JRSSEM 2022, Vol. 01, No. 10, 1706 – 1716
E-ISSN: 2807 - 6311, P-ISSN: 2807 - 6494
DOI : 10.36418/jrssem.v1i10.180 https://jrssem.publikasiindonesia.id/index.php/jrssem/index
ECO-FRIENDLY BUSINESS AND CORPORATE
GOVERNANCE ON FINANCIAL PERFORMANCE THROUGH
EARNINGS MANAGEMENT
Christina Dwi Astuti
1*
Etty Murwaningsari
2
Yvonne Augustine Sudibyo
3
1,2,3
Faculty of Economics and Business, Trisakti University
e-mail: cdwi_astuti@triskti.ac.id
1
, etty.murwaningsari@trisakti.ac.id
2
,
yvonne.augustine@trisakti.ac.id
3
*Correspondence: cdwi_astuti@triskti.ac.id
1
Submitted: 29 April 2022, Revised: 10 May 2022, Accepted: 20 May 2022
Abstract. This research aims to find the impact of Eco-friendly Business System Good and
Corporate Governance Mechanisms on Financial Performance with Earning Management as a
mediating variable. The samples are obtained from manufacturing companies listed on the
Indonesian Stock Exchange from 2017-to 2019. The dependent variable in this research is Financial
Performance, the independent variables are Eco-friendly Business systems and Good Corporate
Governance, and the mediating variable is Earnings Management. Corporate Governance proxied
by Independent Board of Commissioner, Institutional Ownership, and Audit Quality. This study is
using a purposive sampling method. Data analysis using a regression model with SPSS tools. This
research is expected to be able to provide information about factors that affect Financial
Performance so it can be used as a consideration by investors and companies in making any
decision. This research shows that an Eco-friendly Business System and Independent Board of
Commissioner have a positive impact on Financial Performance, Audit quality hurts Earnings
Management, and Earnings Management only mediates audit quality and financial performance.
Institutional ownership has no direct and indirect effect on financial performance
Keywords: earnings management; financial performance; good corporate governance
(GCG);
eco-
friendly business system
.
Christina Dwi Astuti,
Etty Murwaningsari, Yvonne Augustine Sudibyo
| 1707
DOI : 10.36418/jrssem.v1i10.180 https://jrssem.publikasiindonesia.id/index.php/jrssem/index
INTRODUCTION
Today many companies are not only
oriented toward the many profits that can
be generated but also think about the
impact of their business activities. This is
due to the increasing public awareness that
in addition to economic factors, social and
environmental factors are also important
for the creation of a sustainable company.
Because of this, the company is currently
expanding the things that must be
prioritized (social and environmental). In
addition, the company also needs to think
about related parties who also have an
interest in the company (stakeholders).
Stakeholders are all parties inside and
outside of the company who can influence
or be affected by the company's business
activities and performance (Magdalena,
Suharsono, & Roekhudin, 2019). Therefore,
the company is not only oriented to the
benefit of shareholders as owners, but also
for the benefit of other stakeholders in
carrying out their business practices,
through the implementation of
environmentally friendly business practices.
Environmentally (Eco) friendly business
is a concept of legitimacy theory where
companies need to ensure that all company
activities are by applicable rules and norms,
both in terms of social and environmental.
This is so that the company's operations or
activities can be accepted by various
parties. The implementation of this friendly
business system can improve the
company's performance because the
company's reputation and competitiveness
in business will increase. Companies that
implement eco-friendly business, have a
more competitive advantage because
stakeholders have an interest in
information related to the impact of the
company's business practices on the
environment. The management of the
company as a fund manager is required not
only to account for the funds managed to
generate profits but also to account for the
impact that can be caused on social and
environmental.
Besides an eco-friendly business
system, a good corporate governance
mechanism is needed in improving the
company’s performance. Good corporate
governance is minimizing the risk of fraud
that can be done by company managers as
managers. With the implementation of
good corporate governance, managers will
act fairly for all stakeholders and act not
only to meet their own needs. Good
corporate governance needs to be
implemented to build stakeholders' trust in
management. Through the implementation
of good corporate governance and eco-
friendly business, it is hoped that the
company can sustain itself in the future.
