CONCLUSIONS AND LIMITATIONS Behavior of Reading Nutrition Fact Label on Undergraduate Students of Bogor Agricultural University, Indonesia

MIICEMA 2014 10-11 November 2014 Hotel Bangi-Putrajaya, Malaysia 111 certification and logo as a way to inform their consumers that their products are truly halal. References Al- Qur’an al-Karim Abdul Shukor, S. and Jamal, A. 2013. Developing Scales for Measuring Religiosity in the Context of Consumer Research. Middle-East Journal of Scientific Research 13 Research in Contemporary Islamic Finance and Wealth Management , 69-74. Alam, S. S., and Nazura Mohamed Sayuti. 2011. Applying the Theory of Planned Behavior TPB in Halal Food Purchasing, International Journal of Commerce and Management, 211: 8-20. Ambali, A. R. and Ahmad Naqiyuddin Bakar. 2013. Ḥalal Food and Products in Malaysia: People’s Awareness and Policy Implications, Intellectual Discourse, 211: 7-32. Babakus, E., Cornwell, T. B., Mitchell, V. and Schlegelmilch, B. 2004. Reactions to Unethical Consumer Behavior Across Six Countries, Journal of Consumer Marketing, 214: 254 – 263. Bonne, K. and Verbeke, W. 2006. 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The Religious Commitment Inventory-10: Development, Refinement and Validation of a Brief Scale for Research and Counseling, Journal of Counseling Psychology, 501: 84-96. MIICEMA 2014 10-11 November 2014 Hotel Bangi-Putrajaya, Malaysia 113 The Implementation of Corporate Governance Mechanism on Earnings Management of Jakarta Islamics Index JII and LQ- 45 Index WIYADI, RINA TRISNAWATI, NOER SASONGKO Management Department, Economic and Business Faculty Universitas Muhammadiyah Surakarta Jl. A. Yani Tromol Pos I Pabelan – Surakarta – Jawa Tengah INDONESIA 57102 Phone: 062-271-717417; Fax: 062-271-715448 Email: wiyadiums.ac.id Abstract The purpose of this study examines the impact of Corporate Governance mechanism i.e institutional ownership, managerial ownership, size of board committee, independence of board committee, and the audit committee on earnings management. The earnings management is measured by various models such as accruals long term discretionary accrual and short term discretionary accrual, real abnormal operating cash flow, abnormal production costs, and abnormal discretionary expenses and integrated model. The sample is 271 companies listed in Sharia JII and Conventional Index LQ45 during the 2004 – 2010 periods. The descriptive analysis showed that the companies incorporated in the JII index tends to decrease earnings numbers pattern, while on companies incorporated in the LQ-45 index tends to increase earnings numbers pattern. Companies which incorporated in JII index focused on manipulated earning number of current assets, while in the LQ 45 focused on fixed assets such as depreciation methods. In the real models, all of company manipulated earning number by manipulated on abnormal cashlfow with sales accrued in short period. Based on the multiple linear regression analysis, it found that corporate governance mechanism is quite effective in reducing earnings management. While in real earnings management model, corporate governance mechanisms are not able to reduce earnings management. It means the earnings management are likely performed on accrual basis rather than real basis. The variables proportion of independent board and the existence of Audit Committe have effect significantly on earning management. It means that corporate governance mechanism from outside has more effective for controlling management. In the future, researchers should be using the corporate government perception index for measuring CG mechanism, consider the characteristics of industries and analysis earning management with efficiency perspective. Key words: Corporate governance mechanism, earnings management, sharia index, LQ-45 index. INTRODUCTION. The earnings management has be done as a result of an information asymetry between manager and the owners. According to Schipper 1989, earnings management is a management intervention with the specific intent against external users to obtain some of personal profit. MIICEMA 2014 10-11 November 2014 Hotel Bangi-Putrajaya, Malaysia 114 Encouragement for earnings management also occurs because the implementation of corporate governance is not eficient. According to the Organization for Economic Co-operation and Development OECD 2004 and FCGI 2003, the corporate governance is a set of regulations governing the relationship between shareholders, corporate managers, creditors, government, employees, and the other internal and external shareholders related to their rights and obligations, or is a system which governing and controlling the company Effendi, 2009 In the agency theory perspective, the earnings management can be minimized