The roles of internal audit quality on the relationship between narcissistic CEOs and real earnings management

Jasman Jasman; Etty Murwaningsari

Article Details

Research Article Volume 13 Issue 01

The roles of internal audit quality on the relationship between narcissistic CEOs and real earnings management

Jasman Jasman • Etty Murwaningsari

Published: 03 Oct 2018 Issue:Volume 13 Issue 01 Oct 2018 Author details below

Etty Murwaningsari

Universitas Trisakti, Jakarta, Indonesia

Narcissistic CEOs quality of internal audit function real earnings management cash flow from operation (CFO) production costs discretionary expenses

Reading View How to Cite BibTeX / RIS XML Metadata JSON Metadata View Issue

PDF file referenced for this article is missing from server storage.

Article Metrics Report

Views, downloads, citations, engagement

Views 580942

Downloads 128

Citations 3

Engagement 581070

Cited by

Current citation count

Abstract

Research summary

This study aims to investigate the roles of internal audit quality on the effects of narcissistic Chief Executive Officers (CEOs) to earnings management through real activities manipulation. The research design is quantitative method using secondary data. The sample used in this study consisted of 116 manufacturing Companies which are listed on Indonesia Stock Exchanges for the period of 2013 to 2015. Earnings management through real activities manipulation which is also called real earnings management is proxied with three patterns: cash flow from operation (CFO), production costs, and discretionary expenses as developed by Roychowdhury (2006). The results show that narcissistic CEOs has a positive and significant effect toward real earnings management in the pattern of cash flow from operation and in the pattern of discretionary expenses. Narcissistic CEOs has no effect toward real earnings management in production costs pattern. The results of this study also provide empirical evidence that quality of internal audit can alleviate the influence of narcissistic CEOs toward real earnings management in the pattern of cash flow from operation. Meanwhile, internal audit quality can not mitigate the effects of narcissistic CEOs toward real earnings management in the patterns of production costs and discretionary expenses.

Editorial Process

Article History

Published 03 Oct 2018

How to Cite

Jasman, J. & Murwaningsari, E.. (2018). The roles of internal audit quality on the relationship between narcissistic CEOs and real earnings management. Journal of Business and Retail Management Research, Volume 13 Issue 01.

Citation Context

Archive cited by No internal citing article yet

Reference depth 49 sources listed

DOI record DOI not listed

Citation signal 3 recorded citations

APA

Jasman, J. & Murwaningsari, E.. (2018). The roles of internal audit quality on the relationship between narcissistic CEOs and real earnings management. Journal of Business and Retail Management Research, Volume 13 Issue 01.

MLA

Jasman, Jasman, and Etty Murwaningsari. "The roles of internal audit quality on the relationship between narcissistic CEOs and real earnings management." Journal of Business and Retail Management Research, Volume 13 Issue 01, 2018.

Chicago

Jasman Jasman and Etty Murwaningsari. "The roles of internal audit quality on the relationship between narcissistic CEOs and real earnings management." Journal of Business and Retail Management Research Volume 13 Issue 01 (03 Oct 2018).

Harvard

Jasman, J. & Murwaningsari, E. (2018) The roles of internal audit quality on the relationship between narcissistic CEOs and real earnings management. Journal of Business and Retail Management Research, Volume 13 Issue 01

