CITEDENESS
Political Connection, Corporate Governance, and Earnings Management: Evidence from Indonesia’s Financial Institutions
(1) Faculty of Law, Economics and Business, Universitas Graha Karya Muara, Indonesia
(2) Faculty of Law, Economics and Business, Universitas Graha Karya Muara, Indonesia
(3) Faculty of Law, Economics and Business, Universitas Graha Karya Muara, Indonesia
(*) Corresponding Author
Abstract
Introduction: This study examines the relationship between political connections, corporate governance mechanisms, and earnings management among Indonesia’s listed financial institutions.
Methods: This study applies a quantitative research approach using a balanced panel dataset of 102 firms from 2023 to 2024, discretionary accruals estimated through the Modified Jones Model serve as a proxy for earnings management.
Results: The empirical results reveal that politically connected firms engage in significantly higher levels of earnings management, indicating that political affiliation weakens financial reporting integrity. Conversely, corporate governance mechanisms particularly board independence and audit committee activity effectively constrain opportunistic behavior, while institutional ownership shows a weaker monitoring effect. The interaction analysis further demonstrates that strong governance structures can moderate the adverse impact of political ties on earnings manipulation.
Conclusion and suggestion: The interaction analysis further demonstrates that strong governance structures can moderate the adverse impact of political ties on earnings manipulation. These findings confirm that governance quality plays a crucial counterbalancing role in politically embedded environments. The study contributes to the literature by integrating political economy and agency theory perspectives, offering contemporary evidence from Indonesia’s financial sector and policy implications for strengthening governance oversight and transparency.
Methods: This study applies a quantitative research approach using a balanced panel dataset of 102 firms from 2023 to 2024, discretionary accruals estimated through the Modified Jones Model serve as a proxy for earnings management.
Results: The empirical results reveal that politically connected firms engage in significantly higher levels of earnings management, indicating that political affiliation weakens financial reporting integrity. Conversely, corporate governance mechanisms particularly board independence and audit committee activity effectively constrain opportunistic behavior, while institutional ownership shows a weaker monitoring effect. The interaction analysis further demonstrates that strong governance structures can moderate the adverse impact of political ties on earnings manipulation.
Conclusion and suggestion: The interaction analysis further demonstrates that strong governance structures can moderate the adverse impact of political ties on earnings manipulation. These findings confirm that governance quality plays a crucial counterbalancing role in politically embedded environments. The study contributes to the literature by integrating political economy and agency theory perspectives, offering contemporary evidence from Indonesia’s financial sector and policy implications for strengthening governance oversight and transparency.
Keywords
Political Connection, Corporate Governance,Earnings Management, board independence, Audit Committee
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DOI: 10.70095/alamwal.v18i1.24933
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