Factors That Influencing Creative Accounting Practices at Manufacturing Company that Listed on Indonesia Stock Exchange

MAUDIA, Maureen (2020) Factors That Influencing Creative Accounting Practices at Manufacturing Company that Listed on Indonesia Stock Exchange. Skripsi thesis, Universitas Jenderal Soedirman.

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Abstract

The act of taking advantage of flexibility in accounting policies and techniques to present a financial statement is called creative accounting. Creative accounting is not something new. Creative accounting practices have been done abroad as well as in Indonesia. As an example of several creative accounting cases are from Xerox, Worldcom, Global Crossing, and Enron. Creative accounting cases also occur in Indonesia, for example, the case of PT Kimia Farma, PT Ades Alfaindo, PT Garuda Indonesia, and PT Tiga Pilar Sejahtera Food. Therefore, this research aims to investigate several factors that can influence the occurrence of creative accounting. This research uses the positive accounting theory by Watts and Zimmerman. There are three hypotheses in positive accounting theory, there are bonus plan hypothesis, debt covenant hypothesis, and political cost hypothesis. Thus, this research uses bonus compensation as a proxy of bonus plan hypothesis, leverage as a proxy of debt covenant hypothesis, and profitability as a proxy of political cost hypothesis. In this research, bonus compensation is measured by the average bonus compensation to key management. Then, leverage is measured by comparing total debt with total assets. Then, profitability is proxied by Return on Assets (ROA). Also, creative accounting is measure by comparing cash flow to net income. This research is a type of associative causal with a quantitative approach. The object of this research is the annual financial statements of manufacturing companies for the period 2017-2019. Then, researchers indirectly obtained the company’s annual report data from www.idx.co.id. The populations of this research are manufacturing companies listed on the Indonesia Stock Exchange in 2017-2019. Furthermore, the research sample is obtained using a purposive sampling method. A total of 52 manufacturing companies meet the criteria as a research sample. However, 20 companies are eliminated because they are outliers. Thus, 32 manufacturing companies are used as a research sample. This research uses three years reporting period, so there are 96 research samples. This research also uses panel data regression analysis with e-views program. The results of this research indicate that bonus compensation affects creative accounting. The higher the bonus compensation, the higher the creative accounting practice. Then, leverage also affects creative accounting. The higher the leverage, is followed by an increase in creative accounting. Profitability affects creative accounting. The higher the profitability, the higher creative accounting. This research implies that companies must not doing an illegal creative accounting. Companies should inform the accounting regulation and technique used in notes to financial statement. The company may provide the right amount of bonus compensation to motivate the key management in improving their performance. The company can do a refinancing or renewing a debt agreement. The company also can improve their ability to manage assets and optimize the use of debt to obtain economic benefits. Then, creditors can pay more attention to the company’s ability in maintain the debt agreement. Creditors can also analyze the company’s solvency in determining loan. Next, the government can pay more attention and analyze the profitability of companies in withholding the company’s tax. Other than that, the government also can review the accounting regulation. Key Words: Bonus Compensation, Leverage, Profitability, Creative Accounting

Item Type: Thesis (Skripsi)
Nomor Inventaris: C20146
Subjects: S > S708 Stock exchanges
Divisions: Fakultas Ekonomi dan Bisnis > S1 Akuntansi
Depositing User: Mrs Maureen Maudia
Date Deposited: 28 Oct 2020 02:32
Last Modified: 28 Oct 2020 02:32
URI: http://repository.unsoed.ac.id/id/eprint/5852

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