References

Alarlooq, M.N.M., Aslani A., & Azadi B. (2014) Accounting Conservatism Impact on Real Earnings Management. International Journal of Acconting Research, 1 (12), 71-76.
Amernic, J. H., & Craig, R.J. (2010) Accounting as a facilitator of extreme narcissism. Journal of Business Etchics, 96 (1), 79-93.
Bapepam & LK decree no. Kep-496/BL/2008 about the Establishment and Standard for the Preparation of Internal Audit Charter. 28th November 2008.
Bruesch, T., & Pagan A. Pagan. (1980) The LM test and its Application to Model Specification in Econometrics, Review of Economic Studies, 47, 239-254
Chatterjee, A., & Hambrick, D. C. (2007) It’s All about Me: Narcissistic CEOs and their Effects on Company Strategy and Performance. Administrative Science Quarterly, 52 (3), 351-386.
Chatterjee, A., & Hambrick, D. C. (2011) Executive Personality, Capability Cues, and Risk Taking: How Narcissistic CEOs React to Their Successes and Stumbles. Administrative Science Quarterly, 56 (2), 202-237.
Dang, C., Li, Z., & Yang C. (2017) Measuring Firm Size in Empirical Corporate Finance. Journal of Banking and Finance. [Online]. Available from: Doi:10.1016/j-jbankfin.2017.09.0006 [Accessed 20th April 2016)
Dechow, P., & Dichev, I. (2002) The quality of accruals and earnings: The role of accrual estimation errors. The Accounting Review, 77 (4), 35-59.
Duchon, D., & Drake, B. (2009) Organizational narcissism and various behaviour. Journal of Business Ethics, 85 (3), 301-308.
Dyreng, Scott D., Hanlon, M. & Maydew E.L. (2010) The Effects of Executives on Corporate Tax Avoidance, The Accounting Review, 85 (4), 1163-1189.
Edinburgh, L. G., Gunny, K. A., Hee, K. W., & Soderstorm, N. (2011) Earnings Management Using Real Activities: evidence from non profit hospitals. The Accounting Review, 86 (5), 1605-1630.
Ege, S Matthew. (2015) Does Internal Audit Function Quality Deter Management Misconduct. The Accounting Review, 90 (2), 495-527.
Feng, M., Ge, W., Luo, S. & Shevlin, T. (2011) Why do CFOs become involved in material accounting manipulations? Journal of Accounting and Economics, 51, 21-36.
Gitman, L. J., & Zutter, C. J. (2015) Principles of Managerial Finance. 14th edition London, Pearson Education Limited.
Gramling, A. A., & Hermanson, D. R. (2009) Internal audit quality: Would we know it if we saw it. Internal Auditing, 24 (1), 36-39.
Grijalva, E. & Harms, P.D. (2014) Narcissism: An Integrative Synthesis and Dominance Complementary Model. The Academy of Management Perspectives, 28 (2), 108-127.
Gujarati, D. N., & Porter, D. C. (2009) Basic Econometrics. New York, McGraw-Hill
Heij, C., & De Boer, P., Franses, P. H., Kloek, Teun., & Van Dijk, H. K. (2004) Econometric Methods wth Applications in Business and Economics. New York, Oxford University Press.
Horne, J. C. V., & Wachowic, J. M. (2009) Fundamentals of Financial Management. 13th edition. London, Prentice Hall.
Im, C. C., Kim, J. H., & Choi, M. K. (2015) Dividend policy and earnings management: based on
discretionary accruals and real earnings management. International Journal of u- and e- Service Science and technology, 9 (2), 137-150.
Jafarpour, M., & Soumehsaraei, B. G. (2012) Investigate REM and AEM from the perspective of Income Smoothing. International Journal of Innovative Research in Science, 2 (12), 7256-7263.
Jensen, M.C., & Meckling, W.H. (1976) Theory of The Firm: Managerial Behavior, Agency Costs, and Ownership Structure. Journal of Financial Economics, 3, 305-360.
Jeong, W. G. E. (2014) Boards, Takeover Protection, and Real Earnings Management. Review of Quantitative Finance Accounting, 43(4), 651-682.
Jiang, J. X., Petroni, K. R., & Wang, I. Y. (2010) CFOs and CEOs: Who have the most influence on earnings management? Journal of Financial Economics, 96, 513-526.
