THE INFLUENCE OF EARNINGS MANAGEMENT ON THE COST OF DEBT (AN EMPIRICAL STUDY ON LISTED CONSUMER GOODS COMPANIES IN INDONESIA STOCK EXCHANGE).
THE INFLUENCE OF EARNINGS MANAGEMENT ON
THE COST OF DEBT
(An Empirical Study on Listed Consumer Goods Companies
in Indonesia Stock Exchange)
A THESIS
Submitted in Partial Fulfillment of Requirements
for Obtaining The Degree of Economy Bachelor
BY :
FRANSISCA WINNY MORANTA GULTOM
Reg. No. 7103220027
FACULTY OF ECOMOMIC
STATE UNIVERSITY OF MEDAN
2014
ACKNOWLEDGEMENT
First and foremost, praise and thanks goes to my LORD Jesus Christ for
the many blessing undeservingly bestowed upon me. Because of His love and
faithfulness, the author finally able to complete this thesis with title “The
Influence of Earnings Management on The Cost of Debt (An Empirical Study
on Listed Consumer Goods Companies in Indonesia Stock Exchange)”. This
thesis intended to fulfill the requirement for undergraduate program in Accounting
Major on Faculty of Economics, State University of Medan.
The writing of this thesis has been one of the most significant academic
challenges I have ever had to face. It has given me lots of learning. It was really
challenging and fun, also seasoned with stressful experiences sometimes. It helps
me to explore a wider horizon of behavioural science, which I enjoy the most.
It would not have been possible to write this thesis without the help,
support, guidance and advice of the kind people around me, to only some of
whom it is possible to give particular mention here.
1.
Prof. Dr. Ibnu Hajar, M.Si. as The Rector of State University of Medan.
2.
Drs. Kustoro Budiarta, M.E. as The Dean in Faculty of Economic.
3.
Drs. La Ane, M.Si. as The Chief of Accounting Major.
4.
Drs. Jihen Ginting, M.Si., Ak. as The Secretary of Accounting Major and as
The Examiner in examining and giving comments and suggestions for this
thesis.
5.
Chandra Situmeang S.E., M.S.M., Ak. as The Advisor and The Supervisor.
I’m deeply grateful for his guidance, patience and support. His wisdom,
knowledge and commitment to the highest standards inspired and motivated
me. Thank you for always been a good role model in accounting.
6.
Muhammad Ishak, S.E., M.Si., Ak. as The Examiner in examining and giving
comments and suggestions for this thesis.
7.
Khairunnisa Harahap, S.E., M.Si. as The Examiner in examining and giving
comments and suggestions for this thesis.
8.
Lecturers and staffs on Accounting Major, Faculty of Economics, State
University of Medan.
9.
My sweet family: Gultom Family. I extend my respect to my parents: J.
Gultom, Ph. D. and N. Samosir, B. A., for their unconditional support, both
financially and emotionally throughout my study. There is no way to express
how much it meant to me. Thank you Mom and Dad for showing faith in me
and giving me liberty to choose what I desired. I consider myself the luckiest
girl in the world to have such a supportive family, standing behind me with
their love and support. This thesis is dedicated to you.
10. My fellow brothers and sisters in Christ, for their continual support and
encouragement throughout these past years: Kak Marriane McLaine, Kak
Donna Havard, Kak Erin, Kak Winda, Kak Vita, Kak Tiwi, Bang Binsar,
Bang Echan, Ingrid, Ester, Bellina (my sweetest sister ever), Vero, Dian
Amru, Meilyska, Goretti, Sarah, Vina, and Adevia,.
11. My dear friends Kak Tiwi, Kak Rizka, Vivin and Ribka. Discussions with
you have been illuminating and always helpful.
12. All of my friends in Accounting Major 2010 A Class, my deepest
appreciation goes to you guys. Especially for Shanty and Lia for keep giving
strength and encouraging, also other fighting friends KD, Suci, Hermila, Putri
Rizky, Zizah, Aisyah, Tika, Eva, Rini, Dwinda, April, Mega, Linda, Ilham,
Kaisar, Josua, Hary, Benny, Maman and etc (I can’t mention all of you one
by one but we will always be great friends each other).
