The Role of Corporate Diversification, Capital Structure Determinant, And Structure of Ownership on Earning Management with Information Asymmetry as Moderating Variable

Abstract

Along with the development of the economy and technology, companies are expanding their businesses to be able to defend in the competition in the industry by diversification. In the diversified companies with high complexity, manager’s motivation to use various earnings management techniques is increase. Apart from diversification, there are various factors that influence earnings management, including capital structure and ownership, and also information asymmetry. The major objective of this study was to discusses a comprehensive understanding of earnings management and the factors that influence it, namely business diversification, capital structure, ownership structure, and information asymmetry; and second is to empirically investigate the effect of diversification, capital structure, ownership structure and asymmetry of information to earnings management, and to clarify whether information asymmetry can moderate the influence of the three other factors on earnings management as measured by the approach of Stubben (2010). The study used the Total Asset control, Growth Opportunity, ROA, ROE, and Leverage. Data obtained from observations 165 Financial Statements of Manufacturing Companies in the chemical, pharmaceutical, and consumer goods sectors in 2015-2017. These results indicate that diversification does not relation with earnings management, but the other three factors namely capital structure, ownership structure, and information asymmetry are proven to significantly affect earnings management. Information asymmetry variables can moderate the affect of capital structure and ownership structure on earnings management.

Keywords: Earning Management, Capital Structure, Ownership Structure, as information asymmetry

DOI: 10.7176/RJFA/10-14-05

Publication date:July 31^st 2019