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According Cruthley 1999 who found that the monitoring is carried out institutions capable substitute agency costs, thus decreasing agency
costs and increase firm value. b. Managerial Ownership
Managerial ownership is ownership of shares of the company by a manager or in other words the manager as well as a shareholder
Christiawan and Tarin, 2007. According to Jansen and Meckling 1976 one way in order to reduce the conflict between the principal
and the agent can be done by increasing managerial ownership of a company. That means that managerial stock ownership in a company
will encourage pooling of interests between principal and agent so that managers act in accordance with the wishes of shareholders.
Managerial share ownership can also aligns the interests between managers and shareholders so that managers will be careful in taking
decisions because they directly share in the benefits and impact of the decisions of making the wrong decision Gelisha, 2011.
The greater the proportion of managerial stock ownership in the company, the managers tend to try harder and motivated to create the
optimal performance of the company because managers have an obligation to maximize the welfare of the shareholders, yet on the
other hand managers also have an interest to maximize their welfare Gelisha, 2011. The Manager will seek to reduce conflicts of interest
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resulting in lower agency costs and can reduce the tendency of managers to perform opportunistic actions.
5. Earnings Management
Earnings management is to intervene in the management of external financial reporting process in order to achieve a certain income
level with the aim to benefit himself or his own company. Opportunities to distort that particular income arising from the accounting methods
provide opportunities for management to take note of a certain fact in different ways and opportunities for management to involve subjectivity in
compiling estimates Worthy, 1984. Healy 1985 stated that earnings management occurs when
managers working in the company with the bonus plan tried to arrange reported earnings in order to maximize the bonus they will receive.
Merchant 1989 defines earnings management as an action taken by management to affect earnings that can provide information about the
economic benefits are not actually experienced companies. Scipper 1989 defines as earnings management intervention in the financial reporting to
external parties for the purpose of personal gain. Earnings management is the managements efforts to change the
financial statements aimed at misleading the shareholders who want to know the performance of the company or to influence contractual
outcomes that rely on accounting numbers that report. Note that earnings
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management is not necessarily linked to the process of manipulation by the manager, but more likely to be associated with the process of selecting
the method of accounting accounting method to adjust benefits can be obtained by the company because it is allowed by regulation accounting
earnings management, but this remains to be detrimental to shareholders stocks because they get company information presented is not real by the
manager so that they can not accurately predict who would benefit they get from the fund has been invested into the company Healy dan Wahlen,
1998. Based on the various definitions of the earnings management, some
of the characteristics of earnings management, namely: 1 carried out based on the time dimension; 2 as an option to the companys accounting
policies for financial reporting purposes; 3 there are aspects of the behavior of managers that manage earnings earnings with various
motives, for example, take advantage by asymmetry of information or to hide poor performance.
According to Scott 2002 motivation of the company in this case is the manager doing earnings management:
a. Bonus scheme Managers who work in the company with the bonus plan will try to
arrange in order to maximize profits bonus that will be received.
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b. Debt Covenant Clause Motivation in line with the debt covenants hypothesis in a positive
accounting theory the closer a company to breach debt agreement then the manager will tend to choose accounting methods that can move
the current period income so as to reduce the possibility of the company suffered a breach of contract.
c. Political motivation Large companies and other strategic industry tends to reduce
profits to reduce the visibility, especially during periods of high prosperity. This action is performed to obtain the ease and facility of
government. d. Taxation motivation
Taxation is one of the main reasons why companies reduce reported earnings. By reducing reported earnings, the company can
minimize the taxes that must be paid to the government. e. Substitution Chief Executive Officer CEO
CEO assignment that will expire or be pursuing a strategy of maximizing retirement income to increase bonus. Similarly, the CEOs
whose performance is not good, it will tend to maximize profits in order to prevent or undo his dismissal.
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f. Initial Public Offerings IPO When the company goes public, the financial information contained in
the prospectus is an important source of information. This information can be used as a signal to potential investors, the managers tried to
increase reported earnings.
6. Company Performance Analysis
The company is an entity form the scene of a unity of the various functions and operational performance work systematically to achieve a
certain goal. The goal of a company is an objective to be achieved all stakeholders in the company. To achieve these objectives, the parties
interested in the company should cooperate systematic way to yield optimal performance. One way to know whether a company in carrying
out its operations in accordance with a predetermined plan and in accordance with the objectives was to find out from the company
performance. Performance is a picture of the level of achievement of the results
of the implementation of an operational activity. Assessment of performance here is a method and process assessment task execution
performance of a person or group of people or work units within a company or organization in accordance with the performance standards or
goals set. In realizing the vision and mission of the organization,