13. All of my friends in LCE, I owe my deepest gratitude to you. Although I
missed spending time with you these three past months but your spirit keep
me up.
14. All people who were contributed to this thesis completion. As always it is
impossible to mention everybody who had an impact to this thesis.
The author realizes this thesis is far away from perfect. Therefore if there
are any errors in this thesis as well as shortcomings, the author accept criticism
and constructive suggestions to perfect this research. Finally, the author hope this
thesis may be useful for related society, institution and other researchers.
Medan ,
March 2014
Fransisca Winny Moranta Gultom
Reg. No. 7103220027
ABSTRACT
Fransisca Winny Moranta Gultom. Reg. No. 7103220027. The Influence of
Earnings Management on The Cost of Debt. Thesis, Accounting Study
Program, Faculty of Economic, State University of Medan, 2014.
The problem in this research is whether earnings management has
influence on cost of debt. This research is aimed to find out the empirical
evidence of the influence of earnings management on the cost of debt on
consumer goods companies listed in Indonesian Stock Exchange (IDX) in year
2012.
The population in this research are all consumer goods companies listed in
Indonesia Stock Exchange in 2012. From 36 listed companies, 35 companies were
selected as the samples. Judgment sampling is used as a method of sample
selection. The data used in this research is secondary data, by collecting and
downloading the financial statements from Indonesian Stock Exchange site
http://www.idx.co.id. Data analysis technique used was simple regression.
The results obtained with significance level α = 5%, indicates that earnings
management has no effect on the cost of debt. In this research the hypothesis
testing of the second and third are ignored because it moderates first hypothesis.
The second and third hypotheses as moderating will not strengthen or weaken the
relationship between earnings management and the cost of debt, because of the
remaining first hypothesis showed no influence between earnings management
and cost of debt.
The conclusion of the research hypothesis states that the first hypothesis is
rejected. This means that earnings management has no influence on the cost of
debt on consumer goods companies listed in Indonesian Stock Exchanges.
Keywords: Earnings Management, Cost of Debt
ABSTRAK
Fransisca Winny Moranta Gultom. NIM 7103220027. Pengaruh Manajemen
Laba Terhadap Biaya Utang. Skripsi, Program Studi Akuntansi, Fakultas
Ekonomi, Universitas Negeri Medan 2014.
Permasalahan yang dibahas dalam penelitian ini yaitu apakah manajemen
laba berpengaruh terhadap biaya utang. Penelitian ini ditujukan untuk mengetahui
bukti empiris dari pengaruh manajemen laba terhadap biaya utang di perusahaan
barang konsumsi yang terdaftar di Bursa Efek Indonesia pada tahun 2012.
Populasi dalam penelitian ini adalah seluruh perusahaan barang konsumsi
yang terdaftar di Bursa Efek Indonesia pada tahun 2012. Dari 36 perusahaan yang
terdaftar, dipilih 35 perusahaan sebagai sampel dengan menggunakan metode
judgement sampling. Data yang digunakan dalam penelitian ini adalah data
sekunder, dengan cara mengumpulkan laporan keuangan dari situs Bursa Efek
Indonesia pada situs internet. Teknik analisis data yang digunakan adalah analisis
regresi sederhana.
Hasil yang diperoleh dengan taraf signifikansi α = 5%, menunjukkan
bahwa manajemen laba tidak berpengaruh terhadap biaya utang. Dalam penelitian
ini pengujian terhadap hipotesis kedua dan ketiga diabaikan karena berfungsi
untuk memoderasi hipotesis pertama. Hipotesis kedua dan ketiga tidak akan
memperkuat atau memperlemah hubungan antara manajemen laba dan biaya
utang karena dari hipotesis pertama yang tersisa tidak menujukkan pengaruh
manajemen laba terhadap biaya utang.
Kesimpulan dari hasil penelitian menyatakan bahwa hipotesis pertama
ditolak. Hal ini berarti bahwa manajemen laba tidak berpengaruh terhadap biaya
utang pada perusahaan barang konsumsi yang terdaftar di Bursa Efek Indonesia.