METHODS
This research uses purposive sampling
method. Data analysis used a regression
model with SPSS tools. This study was
conducted to see how the effect of the
application of eco-friendly business and
good corporate governance on the
financial performance of companies with
earnings management as a mediating
variable. Data collection in this study uses
secondary data, which refers to information
collected from various sources that have
existed previously in the form of financial
statements (financial statements) and
Christina Dwi Astuti,
Etty Murwaningsari, Yvonne Augustine Sudibyo | 1708
annual reports (annual report). This
secondary data was obtained from the
IDX's official website (www.IDX.co.id) or the
company's official website. The data used in
this study is data pooling, namely data
whose observations are made on many
objects and are carried out from time to
time. The unit of data analysis carried out in
this study is a manufacturing company
listed on the Indonesia Stock Exchange
from 2017 – until 2019.
RESULTS AND DISCUSSION
1. Description Research Object
The data used in this study used
secondary data which included Annual
Reports and Financial Reports on
manufacturing companies listed on the
Indonesia Stock Exchange (IDX) from
2016-to-2018. This research discusses
the influence of green practices and
good corporate governance on the
company's financial performance with
profit management as a mediation. Data
were collected from 106 manufacturing
companies. The number of samples
used in this study can be seen in the
following table:
Table 1. Sampling Data using Purposive Sampling
No.
Description
Total
1.
Manufacturing companies listed on the Indonesia Stock Exchange respectively
during the period 2017-2019
144
2.
Manufacturing companies that do not have complete and relevant data
related to the variables to be examined
(18)
3.
Companies that successively had negative profits during the period 2017-2019
(20)
4.
Total companies
106
5.
Number of years
3
6.
Total observed
318
7.
Data outlier
(168)
8.
Total observe processed
150
Source: Data processed (2021)
2. Descriptive Statistic
Descriptive statistics is a statistical
method that provides a description or
description of data that can be seen
from the average (mean), middle value
(median), the value that often appears
(mode), variants, standard deviation,
minimum value, and maximum value.
The results of descriptive statistic tests
that have been researched by the
authors on green practices, good
corporate governance consisting of an
independent board of commissioners,
institutional ownership, audit quality,
then financial performance, and
earnings management are as follows.
1709 | Eco-Friendly Business and Corporate Governance on Financial Performance Through
Earnings Management
Table 2. Descriptive Statistic Test
N
Min.
Max.
Mean
Independent Board of Commissioners
150
0,33
0,67
0,3973
Insttitutional Ownership
150
0,02
0,87
0,5233
Earnings Management
150
-0,05
0,21
0,0570
Financial Performance
150
-0,02
0,09
0,0430
Source: Data processed (2021)
Based on table 4.2, it can be seen
that the standard deviation result for all
variables above is lower than the
average, so this is a good representation
of the overall data.
Tabel 3. Descriptive Statistic Test for Eco-friendly Business
Frequency
Percentage
Valid
0,00
85
56,7
1,00
65
43,3
Total
150
100,0
Source: Data processed (2021)
Based on table 3, eco-friendly
business variables are measured using a
nominal scale, namely in the form of a
dummy with a score of 0-1. If the
company has ISO14001: 2015
certification, it is given a score of one
while if it does not have the certification
it is given a score of zero. In this study,
there were 85 observed or equivalent to
56.7% of companies that did not have
ISO14001 certification, and the
remaining 65 observed or 43.3% of
companies that had ISO 14001
certification.
Table 4. Descriptive Statistic Test for Audit Quality
Frequency
Percent
Valid
0,00
107
71,3
1,00
43
28,7
Total
150
100,0
Source: Data processed (2021)
Audit quality variables are
measured using the ordinal scale,
namely in the form of the dummy with a
score of 0-1. If the company uses the
services of a public accounting firm that
is included in the Big Four, it is given a
score of one while if not it is given a
score of zero. In this study, there were
107 observed or equivalent to 71.3% of
companies that do not use the services
of the Big Four public accounting firms,
and the remaining 43 observed or 28.7%
Christina Dwi Astuti,
Etty Murwaningsari, Yvonne Augustine Sudibyo | 1710
use the services of public accounting
firms Big Four.
3. Hypothesis Test
Multiple linear regression test
testing can be done after the model of
this study is qualified to pass the
classical assumption test. Based on the
tests that have been conducted, all data
is distributed normally (p-value > 0.05),
there is no multicollinearity (VIF < 10),
and there is no heterodoxy (p-value >
0.05). In the first test, there was an
autocorrelation, but using the
Cochrane-Orcutt test obtained the
results of no autocorrelation, so the
multiple regression test can be
continued.
