THE EFFECT OF PERSONAL TENURE ON EARNINGS SURPRISE MANAGEMENT

Devitha Amelia, Ratna Wardhani

Abstract


Abstract

The purpose of this study is to investigate the effect of personal tenure between Audit Partner and Client CEO on firm’s likelihood to do upward earnings management. Using non financial firms listed on Indonesia Stock Exchange period 2012 2014, this study finds that personal tenure between Audit Partner and Client CEO have significant positive influence on firms’ likelihood to do upward earnings management and downward forecast guidance.  The results of this study indicate that personal tenure positively influences both mechanisms of avoiding negative earnings surprises. Furthermore, since the company's resources in doing both mechanisms are often limited, this study also examines the impact of personal tenure on firm’s choices between the two mechanisms, by testing whether companies choose to do downward forecast guidance, but not upward earnings management or using upward earnings management but not downward forecast guidance. The results show that personal tenure positively associated with the likelihood of firms doing downward forecast guidance without upward earnings management. The result indicates that lower independency of the audit partner due to longer tenure between Audit Partner and Client CEO encourage management to do earnings management by avoiding negative earnings surprise.

 

Keywords: Audit Tenure, Personal Tenure, Earnings Surprise Management

Abstrak

Tujuan dari penelitian ini adalah untuk meneliti pengaruh personal tenure antara Audit Partner dan Client CEO terhadap kemungkinan perusahaan untuk melakukan upward earnings management. Penelitian ini mengambil sampel perusahaan non keuangan yang terdaftar di Bursa Efek Indonesia periode 2012 - 2014, dan menemukan bahwa personal tenure antara Audit Partner dan Client CEO memiliki pengaruh positif yang signifikan terhadap kemungkinan perusahaan untuk melakukan upward earnings management dan downward forecast guidance. Hasil penelitian ini menunjukkan bahwa personal tenure berpengaruh positif terhadap kedua mekanisme untuk menghindari kejutan laba negative (negative earnings surprises). Selain itu, karena sumber daya perusahaan dalam melakukan kedua mekanisme sering terbatas, penelitian ini juga menguji dampak personal tenure terhadap pilihan perusahaan antara dua mekanisme, dengan menguji apakah perusahaan memilih untuk melakukan downward forecast guidance, tetapi tidak melakukan upward earnings management atau menggunakan upward earnings management  tetapi tidak menggunakan downward forecast guidance. Hasil penelitian menunjukkan bahwa personal tenure berhubungan positif dengan kecenderungan perusahaan melakukan downward forecast guidance tanpa upward earnings management. Hasil penelitian menunjukkan bahwa semakin rendah independensi audit partnet yang disebabkan masa kerja yang lama antara Audit Partner dan Client CEO mendorong manajemen untuk melakukan manajemen laba dengan menghindari kejutan pendapatan negatif.

Kata kunci: Masa kerja Audit, Masa kerja personal, Manajemen Kejutan Laba


Keywords


Audit Tenure, Personal Tenure, Earnings Surprise Management; Masa kerja Audit, Masa kerja personal, Manajemen Kejutan Laba

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DOI: http://dx.doi.org/10.21002/jaki.2018.08



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