Combination impact of managerial ability and power on real earnings management practices: Evidence from Indonesia

¹ University of Diponegoro Semarang, Departement of Accounting, Maritime University of Raja Ali Haji Tanjungpinang Indonesia
² Departement of Financing Economic and Banking, University of Fatoni Thailand
^3,4 Department of Accounting, University of Diponegoro Semarang Indonesia

^* Corresponding author: ahmaduzaimi@umrah.ac.id

Abstract

The purpose of this study is to examine the combination impact of managerial ability and power on real earnings management. First test between CEO ability to real earnings management. Second between CEO power to real earnings management and third impact of combination independent variables. Deploying three real earnings management indicators, the ability of managers tends to significantly influence the operating cash flow and corporate discretionary expenditure and so the combination of both. Analysis on 468 observations of Indonesian manufacturing firm utilized fixed-effect approach. The finding of this study are first CEO ability less likely to engage with real earnings management as expected while lesser CEO power has no significant relation with real earnings management and combination of managerial ability and power has more impact on real earnings management. This research has extended the analysis of CEO attribute on real manipulation activities in firm practice. The practical consequence of the research, it is more likely to considering the cash flow and discretionary expenditure rather than managing inventory through decreasing production costs.