Earnings Management in JII Firms: Does Audit Quality Moderate CSR, Ownership, and Leverage?

Salfa Nurul  Tafziyah; Nawirah Nawirah

doi:10.33395/owner.v10i3.3386

Authors

Salfa Nurul Tafziyah
✉ Corresponding author: salfanurul11@gmail.com Department of Accounting, Faculty of Economics, Maulana Malik Ibrahim State Islamic University of Malang, Indonesia
Nawirah Department of Accounting, Faculty of Economics, Maulana Malik Ibrahim State Islamic University of Malang, Indonesia

DOI:

https://doi.org/10.33395/owner.v10i3.3386

Keywords:

Audit Quality, Corporate Social Responsibility, Earnings Management, Jakarta Islamic Index, Leverage, Managerial Ownership

Abstract

This study aims to examine the effects of corporate social responsibility (CSR), managerial ownership, and leverage on earnings management, with audit quality as a moderating variable. The population comprises all companies consistently listed in the Jakarta Islamic Index (JII) throughout 2021–2024. Employing a purposive sampling technique, 17 companies were selected as the research sample, generating 68 firm-year observations across the four-year observation period. This study utilized secondary data obtained from annual reports and sustainability reports, analyzed through panel data regression combined with Moderated Regression Analysis (MRA) using EViews 12. The findings reveal that CSR exerts a positive and statistically significant effect on earnings management, indicating that management strategically deploys CSR disclosures as a legitimacy-building tool to reduce external monitoring and expand financial reporting discretion. Managerial ownership and leverage produce no significant effect on earnings management, attributable to negligibly low managerial equity participation and balanced debt structures among JII-listed firms. Furthermore, audit quality does not significantly moderate any relationship between the independent variables and earnings management. These findings collectively indicate that conventional internal governance mechanisms and external audit oversight remain insufficient in constraining opportunistic reporting behavior within Islamic capital market contexts, underscoring the urgent need for more comprehensive regulatory and disclosure frameworks.

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Author Biographies

Salfa Nurul Tafziyah, Department of Accounting, Faculty of Economics, Maulana Malik Ibrahim State Islamic University of Malang, Indonesia

<em>This study aims to examine the effects of corporate social responsibility (CSR), managerial ownership, and leverage on earnings management, with audit quality as a moderating variable. The population comprises all companies consistently listed in the Jakarta Islamic Index (JII) throughout 2021–2024. Employing a purposive sampling technique, 17 companies were selected as the research sample, generating 68 firm-year observations across the four-year observation period. This study utilized secondary data obtained from annual reports and sustainability reports, analyzed through panel data regression combined with Moderated Regression Analysis (MRA) using EViews 12. The findings reveal that CSR exerts a positive and statistically significant effect on earnings management, indicating that management strategically deploys CSR disclosures as a legitimacy-building tool to reduce external monitoring and expand financial reporting discretion. Managerial ownership and leverage produce no significant effect on earnings management, attributable to negligibly low managerial equity participation and balanced debt structures among JII-listed firms. Furthermore, audit quality does not significantly moderate any relationship between the independent variables and earnings management. These findings collectively indicate that conventional internal governance mechanisms and external audit oversight remain insufficient in constraining opportunistic reporting behavior within Islamic capital market contexts, underscoring the urgent need for more comprehensive regulatory and disclosure frameworks.</em>

Nawirah, Department of Accounting, Faculty of Economics, Maulana Malik Ibrahim State Islamic University of Malang, Indonesia

<em>This study aims to examine the effects of corporate social responsibility (CSR), managerial ownership, and leverage on earnings management, with audit quality as a moderating variable. The population comprises all companies consistently listed in the Jakarta Islamic Index (JII) throughout 2021–2024. Employing a purposive sampling technique, 17 companies were selected as the research sample, generating 68 firm-year observations across the four-year observation period. This study utilized secondary data obtained from annual reports and sustainability reports, analyzed through panel data regression combined with Moderated Regression Analysis (MRA) using EViews 12. The findings reveal that CSR exerts a positive and statistically significant effect on earnings management, indicating that management strategically deploys CSR disclosures as a legitimacy-building tool to reduce external monitoring and expand financial reporting discretion. Managerial ownership and leverage produce no significant effect on earnings management, attributable to negligibly low managerial equity participation and balanced debt structures among JII-listed firms. Furthermore, audit quality does not significantly moderate any relationship between the independent variables and earnings management. These findings collectively indicate that conventional internal governance mechanisms and external audit oversight remain insufficient in constraining opportunistic reporting behavior within Islamic capital market contexts, underscoring the urgent need for more comprehensive regulatory and disclosure frameworks.</em>

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