Leverage, Corporate Strategy and Earnings Management: Case of Indonesia

Abstract

This study examine weather leverage can motivate company to manipulate their earnings in Indonesian manufacturing industry for the periods 2009-2011. Particularly, we use accrual earnings management and real earnings management to catch broader scope of earnings management. We also examined weather corporate strategy, namely diversification, have the moderating effect on the relationship between leverage and accrual earnings management. The number of samples of this research were 141 of manufacturing companies, which are selected using purposive sampling method. Our results suggest that leverage have a positive effect to accrual earnings management, but leverage have a negative effect to real earnings management. This study also find that diversification do not moderate the relationship between leverage and accrual earnings management.