out earnings management. CONCLUSIONS AND RECOMMENDATION The consequences of research that has been achieved via the stages of records series, data processing, and records evaluation regarding the overall analysis, this observation examines the concentration of ownership, and leverage, on earnings management with firm size as a moderating variable. The results of evaluating the research model and hypothesis testing using the Eviews.12 Student Lite program, it was concluded that ownership concentration and leverage affect earnings management. However, Firm size cannot moderate the impact of ownership concentration on earnings management. On the other hand, firm size can moderate the effect of leverage on earnings management. This study nevertheless has limitations for use as consideration for similar studies so that you can get excellent consequences for further research. First, within the limits of scientific development, R2 in this study shows a value that is less than the maximum, so many variables and other factors can affect the dependent variable. Second, the sample of this research is limited to State-Owned Companies Listed on the Indonesia Stock Exchange for the period 2017 – 2020, not representing companies in other sectors. Third, within the limitations of problem-solving, the lack of success in the concentration of ownership and company size as a management discipline mechanism in improving supervision prevents asymmetry information does not occur in the company. The company's lack of success in maintaining the average leverage ratio to remain below one so that the company will carry out earnings management practices to pay off its debt obligations. 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