Judge, T.A., Piccolo, R,F., & Kosalka, T. (2009) The bright and dark sides of leader traits: A Review and Theoritical Extension of the Leader Trait Paradigm. The Leadership Quarterly, 20, 855-875.
Kalgo, S. H., Noordin, B. A. A., Nahar, H. S., & Turmin, S. Z. (2015) The Impact of Institutional Investors on Real and Accruals Earnings Management around IPO: Evidence from Malaysia Emerging Market. Capital Market Review, 23, 65-83.
Lubojacky, C. (2017) The effects of CEO Tenure on entrepreneurial orientation a firm performance. Academy of Management Proceeding [Online] Available from: doi: 10.5465/AMBPP [Accessed 14th April 2016].
Littrell, R. F., & Nkomo, S. M. (2005) Gender and race differences in leader behaviour preferences in South Africa. Women in Management Review, 20 (8), 562-580.
Malik, M. (2011) Corporate Governance and Real Earnings Management: the role of board and institutional investors. Journal of Knowledge Globalization, 8 (1), 37-87.
McMahon, G., & Rosen, A. (2009) Narcissism at Work. [Online] Available from: http://training journal.com. [Accessed 11th April 2016].
Murwaningsari, E., Utama, S., & Rossieta, H. (2015) The Combined Effects of Financial Derivatives and Discretionary Accruals on the Value relevance of Earnings and the Book Value of Equity, Gadjah mada International Journal of Business, 17 (2), 179-198.
Nurcahyo, R. & Wibowo, A. D. (2015) Manufacturing Capability, Manufacturing Strategi and Performance of Indonesia Automotive Componen Manufacturer, 12th Globar Conference on Sustainable Manufacturing, Procedia IEP, 26, 653-657.
Ouimet, G. (2010) Narcissistic Leadership in Organizations: towards an integrated research model. Journal of Managerial Psychology, 25.
Olsen, K. J., Dworkis, K. K., & Young, S. M. (2014) CEO Narcissism and Accounting: A Picture of Profits. Journal of Management Accounting Research, 26 (2), 243-267.
Olsen, K. J., & Stekelberg, J. M. (2016) CEO Narcissim and Corporate Tax Sheltering, The journal of the American taxation association, 38 (1), 1-22.
O’Reilly III, C. A., Doerr, B., Caldwell, D. F., & Chatman, J. A. (2013) Narcissistic CEO and Executive Compensation. Leadership Quarterly, 25, 218-231.
Powell, G. N., & Butterfield, D. A. (2003) Gender, gender identity, and aspirations to top management. Women in Management Review, 18 (1/2), 88-96.
Prawitt, D. F., Smith, J. L., & Wood, D. A. (2009) Internal audit quality and earnings management.The Accounting Review, 84(4), 1255-1280.
Qi, B., Yang, R., & Tian G. (2014) Can Media Deter Management from Manipulating Earnings: Evidence from China. Review of Quantitative Finance and Accounting, 42 (3), 571-597.
Rijsenbilt, A. (2016) CEO Narcissistic: Measurement and Impac. Erasmus Research Institute of Management, 2011. http://hdl.handle.net/765/23554. Retrieved on 13 April 2016.
Rijsenbilt, A., & Commandeur H. (2013) Narcissus Enter the Courtroom: CEO Narcissism and Fraud, Journal of Business Ethics, 117, 413-429.
Roychowdhury, S. 2006. Earnings Management Through Real Activities Manipulation. Journal of Accounting and Economics, 42, 335-370.
Scott, W. R. (2015) Financial Accounting Theory. Pearson: Toronto
Sawyer, L. B., Dittenhofer, M. A. & Scheiner, J. H. (2003) The Practice of Modern Internal Auditing. The IIA (The Institute of Internal Auditors).
Serfling, M. (2014) CEO Age and the Riskiness of Corporate. Journal of Corporate Finance, 25, 251-273.
Widarjono, A. (2013) Ekonometrika: Pengantar dan Aplikasi. Jakarta, Ekonisia.
Zang, A. Y. (2012) Evidence on the tradeoff between real activities manipulation and accrual-based earnings management. The Accounting Review, 87 (2), 675-703.
Zhu, D. H., & Chen, G. (2015) CEO Narcissism and the impact of Prior Board Experience on Corporate Strategy. Administrative Science Quarterly, 60 (1), 31-65.