Tabel 5. Hypothesis Test
FP = 𝜷0 + 𝜷1ECO + 𝜷2INDBOC + 𝜷3INST + 𝜷4AQ + 𝜷5EM + 𝜺1……………(1)
Variable
Predicted
Beta
Sig.
Conclusion
Constant
-0,023
Eco-friendly Business
+
0,016
0,000
H1 accepted
Independent Board of Commissioners
+
0,074
0,000
H2 accepted
Institutional Ownership
+
-0,003
0,589
H3 rejected
Audit Quality
+
0,005
0,178
H4 rejected
Earnings Management
-
-0,183
0,000
H5 accepted
Adjusted R-Square
0,359
Uji F
Sig.
0,000
EM = 𝜷0 + 𝜷1ECO - 𝜷2INDBOC - 𝜷3INST - 𝜷4AQ + 𝜺1…………………(2)
Variable
Predicted
Beta
Sig.
Conclusion
Constant
0,049
ECO
-
0,004
0,675
H6 rejected
Independent Board of Commissioners
-
0,007
0,750
H7 rejected
Institutional Ownership
-
-0,017
0,167
H8 rejected
Audit Quality
-
-0,034
0,000
H9 accepted
Adjusted R-Square
0,148
Uji F
Sig.
0,000
Source: Data processed (2021)
Based on table 5. regression model could be draw:
FP = -0,023 + 0,016ECO + 0,074INDBOC – 0,003INST + 0,005AQ + 0,183EM
EM = 0,049 + 0,004ECO + 0,007INDBOC - 0,017INST - 0,034AQ
a. Goodness of Fit
The determination coefficient
test is used to measure how far the
model's ability to explain variations in
dependent variables is. Based on
Table 4.5 above, it is known that the
Adjusted R Square value in the First
Regression Model is 0.359. This
shows that the independent variables
in the First Regression Model can
1711 | Eco-Friendly Business and Corporate Governance on Financial Performance Through
Earnings Management
explain the dependent variables by
35.9% while the remaining 64.1% is
explained by other variables that
were not included in the model. Then
in the Second Regression Model, the
Adjusted R Square value is known at
0.148. This shows that the
independent variables in the Second
Regression Model can only explain
the dependent variables of 14.8%
while the remaining 85.2% is
explained by other variables that
were not included in the model.
b. F-test
Based on Table 4.5 Test Results of
the First Regression Model
Hypothesis of Sig values. by 0.000 <
0.05 then in the First Regression
Model its independent variable
simultaneously affects the dependent
variable. Then for the Second
Regression Model sig value. by 0.000
< 0.05 then in the Second Regression
Model its independent variables
simultaneously affect the dependent
variable as well.
c. T-test
Based on table 4.5 above, eco-
friendly business, independent board
of commissioners, and earnings
management have an impact on
financial performance with a p-value
< 0,05. On the other hand,
institutional ownership and audit
quality do not have an impact on
financial performance. Eco-friendly
businesses, the Independent Board of
Commissioners, and Institutional
Ownership do not have an impact on
Earnings Management, but Audit
Quality has an impact on Earnings
Management.
To see if earnings management is
a mediation variable, it is necessary to
conduct a Sobel test. Based on the
Sobel test, earnings management
results were not able to mediate the
influence of eco-friendly business (p-
value = 0.569), independent board of
commissioner (p-value = 0.859), and
institutional ownership (p-value =
1.273) on financial performance. But
earnings management can mediate
the influence of audit quality on
financial performance (p-value =
0.0031).
DISCUSSION
1. Eco-friendly Business System and
Financial Performance
ISO14001 certification shows that
eco-friendly business variables have a
significant positive influence on the
company's financial performance. This
shows that ISO14001 certification can
improve the financial performance of
the company. In addition, with ISO14001
certification, the company gets
appreciation and a good image from
investors. Appreciation and
improvement of the company's image
can provide company benefits to
improve company performance.