through monitoring mechanism to align differences in the interests between owners and management, It used by 1 increase the companys share ownership by management managerial ownership Jensen and Meckling, 1976, 2 increase the stock ownership by institutional because they are considered a sophisticated investor Midiastuti and Machfoedz, 2003, 3 the larger proportion of independent board Peasnell, Pope and Young, 1998, 4 the size of board of commissioners, where the more number of commissioners that is to reduce earnings management Midiastuty and Machfoedz, 2003 and 5 the existence of an audit committee also can reduce earnings management Wilopo, 2004. Research on earnings management with various earnings management models in the Indonesian capital market both in the Islamic and conventional indexes has been done by Wiyadi et al.2011, 2012. Generally, previous studies Boediono 2005; Kusumawati 2005; Veronica and Bakhtiar 2005; Rahmawati, Suparno and Qomariyah 2006; Nasution and Setiawan 2007; Ujiyantho and Pramuko 2007; Herawaty 2008, Sasongko and Fauziah 2011, Wiyadi and Prasnowo 2011, Trisnawati and Nugroho 2011, are measuring earnings management used accruals aggregate approach. This approach separated total accruals into non-discretionary component and discretionary accruals accruals components are in management or policy managers to intervene in the financial reporting process. This model frequently used is the modified Jones Further models were developed to perform separation of components of discretionary accruals into short-term discretionary accruals component and long-term discretionary accruals. The separation is expected to clarify the role of each of the components of discretionary accruals to measure earnings management Sasongko and Purbasari, 2012; Wiyadi and Safitri, 2012; Romi, 2011; Zayene and Jilani, 2010; Subekti, Wijayanti and Ahmad, 2010 ;. The accrual earnings management measurement model is considered by some researchers still have not been able to reveal the full of the earnings management practices because the model ignores the relationship between cash flow transactions and accruals Dechow et al. 1995, Kothari et al., 2005, Subekti, et al. 2010. Accounting research drawing conclusions about the earnings management only based on accrual adjustment alone may be invalid Roychowdhury, 2006. Furthermore, Trisnawati and Suhestiningsih 2012 measured earnings management based on real activity. Survey Graham, Harvey and Rajgopal 2005 found the evidence that top management as respondents are much more willing to engage in real earnings management rather than accruals management to achieve earnings targets The integrated management model introduced by Leuz, Nanda and Wysocki 2003. This model is a combination of the values of smoothing earnings and reported earnings discretion discretionary accruals and real earnings management. Later, this model adopted by Habib 2004. Subekti, Kee and Ahmad 2008 also conduct an integrated approach to earnings management by performing factor analysis to determine the value of earnings management. MIICEMA 2014 10-11 November 2014 Hotel Bangi-Putrajaya, Malaysia 115 Trisnawati et al 2012 conducted a study of earnings management by integrated approach with an average approach. They refer Baharudin and Satyanugraha 2008. Real earnings management is measured by abnormal operating cash flow, abnormal production costs, and abnormal discretionary expenses Suhestiningsih and Trisnawati, 2012. While accrual earnings management is measured by short-term discretionary accruals and discretionary long term accruals Wiyadi and Safitri, 2012; Sasongko and Purbasari, 2012. Integrated measurements provide a more accurate model to measure earnings management in the Indonesian capital market Trisnawati et al, 2012. This research is to analyze the role of corporate governance mechanisms in reducing earnings management. Corporate governance mechanism is measured by the managerial ownership, institutional ownership, the proportion of independent board, the number of independent board and audit committee existence. While the measurement of earnings management using discretionary accruals in to short-term discretionary accruals component and long-term discretionary accruals Sasongko and Purbasari, 2012; Wiyadi and Safitri, 2012; Romi, 2011; Zayene and Jilani, 2010; Subekti, Wijayanti and Ahmad, 2010, Real earning management Trisnawati and Suhestiningsih, 2012 and integrated earnings management Leuz, Nanda and Wysocki, 2003; Habib, 2004, Subekti, Kee and Ahmad, 2008; Trisnawati et al., 2012. This study has explored the various earning management models with cases in JII and LQ 45. It used to describe the role corporate government mechanism for reducing integrated earning management. LITERATURE REVIEW

