THE ROLE OF EARNING MANAGEMENT IN MEDIATING AGENCY COST ON FINANCIAL PERFORMANCE OF SELECTED LISTED COMPANIES IN INDONESIA

Abstract

Companies listed in a capital market should have good financial performance in the manner to build a high quality of the capital markets. A good financial performance reporting depends on managers’ behavior in treating earning management method based on their motivation to achieve certain financial performance. Therefore, this research objective to find out whether earning management play a role as mediator for agency cost and debt to equity on firm financial performance. In this research, the data analysis method used is structural equation modeling-partial least squares (SEM-PLS) using Warp PLS software with secondary data collected from Indonesian Capital Market period 2012-2016. There are 22 selected listed companies Indonesian Capital Market period 2012-2016. The operating expense ratio as the proxy of agency cost have a significant relationship to earning management but not significant to firm financial performance. Free cash flow has a negative significant influence on financial performance but not significant on earning management. Moreover, debt to equity ratio has no significant impact on financial performance but debt equity ratio has a negative significant effect on earning management. Lastly, earning management significantly act as mediation variable between agency cost, debt to equity ratio on return on asset.