HOW MARKET COMPETITION CAN INFLUENCE BUSINESS STRATEGIES-INDUCED REAL EARNINGS MANAGEMENT: AN EMPIRICAL EVIDENCE FROM INDONESIA

Abstract

The study explores the relationship between business units strategy and market competition towards earnings management. Using a balanced sample from Indonesian manufacturing companies from 2011 – 2014 we find convincing evidence that earnings management practice is heavily determined by the choice of firms’ strategic decisions. More specifically, we document that while cost leadership strategy positively affects the earnings management, the inverse effect for the relationship between differentiation strategy and earnings management is also apparent. Also, our finding notes that the intensified market competition is also likely strengthen the relationship between cost leadership strategy and earnings management practice, but such moderating role is not apparent for differentiation strategy and earnings management.