Hypothesies 1 Results Table 4.3 Analysis

582 Table 4.3 shows that real activities manipulation through selling, general, and administrative expense ABNSGA, production cost ABNProdCost, and gain on asset sales ABNGAIN have averages of 0,0703; 0,1523; and 0,0130. The significance value of the three abnormal values which equals to 0,0000 indicates that that firms do engage in real activities manipulation hypotheses 1a, 1b, dan 1c are not rejected on confidence level of 99. Based on these explanations, can be concluded that firms are inclined of doing real activities manipulation through selling, general, and administrative expense, production cost, and gain on asset sales.

4.4 Hypotheses 2 Results

Based on Table 4.4, ABNSGA do not have significant negative impact on future operating performance year, 2 years, and 3 years ahead, therefore, hypotheses 2a and 2d are rejected. The possible explanation of this findings is real activities manipulation through selling, general, and administrative expense is done repeatedly on the following years. This will make the negative impact emerged by real activities manipulation in last year on operating performance in next year is not detected. The negative and coefficient sign of ABNProdCost shows that the higher production cost manipulation, the lower operating performance measured using cash flow return on assets in 1 year, 2 years, and 3 years ahead, but it is not significant if we use operating income return on assets proxy. Therefore, hypothese 2b is rejected and hypothese 2e is not rejected. The possible interpretation of this is management maybe engaging in accruals earnings management practice in the later years and so this will cover the negative impact of real activities manipulation through production cost on operating income in the next years. The accrual effect due to earnings management do not affect the cash flows reporting, so that the cash flows reported in the next years reflect the significant negative impact of real activities manipulation through production cost on future operating performance. Our finding that production cost manipulation have negative impact on future cash flow return on assets consisten with Gunny 2005 who also finds that real activities manipulation has economically significant negative impact on future operating performance. 583 The average abnormal value of gain on asset sales ABNGAIN has positive and significant impact on operating performance in 1 year ahead, but insignificant impact on operating performance in 2 years and 3 years ahead hypothesis 2c and 2f are rejected. The possible interpretation of this is cash inflows obtained from gain on asset sales maybe used by the firms for genuine purposes John and Ofek, 1995 in Hillier, McColgan, and Werema, 2005 such as settling existing debt and financing working capital needs after asset sales, and hence eventually increase operating performance in one period ahead. Firms size LNASSET has positive and significant impact on long-term operating performance, which is consistent with Gunny 2005 which finds that size variable influences future operating performance positively. Growth opportunity BTM do not has significant impact on operating performance. These might be due to BTM variable is not a good proxy of growth opportunity for firms in Indonesia. Adam dan Goyal 2007 finds that market-to-book assets ratio is the best variable to measure the opportunity to invest for firms, while Hutchinson 2002 uses market-to-book assets ratio as proxy of growth oppotunity. The observation period dummy variable D03 and D04 on operating performance model in 1 year later is significantly positive on both operating performance proxies.