Kata Kunci: Manajemen Laba, Biaya Utang
TABLES
Tables 2.1 Previous Study ................................................................................
29
Tables 4.1 Determination of Sample ...............................................................
42
Tables 4.2 List of Selected Consumer Goods Companies ...............................
43
Tables 4.3 Discretionary Accruals of Earnings Management ..........................
46
Tables 4.4 Cost of Debt ...................................................................................
47
Tables 4.5 Accounts Receivable Turnover ......................................................
48
Tables 4.6 Inventory Turnover ........................................................................
49
Tables 4.7 Test of Normality ...........................................................................
51
Tables 4.8 Test of Normality after Trimming .................................................
52
Tables 4.9 Regression Result ..........................................................................
53
Tables 4.10 Hypothesis Result ........................................................................
54
FIGURES
Figures 2.1 The Scheme of Conceptual Framework ........................................
31
APPENDIX A
RESULT OF
DATA
TABULATION
LIST OF SELECTED CONSUMER GOODS COMPANIES
No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
Code
ADES
AISA
ALTO
CEKA
DAVO
DLTA
DVLA
GGRM
HMSP
ICBP
INAF
INDF
KAEF
KDSI
KICI
KLBF
LMPI
MBTO
MERK
MRAT
MYOR
PSDN
PYFA
RMBA
ROTI
SCPI
SKBM
SKLT
SQBB
STTP
TCID
TSPC
ULTJ
UNVR
WIIM
Company
PT Akasha Wira International Tbk
PT Tiga Pilar Sejahtera Food Tbk
PT Tri Banyan Tirta Tbk
PT Cahaya Kalbar Tbk
PT Davomas Abadi Tbk
PT Delta Djakarta Tbk
PT Darya-Varia Laboratoria Tbk
PT Gudang Garam Tbk
PT HM Sampoerna Tbk
PT Indofood CBP Sukses Makmur Tbk
PT Indofarma (Persero) Tbk
PT Indofood Sukses Makmur Tbk
PT Kimia Farma (Persero) Tbk
PT Kedawung Setia Industrial Tbk
PT Kedaung Indah Can Tbk
PT Kalbe Farma Tbk
PT Langgeng Makmur Industry Tbk
PT Martina Berto Tbk
PT Merck Tbk
PT Mustika Ratu Tbk
PT Mayora Indah Tbk
PT Prasidha Aneka Niaga Tbk
PT Pyridam Farma Tbk
PT Bentoel International Investama Tbk
PT Nippon Indosari Corpindo Tbk
PT Schering-Plough Indonesia Tbk
PT Sekar Bumi Tbk.
PT Sekar Laut Tbk
PT Taisho Pharmaceutical Indonesia Tbk
PT Siantar Top Tbk
PT Mandom Indonesia Tbk
PT Tempo Scan Pacific Tbk
PT Ultra Jaya Milk Tbk
PT Unilever Indonesia Tbk
PT Wismilak Inti Makmur Tbk
DATA TABULATION
No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
Code
ADES
AISA
ALTO
CEKA
DAVO
DLTA
DVLA
GGRM
HMSP
ICBP
INAF
INDF
KAEF
KDSI
KICI
KLBF
LMPI
MBTO
MERK
MRAT
MYOR
PSDN
PYFA
RMBA
ROTI
SCPI
SKBM
SKLT
SQBB
STTP
TCID
TSPC
ULTJ
UNVR
WIIM
DA
-0,406427903
-0,205596162
-0,094118681
-0,146036367
-1,113232308
-0,346882648
-0,109560346
-0,17502437
2,810799085
-0,211296344
0,026083783
-0,48231005
-0,151129706
-0,208746212
-0,060483421
-0,193633759
-0,226346555
25,77654568
-0,004768179
-0,041786133
-0,21764719
-0,267812178
-0,236396518
-0,115512669
-0,691647428
-0,261834337
-0,491615476
-0,321210596
-0,124090416
-0,300416442
-0,293732767
-0,164542859
-0,371863934
-0,408748911
-0,114161143
COD