These results are from research
conducted by (Feng & Wang, 2016),
(Miroshnychenko, Barontini, & Testa,
2017) who stated that green practices
have a positive and significant influence
on the financial performance of
companies while the results of this study
are not in line with research conducted
Christina Dwi Astuti,
Etty Murwaningsari, Yvonne Augustine Sudibyo | 1712
by (Przychodzen, Gómez-Bezares, &
Przychodzen, 2018) which has a
negative influence. The existence of this
positive influence is to the concept of
legitimacy theory and stakeholder
theory which states that the company in
carrying out its business activities must
get legitimacy from the surrounding
environment and must be responsible to
various stakeholders who influence the
company because the company's
decisions and behavior have an impact
on the welfare of the surrounding
community.
2. Independent Board of Commissioner
and Financial Performance
The Independent Board of
Commissioners has a positive influence
on the company's financial performance.
The results of this study showed that a
large number of independent boards of
commissioners made supervision of the
company's management better. Like
agency theory, management considers
independent commissioners.
Management becomes more alert to
agency issues as independent
commissioners are fully dedicated to
overseeing management's performance
and behavior. Supervision carried out by
this independent commissioner can
prevent or reduce management's
actions in achieving its interests solely
because each supervision can be
intensive management as an agent to
act as well as possible towards the
interests of stakeholders. With a large
number of independent commissioners
as one of the mechanisms of corporate
governance, it will improve the
company's financial performance.
The results of this study are in line
with research conducted by stating that
the mechanism of good corporate
governance, with the measurement of
the independent board of
commissioners, has a positive influence
on the company's financial performance
(Mahrani & Soewarno, 2018), but the
results of this study are not in line with
(Fadillah, 2017) which states that the
independent board of commissioners
has a significant negative influence on
the company's financial performance.
3. Institutional Ownership and Financial
Performance
Institutional ownership does not have
a positive influence on the financial
performance of the company. This can
happen because the implementation of
corporate governance is more shown to
the moral responsibility to the public for
the values that have been applied to
create a good system. The existence of
institutional ownership does not
guarantee that it will improve the
company's financial performance.
The results of this study are in line
with research conducted by (Fadillah,
2017) and are not in line with research
conducted by (Mahrani & Soewarno,
2018) and (Mahrani & Soewarno, 2018)
which stated that institutional
ownership has a positive influence on
the company's financial performance.
The results of this study contradict the
theory of stakeholder theory
(stakeholder theory) which states that
stakeholders are individuals or groups
who can exert influence or exert
influence to achieve company goals. The
effect of institutional ownership on
1713 | Eco-Friendly Business and Corporate Governance on Financial Performance Through
Earnings Management
financial performance can be caused by
the negligence of the institution in
supervising the company so that the
existence of institutional ownership
does not influence the company's
financial performance.
4. Audit Quality and Financial
Performance
The quality of the audit does not have
a positive effect on the financial
performance of the company. This may
happen because the reputation of the
Public Accounting Firm alone is not
enough to affect the company's financial
performance. The results of this study
show that the reputation of the Public
Accounting Firm as an external auditor
does not help management's
performance to provide appropriate
opinions on the company's conditions.
Opinions issued from public accounting
firms that have a good reputation are
not enough to affect improving the
company's performance and
maintaining the company's
sustainability.
This result does not match the
research conducted by (Mahrani &
Soewarno, 2018) and (Phan, Lai, Le, &
Tran, 2020) which stated that the quality
of audits has a positive influence on the
company's financial performance. This
result also contradicts agency theory
that one way to reduce conflicts of
interest between agents and principals
can be done by improving corporate
governance, one of which is by
improving the quality of audits from the
Big Four Public Accounting Firms that
have market confidence. The role of a
Public Accounting Firm that has a good
reputation is not enough if it is not
balanced with the suitability of the audit
specialization of the Public Accounting
Firm concerned.
5. Earnings management and Financial
Performance
Earnings management has a negative
influence on financial performance.
Users of financial statements see the
profits generated by the company as a
benchmark in assessing the success of a
company. Profit management actions
carried out by the company's
management can reduce the quality of
the company. Good information
presented by the company in the
financial statements can hurt the
company's financial performance so that
its performance can decrease.
