The Board of Commissioners Moderates Cash Holding and Profitability on Earnings Management

Abstract

One of the parameters that is used as a reference for investors and shareholders in making financial decisions is profit information in the company's financial reports. The assumption that companies with stable profits reflect optimal performance and have low investment risk encourages managers to make efforts to provide a good picture of performance, one of which is by carrying out earnings management. Deviant earnings management practices are carried out when information asymmetry occurs which arises from moral hazard and encourages management to behave opportunistically, resulting in poor earnings management, which is carried out in an inadequate manner. Earnings management is influenced by several factors, including cash holding, profitability and the board of commissioners. This research aims to examine the influence of cash holding and profitability through the interaction of the board of commissioners which is proportional to the proportion of independent board of commissioners as an internal mechanism for Good Corporate Governance within the company. The population used is all manufacturing companies listed on the Indonesia Stock Exchange, using purposive sampling to obtain 50 selected companies in the 2020-2023 observation period, with a total data sample of 200. Moderated Regression Analysis  (MRA)  is used as a technique to test the relationship between variables. The test results show that partially cash holding, profitability and the board of commissioners have a significant effect on earnings management. The test results also show that the independent board of commissioners is able to moderate cash holding and profitability on earnings management.