The Moderating Effect of Managerial Ownership and Institutional Ownership on the Relationship between Control Right and Earnings Management

Abstract

The objective of this paper is to examine how control right affect earnings management in pyramid company ownership. In this study, we proposed that the effect of control right on earnings management is moderated by managerial ownership and institutional ownership. A model was developed and tested using a sample of 108 pyramidal structure companies from 2007 to 2011, listed on Indonesian Stock exchange. Data collected analysis using least square regression. The result showed that there is a significant association between control right and earnings management, and managerial ownership moderates the association between control right and earnings management. However, the role of institutional ownership as a moderating variable cannot be supported. Overall findings are expected to serve as the basis for more effective corporate performance or effective way to find what factor that affect earnings management practice. Especially managerial ownership is effective to control earnings management practice.

Keywords: Earnings management, Pyramidal structure, Control right, Institutional ownership, Managerial ownership.

Australian Academy of Accounting and Finance Review, vol 1, issue 1, July 2015, page 69-85