Institutional Ownership, Family Firms, Leverage, and Earnings Management

Abstract

This study aims to record the empirical finding on the influence of family firms and institutional ownership on earnings management. It also examines the effect of leverage on the correlation between family firms and institutional ownership to earnings management. The object of the study comprises manufacturing firms registered on the Indonesia Stock Exchange from 2017 through 2020. The observations are 44 firm years in total. The data were collected from their annual financial reports, using panel regression as the analysis method. The findings suggest that family firms negatively influence earnings management, whereas institutional ownership has no impact on earnings management. These findings imply that the family firm's ownership generates an alignment effect. Furthermore, leverage negatively influences earnings management , but it has a positive impact on the relationship between family firms with earnings management, likewise has no consequence on the institutional relationship effect with earnings management. Finally, it indicates that family firms with high leverage intend to minimize the chance of violation against debt covenants and, at the same time, intensify the firm's negotiation power over debt negotiation.