ART
ITO
0,08165
0,07477
0,08080
0,02578
0,05521
0,05521
0,00342
0,03363
0,00186
0,01044
0,03252
0,03961
0,00939
0,03561
0,01947
0,00248
0,06674
0,01824
0,00315
0,01684
0,04747
0,05922
0,03850
0,11151
0,05521
0,02911
0,01879
0,01524
0,05521
0,04820
0,05521
0,00558
0,01446
0,00930
0,04988
126,2617219
31,8424694
3,947165784
217,6052828
3,375965698
-66,81174983
13,85617648
106,8123751
270,3093666
-676,1985833
13,48181428
493,8970263
50,03282269
57,77762686
38,69467683
49,54309
16,78908621
6,314259711
-23,66089999
9,098665247
29,02674524
565,304875
27,14553713
-106,2270561
36,28850773
-35,72959816
45,83713114
76,64265183
17,97329288
18,28742972
45,66691657
45,28192571
67,05139036
77,97385759
385,4572006
8,39469
5,88010
3,37346
3,19995
4,19866
18,05365
8,65520
1,79363
5,42045
12,53339
6,51692
6,99206
7,57079
7,91767
2,35446
7,13822
3,35387
13,55259
15,02272
7,25950
7,41428
6,71071
6,47726
2,71749
61,21777
2,74522
14,42835
1,50641
12,25673
6,34957
6,86630
8,89491
7,99769
14,09302
2,40569
Description:
DA
: Discretionary Accruals (Proxy of Earnings Management)
COD
: Cost of Debt
ART
: Accounts Receivable Turnover
ITO
: Inventory Turnover
APPENDIX B
SPSS RESULT
1. NORMALITY TEST I
NPar Tests
Notes
Output Created
05-Mar-2014 13:24:56
Comments
Input
Data
D:\SPSS SISCA\SPSS XY.sav
Active Dataset
DataSet1
Filter
Weight
Split File
N of Rows in Working Data File
Missing Value Handling
Definition of Missing
35
User-defined missing values are treated as
missing.
Cases Used
Statistics for each test are based on all
cases with valid data for the variable(s)
used in that test.
Syntax
NPAR TESTS
/K-S(NORMAL)=cod em
/MISSING ANALYSIS.
Resources
Processor Time
00 00:00:00,032
Elapsed Time
00 00:00:00,031
Number of Cases Allowed
a
157286
a. Based on availability of workspace memory.
One-Sample Kolmogorov-Smirnov Test
Earnings
Cost of debt
N
management
35
35
,0365631428571
,5729947582857
43
14
,0270361349451
4,420991072374
64
931
Absolute
,136
,492
Positive
,136
,492
Negative
-,100
-,359
Kolmogorov-Smirnov Z
,807
2,911
Asymp. Sig. (2-tailed)
,533
,000
Normal Parameters
a,b
Mean
Std. Deviation
Most Extreme Differences
Notes
Output Created
05-Mar-2014 13:24:56
Comments
Input
Data
D:\SPSS SISCA\SPSS XY.sav
Active Dataset
DataSet1
Filter
Weight
Split File
N of Rows in Working Data File
Missing Value Handling
Definition of Missing
35
User-defined missing values are treated as
missing.
Cases Used
Statistics for each test are based on all
cases with valid data for the variable(s)
used in that test.
Syntax
NPAR TESTS
/K-S(NORMAL)=cod em
/MISSING ANALYSIS.
Resources
Processor Time
00 00:00:00,032
Elapsed Time
00 00:00:00,031
Number of Cases Allowed
a
157286
a. Test distribution is Normal.
b. Calculated from data.
2. NORMALITY TEST II
NPar Tests
Notes
Output Created
05-Mar-2014 13:26:52
Comments
Input
Data
D:\SPSS SISCA\SPSS XY.sav
Active Dataset
DataSet1
Filter
Weight
Split File
N of Rows in Working Data File
Missing Value Handling
Definition of Missing
32
User-defined missing values are treated
as missing.
Cases Used
Statistics for each test are based on all
cases with valid data for the variable(s)
used in that test.
Syntax
NPAR TESTS
/K-S(NORMAL)=cod em
/MISSING ANALYSIS.
