Effect of Corporate Social Responsibility, Corporate Governance and Earnings Management on Firm Performance at Publicly Listed Indonesian Companies in Indonesia Stock Exchange

Abstract

Earnings are an important indicator of financial performance, so managers sometimes find themselves under the pressure to attain earnings to meet certain objectives. Therefore, in practice, managers exercise discretion without breaking generally accepted accounting principles (GAAP) to make earnings appear greater or lesser than it should be. Firms that are socially responsible would be viewed to be less inclined to manage earnings. Under such a scheme, corporate social responsibility (CSR) and good corporate governance are used as a defence mechanism in the perspective of earnings manipulation. The research aims to obtain a causal relationship among earnings management (EM), corporate social responsibility (CSR), corporate governance (CG), and firm performance (FP). This research using survey method with data is secondary data obtained from Indonesia stock exchange. To examine complex relationship among these variables, samples consist of 33 publicly listed companies in Indonesia period of 2012-2014 using descriptive and inferential analysis. In descriptive analysis, each variable was explained referring to the mean. On the other hand, in inferential analysis, path analysis was used to investigate the relations between each variable with prior doing the assumption and hypothesis test. The results of this research: (1) corporate social responsibility and corporate governance have no impact to earnings management, simultaneously and partially, (2) earnings management, corporate social responsibility, and corporate governance have no impact to firm performance, simultaneously and partially.

Keywords: Earnings management, CSR, Corporate governance, Firm performance

Australian Academy of Accounting and Finance Review, vol 1, issue 1, July 2015, page 1-28