The results of this study are in line
with research conducted by (Audita
Cahya Camila, Sucipto, & Khairiyani,
2019) and (Mahrani & Soewarno, 2018)
which stated that profit management
has a negative influence on the
company's financial performance. But
the results of this study contradict
research conducted by (Al-Shattarat,
Hussainey, & Al-Shattarat, 2018) which
stated that profit management has a
positive influence on the financial
performance of the company. The
results of this study are by agency theory
which states that agents in agency
relationships must provide transparent
and reasonable information to prevent
information asymmetry that can trigger
conflicts of interest. If the practice of
profit management or profit
manipulation is continuously carried
out, it can trigger a greater asymmetry
Christina Dwi Astuti,
Etty Murwaningsari, Yvonne Augustine Sudibyo | 1714
of information so that in the future it can
trigger agency costs.
6. Eco-friendly Business and Earnings
Management
Eco-friendly businesses do not
influence profit management. This result
shows that the improvement of eco-
friendly business carried out by the
company to improve environmental
performance does not influence
improving earnings management
actions. Although implementing the
system requires no small cost,
companies that implement ISO
standards are certainly more concerned
about compliance and stakeholders so
that the company does not take actions
that are considered negative such as
earnings management practices. In
addition, companies that implement the
system maintain long-term relationships
with investors so companies try not to
practice profit management to maintain
long-term relationships.
The results of this study are not in line
with research conducted by (Mahrani &
Soewarno, 2018) which states that
improving environmental performance
can improve profit management action.
But supports stakeholder theory where
the company strives to not only fulfill its
interests but also to meet the interests
of stakeholders to create a sustainable
company.
7. Independent Board of Commissioner
and Earnings Management
The Independent Board of
Commissioners does not influence profit
management. This shows that the
presence of existing independent
commissioners in the company does not
affect the possibility of decreasing profit
management practices. This may
happen because the implementation of
corporate governance is often just a
symbol, but the application is not
perfect because the company has not
carried out good corporate governance
functions.
The results of this study do not
support the research conducted by (Al-
Shattarat et al., 2018), and (Mahrani &
Soewarno, 2018) which stated that the
Independent Board of Commissioners
has a negative influence on earnings
management. The results of this study
are likely to be ineffective supervision
carried out by the independent board of
commissioners conducting supervision
can also be used as a cause of the non-
effect of the presence of an independent
board of commissioners on the decline
of earnings management practices. The
results of this study contradict agency
theory which states that agents must act
fairly towards the principal by providing
information that is by the company's
conditions. If not, then it can trigger the
emergence of conflicts of interest
between management and
stakeholders.
8. Institutional Ownership and Earnings
Management
Institutional ownership does not
influence profit management.
Institutional ownership can control
management through the monitoring
process effectively to reduce earnings
management practices. However,
ineffective supervision and control
carried out by institutions can lead to
the inefficiency of institutional
1715 | Eco-Friendly Business and Corporate Governance on Financial Performance Through
Earnings Management
supervision and control in lowering
earnings management practices.
The results of this study do not
support the research conducted by
(Kurniawati, Wahyuni, & Putra, 2017)
and (Mahrani & Soewarno, 2018) which
stated that institutional ownership has a
negative influence on earnings
management. The results of this analysis
are supported by the stakeholder
theory, regarding a group of people or
individuals who exert influence or are
given the influence to achieve the
company’s goals to meet the interests of
both parties.
9. Audit Quality and Earnings
Management
Audit quality has a negative influence
on earnings management. These results
show that the quality of audits can
reduce profit management practices in
the company. Company managers who
are clients of the Big Four Public
Accounting Firm tend to avoid profit
management practices because the Big
Four Public Accounting Firms are
publicly known to cause caution and
uphold the independence of it raises
managers' concerns that manipulating
reports will be detected and found, then
can destroy the company’s image. In
addition, the reputation of the Public
Accounting Firm as an external auditor
can minimize the case of earnings
management and increase the
credibility of accounting information in
financial statements.
The results of this study are in line
with research conducted by (Lopes,
2018) and (Mahrani & Soewarno, 2018)
which stated that good corporate
governance projected by audit quality
has a negative and significant influence
on the company's financial performance.
The results of this analysis are supported
by the stakeholder theory that
stakeholders are groups or individuals
who can influence the company.
