Variable Definition .1 Dependent Variable

577 2004 model. Consistent to Anderson et al. 2004, the model uses variable log spesifications and deflating all variables with SGA in a year before to control heteroskedasticity and scaling effect. The estimation model is as mention below: log SGA

i,t

= α + α 1 log S

i,t

+ α 2 log S

i,t

x Sdown SGA

i,t-1

S

i,t-1

S

i,t-1

Where : SGA

i,t

= selling, general, and administrative expense plus advertising or promotion expense on i firms t year S

i,t

= net sales Sdown = dummy variable will be equal to 1 if net sales in t period is decreasing compared to net sales in t-1 period and 0 if otherwise b. Real activities manipulation through production cost This manipulation is measured by abnormal value of production cost ABNProdCost Dechow et al., 1998; Roychowdhury, 2006. ProdCost

i,t

= α + α 1 1 + α 2 S

i,t

+ α 3 ∆S

i,t

TA

i,t-1

TA

i,t-1

TA

i,t-1

TA

i,t-1

Where : ProdCost

i,t

= the total of production cost COGS +∆INV on i firm t year ∆S

i,t

= the difference in net sales c. Real activities manipulation through gain on asset sales This manipulation is measured by abnormal value of gain on asset sales ABNGAIN which known by regressing the Gunny‘s β005 estimation model as below. + α 3 log S

i,t-1

+ α 4 log S

i,t-1

x Sdown + S i,t-2 S i,t-2 + α 4 ∆S

i,t-1

+ TA

i,t-1

578 GAIN

i,t

= α + α 1 AssetSale + α 2 InvSale

i,t

MV

i,t-1

MV

i,t-1

MV

i,t-1

Where : GAIN

i,t

= gain on asset sales on i firm t year AssetSale = long term asset sales value SGrowth = net sales growth of the preceding period

3.2.3 Control Variables

Control variables used in this research: 1 Size of firms LNASSET measured by natural logarithm of total assets at year end, 2 Growth opportunity BTM which measured by BTM ratio where equity book value at the year end is divided by equity book value at year end, 3 Operating performance in this period OIROA measured by operating income return on assets ratio at year end, and 4 Observation years which definited as years of 2002 – 2004 by years of 2002 as base year, D03 = 1 if the observation year is 2003 and 0 if otherwise, and D04 i = 1 if the observation year is 2004 and 0 if otherwise.

3.3 Sample Selection

Samples are selected from all population of manufacturing firms listed in Indonesia Stock Exchange ISE, with following criteria: 1 Manufacturing firms has been listed in ISE since 2000 until 2007, 2 Using Rupiahs as reporting currency in financial reports, 3 The accounting period starts from January 1 until December 31, and 4 Has complete needed data.

3.4 Data Collection Methods

Data used in this paper are secondary data, that is yearly financial reports of the firms on year 2000-2007. The yearly financial reports datas collected through observations are obtained from CD-ROM OSIRIS database of public firms in Indonesia which belongs to Economy and Business Data Center of Faculty of Economics University of Indonesia, Stock Market Reference Center of Indonesian Stock Exchange, and www.idx.co.id . + 3 logS

i,t

+ α 4 SGrowth + 579 Moreover, last year stock price data to calculate market values are obtained from subscribe Metastock which belongs to PT Finansial Bisnis Informasi and www.yahoo.comfinance . The classifications of manufacturing firms are based on Indonesian Capital Market Directory ICMD 2007. Table 3.1 Sample Selection Procedure