The Effect of Earnings Quality on Financial Performance in Indonesia : is the State-Owned Bank better than Private Bank?

Abstract

The primary objective of this study is to analyze the effect of earnings quality on financial performance of banks in Indonesia. The study also aims to compare in which type of banks the independent variable has more influence on the dependent variable, whether state-owned or private banking. Indicators for earnings quality are discretionary accruals and earnings persistence while measurements for financial performance are return on assets, return on equity, rate return on loans and total asset turn over. Eight conventional banks compared in this study are four government banks and four private banks. The authors apply Partial Least Square Multigroup Technique upon, research data from 2006 -2018 period. The results indicate that earnings quality has a positive significant influence on financial performance of the banks. Apparently, the effect of earnings quality on financial performance of private banks is greater than that of state-owned banks, showing that the types of bank moderates the influence of earnings quality on the financial performance. This study recommends the importance of improving earnings quality of state-owned banks. Furthermore, this study suggest that goverment companies should avoid earnings management in order to create good and high quality financial performance, especially in the banking sector in Indonesia.

The Influence of Tax Compliance and Earnings Quality on Financial Performance (Evidence from Indonesia and Thailand)

“…This finding is important information for companies to encourage in making quality financial reports. This result is not in line with several previous studies that found the effect of earnings quality on financial performance (Machdar & Murwaningsari, 2017;Utami et al, 2019).…”

“…Then the quality of financial information can improve the company's image so that it helps in business activities that can improve the company's financial performance. Some previous studies found a positive effect on earnings quality on financial performance (Machdar & Murwaningsari, 2017;Utami, Nuzula, & Damayanti, 2019) but the opposite was found in other studies where earnings quality had a negative influence on financial performance (Ma & Ma, 2017;Sanjaya & Deviesa, 2017).…”

“…The company carries out earnings management so that financial performance looks good, in contrast to quality earnings information that results in poor financial performance (Ma & Ma, 2017;Sanjaya & Deviesa, 2017). Other research found the opposite results, the quality of corporate profits improve the good image of the company to stakeholders so that smooth business transactions and improve financial performance (Machdar & Murwaningsari, 2017;Utami et al, 2019). H2.…”

Pengaruh Kualitas Laba Dan Financial Leverage Terhadap Kinerja Keuangan Dengan Reaksi Pasar Sebagai Variabel Intervening

“…Sumber dana yang digunakan akan memiliki biaya tetap, karena itu diharapkan dapat memperbesar keuntungan, yang juga akan meningkatkan keuntungan bagi pemegang saham, dimana akan terlihat dari perubahan earning per share. Penelitian ini sejalan dengan Dewi & Devie (2017) dan Utami et al (2019) mengutarakan bahwa kualitas laba signifikan berpengaruh terhadap kinerja keuangan, juga senada dengan pengamatan Jonathan & Machdar (2018) mengungkapkan bahwa earning quality yang bagus sejalan dengan informasi laba yang bagus juga yang akan menjadi magnet bagi investor untuk berinvestasi.…”

Sharia Compliance, Islamic Corporate Governance, Intellectual Capital, and Earning Management toward Financial Performance in Indonesia Islamic Banks

“…Earnings management carried out by managers in managing company profits aims to improve the company's financial performance (Mahrani & Soewarno, 2018). As evidenced by the research of Utami et al (2019), earnings management affects banking financial performance. Banking performance will decline if the company performs earnings management in the form of inaccurate financial reporting.…”