Effect of Internal Factors and Audit Quality on Profit Management in Basic and Chemical Industry

Abstract

This study aims to examine and analyze the effect of profitability, leverage, firm size and audit quality on earnings management in the Basic and Chemical Industrial Sector Companies. Research data is annual financial report for 5 years observation period (2013 until 2017). The sampling method used was purposive sampling. From a population of 66 companies, 37 companies met the criteria to be the sample. The method of analysis used in this study is panel data regression. The results showed that profitability, leverage, firm size and audit quality simultaneously are having significant influence to earnings management. Partially, profitability has positive significant effect on earnings management, while leverage has positive but not significant effect on earnings management. Firm size and audit quality are having negative and not significant influence on earnings management. Profitability is the only significant variable in influencing earnings management.