Resources
Processor Time
00 00:00:00,016
Elapsed Time
00 00:00:00,015
Number of Cases Allowed
a
157286
a. Based on availability of workspace memory.
One-Sample Kolmogorov-Smirnov Test
Earnings
Cost of debt
N
Normal Parameters
a,b
Mean
management
32
32
,0376375000000
-
00 ,23185299740625
0
Std. Deviation
,0271956480152 ,15413065325982
20
6
Absolute
,123
,113
Positive
,123
,061
Negative
-,098
-,113
Kolmogorov-Smirnov Z
,695
,641
Asymp. Sig. (2-tailed)
,719
,806
Most Extreme Differences
a. Test distribution is Normal.
b. Calculated from data.
Notes
Output Created
05-Mar-2014 13:31:05
Comments
Input
Data
D:\SPSS SISCA\SPSS XY.sav
Active Dataset
DataSet1
Filter
Weight
Split File
N of Rows in Working Data File
32
Syntax
GRAPH
/HISTOGRAM=cod.
Resources
Processor Time
00 00:00:04,508
Elapsed Time
00 00:00:03,979
3. SIMPLE LINEAR REGRESSION
Regression
Notes
Output Created
17-Mar-2014 05:11:57
Comments
Input
Data
D:\SPSS SISCA\SPSS XY.sav
Active Dataset
DataSet1
Filter
Weight
Split File
N of Rows in Working Data File
Missing Value Handling
Definition of Missing
32
User-defined missing values are treated
as missing.
Cases Used
Statistics are based on cases with no
missing values for any variable used.
Syntax
REGRESSION
/MISSING LISTWISE
/STATISTICS
COEFF
OUTS
R
ANOVA
/CRITERIA=PIN(.05) POUT(.10)
/NOORIGIN
/DEPENDENT cod
/METHOD=ENTER em.
Resources
Processor Time
00 00:00:00,015
Elapsed Time
00 00:00:00,038
Memory Required
Additional Memory Required for
Residual Plots
1436 bytes
0 bytes
Variables Entered/Removed
b
Variables
Model
Variables Entered
1
earnings
Removed
Method
.
Enter
management
a. All requested variables entered.
b. Dependent Variable: cost of debt
Model Summary
Model
R
1
Adjusted R
Std. Error of the
Square
Estimate
R Square
,110
a
,012
-,021 ,02747619517253
9
a. Predictors: (Constant), earnings management
b
ANOVA
Model
1
Sum of Squares
df
Mean Square
Regression
,000
1
,000
Residual
,023
30
,001
Total
,023
31
F
Sig.
,370
,547
a
a. Predictors: (Constant), earnings management
b. Dependent Variable: cost of debt
Coefficients
a
Standardized
Unstandardized Coefficients
Model
1
B
(Constant)
earnings
management
a. Dependent Variable: cost of debt
Std. Error
,033
,009
-,019
,032
Coefficients
Beta
-,110
t
Sig.
3,734
,001
-,608
,547
APPENDIX C
ADMINISTRATION
DAFTAR RIWAYAT HIDUP
DATA PRIBADI PENELITI
Nama
:
Tempat/Tanggal Lahir
:
Jenis kelamin
:
Agama
:
Alamat
:
Telepon/HP
:
Fransisca Winny Moranta Gultom
Medan/30 Juli 1991
Perempuan
Kristen Protestan
Jalan Notes Lrg. Gereja No. 53, Medan
081260463521
DATA ORANGTUA
Nama Ayah
Pekerjaan
Nama Ibu
Pekerjaan
: Jamahir Gultom, Ph. D.
: Dosen – PNS
: Nurhayani Samosir, B.A.