1. Corporate Governance

Effendi 2009 defines corporate governance as a system of internal control that has the main purpose to manage risk to achieve its business objectives through enterprise asset security and enhance the value of shareholders investment in the long run. Roodposhti and Chashimi 2011 describes the good corporate governance is to decrease difference interest between shareholder and managers. The role is more useful when manager have the opportunity to deviate from the shareholders interests or conduct earnings management. Principles of Good Corporate Governance is based on the principles of transparency, accountability, responsibility, independence, and fairness

1.1. Managerial Ownership

Managerial ownership is a situation where the manager as well as the companys shareholders. In the financial statements, the circumstances shown by the percentage of ownership in company stock by the board of commissioners and the board of directors which disclosed in the financial statements. Firms with managerial ownership as well as its shareholders would be aligning its interests. If a company has a high managerial ownership, managers are much more concerned about the interests of shareholders. Thus, capital structure with high managerial ownership reduce agency costs and increase voluntary disclosure Saputri, 2010. Morck et al. 1988, Warfield et al. 1995; Gabrielsen, et al. 2002, and Midiastuty and Mahfoedz 2003 give the conclusion that the company is managed by a manager and have a certain percentage of the companys stock can affect the earnings management practice. In addition, pressure from capital markets cause firms with low managerial ownership will choose accounting methods that increase reported earnings, which in fact does not reflect the economic MIICEMA 2014 10-11 November 2014 Hotel Bangi-Putrajaya, Malaysia 116 circumstances of the company concerned. According to Jensen and Meckling 1976 the interests of managers and shareholders can be aligned when managers have a larger company shares. Based on the reasoning and findings of previous research, this study will examine the effect of managerial ownership on earnings management. In other words, the greater the ownership of the manager, the earnings management can be reduced. Then the hypothesis can be formulated as follows: H 1: Managerial ownership affects negatively on earnings management

1.2. Institutional Ownership

Institutional ownership is the shares owned by institutions, such as insurance companies, banks, investment companies, and other institutional ownership. Institutional ownership is important to monitor because of the presence of management by institutional ownership leads to a more optimal control Permanasari, 2010. Institutional ownership has the ability to control the management through monitoring process effectively so the management reduce earnings management. This reasoning supported by Rajgopal et al. 1999, Bushee 1998, Rajgopal and Venkatachalam 1998, and Midiastuty and Mahfoedz 2003. Conclusions of these results are institutional ownership has the ability to affect earnings management practice for providing the quality of reported earnings. Indicators used to measure institutional ownership is the percentage of shares owned by institutions from the total shares of the company Institutional ownership is often referred to as institutional investors are sophisticated investors and should be able to use the information in the current period compared to predict future earnings with non-institutional investors. Balsam et.al 2002 found a negative association between discretionary accruals are not expected to stock returns around the announcement date, which is a negative relationship varies depending on the level of sophistication of investors, where the reaction of the market is more sophisticated investors who preceded unsophisticated investors. Jiambalvo et. al 1996 found that the absolute value of discretionary accruals is negatively related to institutional investor ownership. Midiastuty and Mahfoedz 2003 found that the presence of high institutional ownership restricts managers do earnings management. This study will test the effect institutional ownership to earning management, so the hypothesis can be formulated as follows: H 2: Institutional ownership affects negatively on earnings management

1.3. The size of the Board Commissioners

Number of board members that are owned by the company, consisting of the main commissioner, an independent commissioner, and the internal commissioner. Commissioners have a duty and responsibility to supervise and advise the board of directors and also ensure that the company has conducted to good corporate governance rules No. 402007 Section 108 subsection 5 explains that for companies is required to have at least two 2 members of the Board of Commissioners. Therefore, the variation number of the Board of Commissioners members in Indonesia depend on the complexity of the company with regard to its effectiveness in decision-making. In Indonesia, the number of Commissioners at most three and five people Ratnasari, 2011. Number of commissioners is an important factor in the effectiveness of the commissioners. Through the role of the board in exercising oversight of the companys operations