Managerial Ability, Audit Committee, Earnings Quality


         The purpose of this research is to examine the effect of managerial ability towards earnings quality with audit committee as the moderation variable. The research data is secondary data, which is data from the audited financial statements of 53 go public manufacturing companies in Indonesia with 159 units of analysis for the period of 2014-2016. Data is obtained from the Indonesian Capital Market Directory. The results show that (i) managerial ability has a positive and significant effect towards the earnings quality; (ii) The macro condition represented by the interest rate has a negative and insignificant effect towards earnings quality; (iii) The audit committee strengthens the effect of managerial ability towards earnings quality. This research contributes to enrich the earnings quality literature, especially about the role of managers, which is managers are not the absolute profit management actors, but capable managers create efficiency and improve earnings quality.

Full Text : PDF

  1. Aier, J., J. Comprix, M. Gunlock, and D. Lee. 2005. The financial expertise of CFOs and accounting restatements. Accounting Horizons 19 (3): 123-135.
  2. Amihud, Yakov. 2008. Liquidity, the value of the firm, and corporate finance. Journal in
  3. the Summer 2 (20): 1-40.
  4. Arens and Loebbecke. 2008. Auditing an integrated approach. USA: Prentice. Hall
  5. Ashbaugh-Skaife, H., D. Collins, W. Kinney, and R. LaFond. 2008. Internal control deficiencies, remediation and accrual quality. The Accounting Review 83 (1): 217-250.
  6. Bapepam No.Kep 29/PM/2004. Tentang pembentukan dan pedoman pelaksanaan kerja komite audit.
  7. Babatunde and Olaniran. 2015. Ownership structure and performance of entrepreneurial firms in Nigeria. International journal of economics and business management 1 (3):1-12.
  8. Barako, G., Phil H. dan H.Y Izan. (2007). Factors Influencing Voluntary Corporate Disclosure by Kenyan Companies. International Review 14 (2): 107-125.
  9. Bamber, L., J. Jiang, and I. Wang. 2010. What’s my style? The influence of top managers on voluntary corporate financial disclosure. The Accounting Review 85 (4): 1131-1162.
  10. Becker, C., M. DeFond, J. Jiambalvo, and K. R. Subramanyam. 1998. The effect of audit quality on earnings management. Contemporary Accounting Research 15 (1): 1-24.
  11. Brigham, F.E dan Houston, F.J. 2006. Intermediate Financial Management.  10th edition. Erlangga, Jakarta.
  12. Copeland T.E dan J.F.Weston. 1992. Financial theory and corporate policy, 3rd edition. Addison-Wesley Publishing Company. 
  13. Charitou, A., E. Neophytou, and C. Charalambous. 2004. Predicting corporate failure. Empirical evidence for the UK. European.  Accounting Review 13 (3): 465-497.
  14. Dechow, P. 1994. Accounting earnings and cash flows as measures of firm performance: The role of accounting accruals. Journal of Accounting and Economics 18 (1): 3-42.
  15. Dechow, P., and C. Schrand. 2004. Earnings Quality. Charlottesville, VA: The Research Foundation of CFA Institute.
  16. Dechow, P., and I. Dichev. 2002. The quality of accruals and earnings: The role of accrual estimation errors. The Accounting Review 77 (4): 35-59.
  17. Dechow, P. M., R.G. Sloan and A.P. Sweeney. 1995. Detecting earnings management. The Accounting Review 70 (2):193-225.
  18. DeFond, M.L. 2010. Earnings quality research: Advances, challenges and future research. Journal of Accounting and Economics 50 (2-3), 402-409.
  19. DeJong, D., and Z. Ling. 2010. Managers: Their Effects on Accruals and Firm Policies. Working paper The University of Iowa.
  20. Demerjian, P., B. Lev, and S. McVay. 2006. Managerial ability and accruals quality. Working paper. Stem school of business. 
  21. Demerjian, P., B. Lev, and S. McVay. 2012. Quantifying managerial ability: A new measure and validity tests. Management Science 58 (7): 1229-1248.
  22. Demerjian, P., B. Lev, and S. McVay. 2013. Managerial ability and earnings quality. The Accounting Review 88 (2): 463-498.
  23. Doyle, J., W. Ge, and S. McVay. 2007. Accruals quality and internal control over financial reporting. The Accounting Review 82 (5): 1141-1170.
  24. Francis, J., A. Huang, S. Rajgopal, and A. Zang. 2008. CEO reputation and earnings quality. Contemporary Accounting Research 25 (1): 109-147.
  25. Francis, J., R. LaFond, P. Olsson, and K. Schipper. 2004. Costs of equity and earnings attributes. The Accounting Review 79 (4): 967-1010.