: Ibu Rumah Tangga
PENDIDIKAN
2010 – 2014
2006 – 2009
2003 – 2006
1997 – 2003
1996 – 1997
: Universitas Negeri Medan
: SMA Negeri 4 Medan
: SMP Swasta Kristen Kalam Kudus Medan
: SD Swasta Kristen Kalam Kudus Medan
: TK Swasta Kristen Kalam Kudus Medan
Medan,
Maret 2014
Yang Menyatakan
Fransisca Winny Moranta Gultom
NIM 7103220027
CHAPTER I
INTRODUCTION
1.1
Background of The Study
A company needs funds to finance its operations. One of them is by the
debt. Debt can come from bank loans or corporate bonds. Cost of debt is the rate
of return that must be repaid to the company's debts. The return rate is the
expected yield for the willingness of investors and creditors bear the risk. This is
what makes company urgently needs to consider the cost of corporate debt. If the
company's cost of debt is high, then the selling costs of company's products will
also increase due to increased production costs. This condition will be hard to
compete with other companies. Company will also be difficult to accept projects
due to high cost of debt. The company will be difficult to accept the project if the
estimated cash flows of the company is not as profitable (counting based on the
present value of future cash flows).
World Bank site reveals a comparison between inflation and interest rates
to borrow. In ASEAN comparison between inflation and borrowing interest rates
have varied differences. World Bank data shows that interest rate to borrow as one
proxy for measuring cost of debt, in Indonesia, in 2012 at a rate ranging from
12.4% to 5.4% of inflation which is higher than some other ASEAN countries
such as Malaysia from 4.9% to 3.2% of inflation, Singapore from 5.4% to 5.3% of
inflation, and Thailand from 6.9% to 3.8% of inflation. Cost of debt in Indonesia
is quite high. The interest rate is also higher than China which is in the range from
6.6% to 5.45% of inflation. It shows that interest rate to borrow in Indonesia
1
by taking into account the inflation rate is still quite high which indicates a high
cost of corporate debt in Indonesia.
An interest rate is the rate at which interest is paid by a borrower for the
use of money that they borrow from a lender (creditor). Interest rate set by the
central bank of country as a reference to relative interest rate to each country. In
Indonesia, the interest rate set by Bank Indonesia become the basis for calculating
interest rates. When the interest rate set by Bank Indonesia increased, then at the
same time interest rate set by the company when issuing bonds will also increase,
so the interest rate that can be borrowed or proxied by cost of debt will increase as
well.
High cost of debt is also due on each business risks. When the government
raises the interest rate, the increase is also borne by the investor. Business risk is
the potential change in the level of return on an investment. Business risk is the
uncertainty in projections of the company for return or profit in the future. Keown
et al. (2010) suggested that cost of debt is the rate of return expected by investors
over the debt, which is the return that is required when giving a loan to the
company. In order to understand the business risks of a company, stakeholders
(internal or external parties) need sufficient information about a company. The
required information was obtained from financial statements of company. In terms
of financial reporting, managers can perform earnings management to mislead
stakeholders of the company's economic performance. Earnings management is
accounting policy choice by manager in order to achieve his own goals.
Meanwhile, according to (Copeland in Utami, 2005), earnings management is
management efforts to maximize or minimize income, including income
smoothing in accordance with the desire of management.
Manager knows more about the company's internal information and
prospects in the future than the owner. This privilege is used by managers as an
opportunistic behavior in disclosing information about the company. Supposedly
the manager shall provide a signal about the state of the company to the owner
through disclosure of accounting information in the financial statements.
However, most of the times the information submitted is not acceptable according
to the actual condition of the company. This condition is known as asymmetric
information that received by investors as a bad signal. Bad signal derived from
earnings management practices in company. When the information is not real at
the same time the quality of financial reporting is in doubt. The doubtful of
financial reporting leads to lower earnings quality. It means investors are aware
that they have to bear high risk over uncertainty. This uncertainty will lead to high
cost of debt.
Companies with good conditions indicated by the effectiveness of the
company to utilize its resources. The utilization of resources is characterized by
the ability of the company to be able to generate profits from its activities. In this
study, researcher prefer to use account receivable turnover and inventory turnover
to analyze how company’s activities in making profit. Measurements with that
ratios were chosen to do in the consumer goods company. The consumer goods
company must have a high activity of the company. This company has the
characteristics of trading and manufacturing companies simultaneously. The
identity indicates a good signal to be able to assess the activity of the company,
especially in generating profits. Moreover, if company really has good activity,
surely, the tendency to perform earnings management is not required. Similarly
with debt. If both corporate activity and profit target is achieved, then the
company does not have to pay the high cost of debt, as funding from the
company's borrowing will also be smaller.
