Impact of Leverage and Firm Size on Earnings Management in Indonesia

Kadek Marlina Nalarreason, Sutrisno T, Endang Mardiati


This study aimed to determine the effect of leverage and firm size toward earnings management. This study used a sample of the financial report data from manufacturing companies listed on the Indonesia stock exchange for the 2013-2017 period. The data analysis testing in this study employed EViews (Econometric Views). The results showed that the best panel regression model in this study was random effect model. Consistent with agency theory and positive accounting theory, leverage and firm size has a positive effect on the earnings management for manufacturing companies in Indonesia. The empirical results showed that leverage and firm size increases provide encouragement for managers to manipulate earnings.


Earnings management, Leverage, Firm Size, Positive Accounting Theory, Agency Theory

Full Text:



Afza, T., & Rashid, B. (2014). Opportunistic Earnings Management, Debt and Diversification: Empirical Evidence for Manufacturing Firms of Pakistan. Sci. Int. 26(5): 2489–2494.

Ali, M. A., Noor, M. A., Khurshid, M. K., Mahmood, A. (2015). Impact of Firm Size on Earnings Management; A Study of Textile Sector of Pakistan. European Journal of Business and Management. 7: 28.

Bao, S. R., & Lewellyn, K, B. (2016). Ownership Structure and Earnings Management in Emerging Markets: An Institutionalized Agency Perspective. International Business Review. Vol. xxx. Page. Xxx-xxx.

Barton, J., and P. Simko. (2002). The Balance Sheet as an Earnings Management Constraint. The Accounting Review. 77 (Supplement): 1-27.

Beatty, A., & Weber, J. (2008). The Effects of Debt Contracting on Voluntary Accounting Method Changes. The Accounting Review, 78(1): 119-142.

Chamberlain, T. W., Butt, U. R., Sarkar, S., (2014). Accruals and Real Earnings Management Around Debt Covenant Violations. Int. Adv. Econ. Res., 20(1): 119–120.

DeFond, M. L., & Jiambalvo, J. (1994). Debt Covenant Violation and Manipulation of Accruals. Journal of Accounting and Economics, 17: 145-176.

Dichev, I. D., & Skinner, D. J. (2002). Large Sample Evidence on the Debt Covenant Hypothesis. Journal of Accounting Reasearch, 40(4): 1091-1123.

Healy, P. M., & Wahlen, J. M. (1999). A Review of the Earnings Management Literature and Its Implications for Standard Setting. Accounting horizons, 13(4): 365-383.

Jao, R., & Pagalung, G. (2011). Corporate Governance, Ukuran Perusahaan, dan Leverage Terhadap Manajemen Laba Perusahaan Manufaktur. Jurnal Akuntansi dan Auditing, 8(1).

Jelinek, K. (2007). The Effect of Leverage Increases on Earnings Management. Journal of Business & Economic Studies, 13(2): 24-46.

Jensen, M. C. & Meckling W. H. (1976). Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics, 3: 350-360.

Kim, Y., Liu, C., & Rhee, S. G. (2003). The Relation of Earnings Management to Firm Size. Social Science Research Network.

Lazzem, S., & Jilani, F. (2018). The Impact of Leverage on Accrual based Earnings Management: The Case of Listed French Firms. Research in International Business and Finance, 44: 350-358.

Levitt, A. (2000). Testimony Concerning Commission’s Auditor Independence Proposal before the Senate Subcommittee on Securities Committee on Banking, Housing, and Urban Affairs, 28 September. testimony/ts152000.htm.

Moses, D. O. (1997). Income Smooting and Incentives: Empirical Using Accounting Changes. The Accounting Review, 62(2): 358-377.

Sari, S. R. (2013). Pengaruh Leverage Dan Mekanisme Good Corporate Governance Terhadap Manajemen Laba. Jurnal Ilmu & Riset Akuntansi, 2(6).

Schipper, K. (1989). Commentary on Earnings Management. Accounting Horizons, 3(4): 91-102.

Scott, W. R. (2015). Financial Accounting Theory. Second Edition. Scarborough, Ontario: Prentice Hall Canada Inc.

Swastika, D. L. T. (2013). Corporate Governance, Firm Size, and Earnings Management: Evidence in Indonesia Stock Exchange. Journal of Business and Management, 10(4): 77-82.

Turegun, N. (2016). Effects of Borrowing Cost, Firm Size, and Characteristics of Board of Directors on Earnings Management Types: A Study at Borsa Istanbul. Asia Pasific Journal of Accounting & Economics.

Vakilifard, H., & Mortazari, M. S., (2016). The Impact of Financial Leverage on Aaccrual-Based and Real Earnings Management. International Journal Academic Researchin Accounting Financial Management Science, 6(2): 53–60.

Watts, R., & Zimmerman, J. (1986). Positive Theory of Accounting. Englewood Cliffs, NY: Prentice-Hall.

Zagers, I. (2009). The effect of Leverage Increases on Real Earnings Management. Working Paper.

Zamri, N., Abdul Rahman, R., Mohd Isa, N. S. (2013). The Impact of Leverage on Real Earnings Management. Procedia Economic and Finance. 7: 86-95.



  • There are currently no refbacks.

Copyright (c) 2019 International Journal of Multicultural and Multireligious Understanding

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

International Journal of Multicultural and Multireligious Understanding (IJMMU) ISSN 2364-5369
Copyright © 2014-2018 IJMMU. All rights reserved.