CONCLUSIONS
This research was conducted to obtain
empirical evidence on the Influence of Eco-
friendly Business systems and Good
Corporate Governance on Financial
Performance with Profit Management as a
Mediation in manufacturing companies
listed on the Indonesia Stock Exchange
(IDX) from the period 2017-to 2019. Based
on the results of the analysis of the data
that has been discussed, it can be
concluded that: 1) An eco-friendly Business
system and Independent Board of
Commissioners have a positive impact on
financial performance. 2) Institutional
Ownership, Audit Quality, and Earnings
Management do not have an impact on
financial performance. 3) The eco-friendly
Business system, Independent Board of
Commissioners, and Institutional
Ownership do not have an impact on
Earnings Management. 4) Audit Quality
hurts Earnings Management. 5) Earnings
Management only mediates audit quality
to financial performance. Limitations of the
research are that the company's different
conditions from year to year can cause
different or varied increases and decreases
in value, resulting in a lot of data outliers.
For future research, we recommend that
researchers can add other variables such as
tax avoidance and social performance as
Christina Dwi Astuti,
Etty Murwaningsari, Yvonne Augustine Sudibyo | 1716
independent variables.
REFERENCES
Al-Shattarat, Basiem, Hussainey, Khaled, &
Al-Shattarat, Wasim. (2018). The Impact
Of Abnormal Real Earnings
Management To Meet Earnings
Benchmarks On Future Operating
Performance. International Review Of
Financial Analysis, 2 (5) 1012-1028.
https://doi.org/10.1016/j.irfa.2018.10.0
01
Audita Cahya Camila, Ses141235, Sucipto,
Sucipto, & Khairiyani, Khairiyani. (2019).
Faktor–Faktor Yang Mempengaruhi
Audit Delay Pada Perusahaan Jii Periode
2014–2017. Uin Sulthan Thaha
Saifuddin Jambi.
Fadillah, Adil Ridlo. (2017). Analisis
Pengaruh Dewan Komisaris
Independen, Kepemilikan Manajerial
Dan Kepemilikan Institusional Terhadap
Kinerja Perusahaan Yang Terdaftar Di
Lq45. Jurnal Akuntansi, 12(1), 37–52.
Feng, Taiwen, & Wang, Dan. (2016). The
Influence Of Environmental
Management Systems On Financial
Performance: A Moderated-Mediation
Analysis. Journal Of Business Ethics,
135(2), 265–278.
https://doi.org/10.1007/s10551-014-
2486-z
Kurniawati, Ayu A., Wahyuni, Sri, & Putra,
Pramudya D. A. (2017). Utilizing Of
Comic And Jember’s Local Wisdom As
Integrated Science Learning Materials.
Lopes, Ana Paula. (2018). Audit Quality And
Earnings Management.
Magdalena, Magdalena, Suharsono, Eko
Ganis, & Roekhudin, Roekhudin. (2019).
Reflection Of Corporate Social
Responsibility Implementation:
Community Engagement In
Sustainability Aspects. International
Journal Of Multicultural And
Multireligious Understanding, 5(5), 357–
365.
ttp://dx.doi.org/10.18415/ijmmu.v5i5.5
26
Mahrani, Mayang, & Soewarno, Noorlailie.
(2018). The Effect Of Good Corporate
Governance Mechanism And Corporate
Social Responsibility On Financial
Performance With Earnings
Management As Mediating Variable.
Asian Journal Of Accounting Research.
Miroshnychenko, Ivan, Barontini, Roberto,
& Testa, Francesco. (2017). Green
Practices And Financial Performance: A
Global Outlook. Journal Of Cleaner
Production, 4 (3) 340–351.
https://doi.org/10.1016/j.jclepro.2017.0
1.058
Phan, T., Lai, L., Le, T., & Tran, D. (2020). The
Impact Of Audit Quality On
Performance Of Enterprises Listed On
Hanoi Stock Exchange. Management
Science Letters, 10(1), 217–224.
Przychodzen, Wojciech, Gómez-Bezares,
Fernando, & Przychodzen, Justyna.
(2018). Green Information Technologies
Practices And Financial Performance–
The Empirical Evidence From German
Publicly Traded Companies. Journal Of
Cleaner Production, 201, 570–579.
https://doi.org/10.1016/j.jclepro.2018.0
8.081
© 2022 by the authors. Submitted
for possible open access publication
under the terms and conditions of the Creative
Commons Attribution (CC BY SA) license
(https://creativecommons.org/licenses/by-sa/4.0/).