Free cash flow, investment inefficiency, and earnings management: evidence from manufacturing firms listed on the Indonesia Stock Exchange
Free cash flow, investment inefficiency, and earnings management: evidence from manufacturing firms listed on the Indonesia Stock Exchange
Author(s): Zaki Fakhroni, Imam Ghozali, Puji Harto, Etna Nur Afri YuyettaSubject(s): Economy, Present Times (2010 - today), Financial Markets, Accounting - Business Administration
Published by: ТОВ “Консалтингово-видавнича компанія “Ділові перспективи”
Keywords: free cash flow; earnings management; investment inefficiency;
Summary/Abstract: The study aims to test investment inefficiency of fixed assets in mediating the relationship between free cash flow and earnings management and to test the controlling shareholders in moderating the relationship between free cash flow and fixed assets investment inefficiency. The research problem proposed in this study is whether the use of free cash flow for the investment inefficiency of fixed assets is able to ultimately improve the managerial performance. This research investigates new empirical evidence related to management earnings practices caused by free cash flow fixed assets investment inefficiency. The study was conducted on all the manufacturing firms listed on the Indonesia stock exchange from 2010 to 2015. The data used are secondary data in the form of the firms’ financial statements. Using purposive sampling, 314 units were analyzed from 69 manufacturing firms. The estimation of the path model was completed using Structural Equation Modeling (SEM) by WarpPLS program version 5.0. The results showed that free cash flow is positively related to earnings management. Fixed assets investment inefficiency is able to mediate the relationship between free cash flow and earnings management.
Journal: Investment Management and Financial Innovations
- Issue Year: 15/2018
- Issue No: 1
- Page Range: 299-310
- Page Count: 12
- Language: English