The Effect of Managerial Ability on Earnings Management: Evidence from Indonesia
Taufan Bahtera, Ancella Anitawati Hermawan
Department of Accounting, Universitas Indonesia, UI Campus, 16424, Depok, Indonesia
Abstract
This study aims to investigate how the ability of the managers affect their tendency to perform earnings management on public companies in Indonesia. We measure managerial ability using efficiency model with Data Envelopment Analysis. Using 1332 observations, this study finds that managerial ability positively affects earnings management. We also find that the earnings management does not contribute to company-s market-based performance on the subsequent year. To an extent, this shows that even though skillful managers use their skills to manage the company-s earnings with accrual management, the effort is merely just a noise for the market-based value of the company.
Keywords: Managerial Ability, DEA, Earnings Management
Topic: Financial Management and Accounting