  26. Ge, W., D. Matsumoto, and J. Zhang. 2011. Do CFOs have style? An empirical investigation of the effect of individual CFOs on accounting practices. Contemporary Accounting Research 28 (4): 1141-1179.
  27. Healy, P. 1985. The effect of bonus schemes on accounting decisions. Journal of Accounting and Economics 7: 85-107.
  28. Healy, P. 1996. Discussions of a market based evaluation of discretionary accrual models. Journal of Accounting Research 34: 107-115.
  29. Healy, P and Wahlen, J.M.  1999. A Review of the Earnings Management Literature and Its Implications for Standard Setting. Accounting Horizons 13(4): 365-383.
  30. Houlthausen, R.,D.Lacker, dan R.G.Sloan. 1995. Annual bonus schemes and manipulation of earning, Additional evidence on bonus plan and income management. Journal of Accounting and Economics 29-74. 
  31. Retrieved on 10 June 2017.
  32. Retrieved on 10 June 2017.
  33. Gharezi, Davood and Zadeh, Mohammad Reza Abbas. 2013. The relationship between
  34. earnings quality and risk of liquidity in Tehran Stock Exchange. Interdisciplinary
  35. Journal of Contemporary Research in Business 5 (3): 782-805.
  36. Givoly D., Hayn CK., Katz SP. 2010. Does public ownership of equity improve earnings quality? The Accounting Review: 85(1): 195-225.
  37. Jensen M.C., and Meckling W.H. 1976. Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of financial economics, 3 (4): 305-360
  38. Jogiyanto, H. 2015. Teori Portfolio dan Analisis Investasi. Edisi 10. Yogyakarta: BPFE.
  39. Katz, S P. 2009. Earnings quality and ownership structure: The role of private equity sponsors, The accounting review 84 (3): 623-658.
  40. Keshtavar, Ali; Moeinaddin, Mahmoud; Dehnavi, Hasan Dehghan. 2013. Need for capital
  41. management and capital structure in the world today. International Journal of
  42. Modern Management Sciences 2 (2): 67-74.
  43. LaFond. R. 2008. Discussion of: CEO reputation and earnings quality. Contemporary Accounting Research 25 (1): 149-156.
  44. Lara., Garcia, J.M., Osma., Garcia, B., Neophytou,E. 2009. Earnings quality in expost failed firms. Accounting and business research  39 (2): 119-138.
  45. Libby, R., and J. Luft. 1993. Determinants of judgment performance in accounting settings: Ability, knowledge, motivation and environment. Accounting, Organization and Society 18 (5): 425-450.
  46. Machdar, N.M., Manurung, A.H., and Murwaningsari, E. 2017. The effects of earnings quality, conservatism, and real earnings management on the company’s performance and information asymmetry as a moderating variable. International Journal of Economics and Financial Issues 7 (2): 309-318.
  47. Modigliani, Franco, and Miller, Merton H. 1958. The cost of capital, corporate finance, and the theory of investment. American Economic Review 48 (3): 261-280. 
  48. Murwaningsari, E. 2014. The influence of intellectual capital towards firm value with independent commissioner and audit committee as moderating variable. International Journal of Engineering, Business and Enterprise Application (IJEBEA) 7 (2): 6-11.
  49. Prior, D., Surroca, J., Tribo, J.A. 2008. Are socially responsible managers really ethical? Exploring the relationship between earnings management and corporate social responsibility, Journal compilation 16 (3): 160-177. 
  50. Pereira Garmendia, Diego Walter, Inflation, Real Stock Prices and Earnings: Friedman Was Right. 2010. Available at SSRN: or 
  51. Ross, S., Westereld, R., Jafe, J. 2013. Corporate Finance. 10th ed. New York: The McGraw-Hill Companies, Inc.
  52. Sivaramakrishnan, K., 2008. On the association between corporate governance and earnings quality. AAA Financial Accounting and Reporting Section (FARS) Paper 1:36
  53. Umobong, A. 2015. Assessing the impact of liquidity and profitability ratios on growth of profits in pharmaceutical firms in Nigeria. European Journal of Accounting, Auditing and Finance Research 3 (10): 97-114.
  54. Velury U. 1999, The effect of institutional ownership on the quality of earnings. Submitted in partial fulfillment of the requirements for the degree of doctor of philosophy in The Darla Moore School of Business Univer-sity of South Carolina, Umi Microfon 9928350. Copyright 1999, Umi Company.
  55. Velury U., and Jenkins, D.S. 2006. Institutional ownership and the quality of earnings. Journal of business research 59 (9), 1043-1051. 
  56. Wang, J.L. 2013. Accounting conservatism and information asymmetry: Evidence from Taiwan. International business research 6 (7), 32-43.