Examining the bonus mechanisms’ role in real earnings management dynamics in an Indonesian manufacturing company

Abstract

Real Earnings Management (REM) and financial success may have different relationships depending on how managers act. Bonus mechanisms are a significant factor that influences management behavior. The study seeks to examine the impact of bonus systems on the correlation between financial performance and REM practices in manufacturing companies in Indonesia. Moderated Regression Analysis (MRA) is employed to evaluate the influence of bonus mechanisms in moderating the association of financial performance on REM. The technique of purposive sampling was used to pick the sample. The study utilized data from manufacturing firms listed on the Indonesian Stock Exchange from 2017 to 2021, including a total of 400 observed data points. The research findings demonstrate that sales growth is the sole factor that significantly influences REM in manufacturing organizations, as indicated by a p-value below 10%. Other financial performance factors, on the other hand, with p-values for each variable above 10%, have not been shown to have a significant impact on REM. These factors include ROA, leverage, operating cash flow, and cash. The findings also demonstrate that, with a p-value for each variable above 10%, the bonus mechanism is a variable that modifies the effect of all financial performance variables on REM.

Keywords

• behavior
• compensation
• governance
• incentives
• measurement
• operation