Managerial ability and informative earnings management: the role of CEO-commissioner relationship and board independence
ISSN: 1472-0701
Article publication date: 21 October 2022
Issue publication date: 24 April 2023
Abstract
Purpose
The purpose of this study is to examine the effect of managerial ability on informative earnings management (hereafter IEM) and to examine the moderating role of the chief executive officer and board of commissioner relationship (hereafter CEO-commissioner relationship) and board independence between managerial ability and IEM.
Design/methodology/approach
Sample consists of 864 firm-years listed on the Indonesian Stock Exchange. Informative earnings management is measured by the relationship between discretionary accruals and earnings growth. Managerial ability is measured by data envelopment analysis. This research uses firm-effect logistic regression to perform the data analysis.
Findings
Based on firm-effect logistic regression, managerial ability increases IEM. It confirms the managers’ stewardship behavior where managers tend to engage in IEM and provide higher quality information for shareholders. The result also shows that the absence of a CEO-commissioner relationship and higher board independence leads higher ability managers to engage more in IEM. It confirms the role of corporate governance to reduce managers-shareholders conflict (in the context of agency theory) or to facilitate higher ability managers to act as both controlling and minority shareholders’ stewards (in the context of stewardship theory) by engaging more in IEM and providing higher-quality information.
Originality/value
This research contributes to filling the previous studies gap that provides conflicting results on managerial ability and earnings management by considering earnings management motivations, CEO-commissioner relationship and board independence. This research also contributes to providing new evidence of managerial ability, IEM, CEO-commissioner relationship and board independence, especially in Indonesia.
Keywords
Acknowledgements
This work was supported by the Lembaga Pengelola Dana Pendidikan (LPDP Scholarship).
Citation
Putra, A.A. (2023), "Managerial ability and informative earnings management: the role of CEO-commissioner relationship and board independence", Corporate Governance, Vol. 23 No. 4, pp. 742-765. https://doi.org/10.1108/CG-02-2022-0067
Publisher
:Emerald Publishing Limited
Copyright © 2022, Emerald Publishing Limited