Analysis of Profitability and Leverage on Earnings Management in Manufacturing Companies in the Industrial Sector Listed on the Indonesia Stock Exchange in 2020-2023

Abstract

This study analyzes the effect of profitability and leverage on earnings management in manufacturing companies listed on the Indonesia Stock Exchange during the 2020–2023 period. The background of this study is the importance of the quality of earnings information in financial reports as a basis for stakeholder decision-making, as well as the potential for managers to manipulate earnings for personal or specific party interests. The purpose of this study is to examine the extent to which profitability, measured by return on assets (ROA), and leverage, represented by the debt-to-asset ratio (DAR), influence earnings management practices. This study uses a quantitative approach with secondary data in the form of financial reports of manufacturing companies on the IDX, with a population of 166 companies and a sample of 10 companies selected through purposive sampling, resulting in 40 observations. The analysis instruments include normality tests (Kolmogorov-Smirnov), multicollinearity, autocorrelation, F-tests, and partial t-tests in multiple linear regression models. The results of the study indicate that profitability and leverage simultaneously have a significant effect on earnings management, with a calculated F value of 9.090 (p = 0.007) and each independent variable has a positive and significant coefficient (ROA β = 0.033; DAR β = 0.026). This finding indicates that increasing profitability and debt ratios tend to increase the level of earnings management, thus supporting agency theory about managers' incentives to manipulate earnings for contract and reputation interests. The implication of this study is the need for strengthened supervision by regulators, auditors, and audit committees to limit earnings management practices, especially in manufacturing companies with high profitability and large debt ratios, in order to maintain the quality of financial information disclosure and investor confidence