Published date: May 03 2024

Journal Title: KnE Social Sciences

Issue title: 8th Sriwijaya Economics, Accounting, and Business Conference (8th SEABC 2023)

Pages: 443–451

DOI: 10.18502/kss.v9i14.16116

Yuni Pristiwati Noer Widianingsihyuni@stas.ac.idAccounting Department, STIE Swasta Mandiri

Doddy SetiawanFaculty of Economics and Business, Sebelas Maret University

Y. Anni AryaniFaculty of Economics and Business, Sebelas Maret University

Evi GantyowatiFaculty of Economics and Business, Sebelas Maret University

This study investigates the relationship between foreign institutional ownership (FIO) and earnings management (EM) using 552 firms of non-financial sector companies that publish annual financial reports for 2015–2021. We use ordinary least squares (OLS) for equation estimation. The results show that, overall, FIO has a negative impact on earnings management. Tests were also conducted on the FIO group: banks, insurance, pension fund mutual funds, and securities companies. The test results indicate that each group of institutional investors has a negative effect except for securities companies, which positively impact earnings management. The positive influence of securities firms shows that securities firms are more focused on trading strategies than managerial controls. The findings of this study are expected to contribute to the corporate governance literature and the quality of financial reporting. Institutional ownership as a corporate governance mechanism is expected to control earnings management which can reduce the quality of financial reporting.

Keywords: institutional ownership, earnings management, agency theory

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