In line with this, Rao and Rao Madhusudhana Prahlada (2009) stated that
the activity of the company is important to establish a chain of company
performance. Effectiveness of the company indicating the best time to utilize the
company's activities in generating profits. The company must be able to adapt to
the appropriate time in order to move well so that continuity of the company is
also guaranteed. As a form of improvising its business, as well as the company
should maintain its effectiveness.
Empirical research that support high cost of debt due to earnings
management practices supported by research Valipour and Moradbeygi (2011).
They observed that the low quality of earnings, will result in a higher cost of debt.
The low earnings quality due to earnings manipulation detected by investors as a
form of earnings management. It can be concluded that firms aggressively use
accruals to manage earnings to avoid covenant violations and reduce the cost of
financing, including cost of debt.
This result is in contrast to Gray, Koh and Tong (2009) which states that
there is no relationship between earnings management in the accrual process with
high cost of debt of the company. Their research in Austaralia concluded that the
quality of accruals that are not associated with the cost of debt. The quality of
accruals considered only affects cost of equity in the equity market, but had no
effect on cost of debt in debt market.
Previous studies have shown inconsistent results. Therefore, researcher
will examine the effect of earnings management on the cost of debt. In this
research efectiveness of the company is used to examine whether effectiveness of
the company will strengthen or weaken the relation between earnings
management and the cost of debt. In accordance with this background, the
researcher is interested to research “The Influence of Earnings Management on
The Cost of Debt (An Empirical Study on Listed Consumer Goods
Companies in Indonesia Stock Exchange).”
1.2
Identification of The Problem
As related to the background, the identification problem are as follows:
1. What is the reason of company in considering its cost of debt?
2. Do company’s efectiveness describe earnings management practice?
3. Do earnings management influence on the cost of debt?
4. Does company’s efectiveness moderate on the relation of earnings
management and cost of debt?
1.3
Limitation of Problem
The problem of this research is limited to the influence of earnings
management on the cost of debt that moderates by company’s efectiveness which
are accounts receivable turnover and inventory turnover on listed consumer goods
companies in Indonesia Stock Exchange (IDX) during in 2012.
1.4
Research Question
From the background of the problem, the research questions are formulated
as follows :
1.
Do earnings management influence on the cost of debt?
2.
Does company’s accounts receivable turnover moderate the relation of
earnings management and cost of debt?
3.
Does company’s inventory turnover moderate the relation of earnings
management and cost of debt?
1.5
Research Objective
According to the problem, research objectives are as follows:
1.
To analyze the influence of earnings management on the cost of debt
2.
To analyze the influence of accounts receivable turnover to the relation of
earnings management and cost of debt
3.
To analyze the influence of inventory turnover to the relation of earnings
management and cost of debt
1.6
Research Contributions
The contributions of the study are as follows:
1.
For researcher, to prove empirically the influence of earnings management on
the cost of debt
2.
For academics, the results of this research are expected to contribute
additional information that available for students in studying similar material
3.
For next researchers, as reference material and resources to conduct further
research
CHAPTER V
CONCLUSION AND SUGGESTION
5.1 Conclusion
From research analysis and discussion which has been elaborated before
and based on data obtained from research as which has been discussed in this
research, the conclusion is based on the regression test, hypothesis test rejects H1
(0.547 > 0.05). It means earnings management has no influence on cost of debt.
5.2 Suggestion
Based on conclusions explained before and research findings, hence
submitted suggestions as follows.
1. Researcher suggest next researcher to expand the sample where the sample
is not limited at consumer goods companies but also expanding the
sample all of manufacturing companies that listed in Indonesia Stock
Exchange.
2. Researcher suggest next researcher to use other variables that have not
been included in this research such as cost of equity or cost of capital or
other ratios that can be affected by earnings management and a range of
data time series so it can explain the overall effects of earnings
management.
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Purwokerto.
THE COST OF DEBT
(An Empirical Study on Listed Consumer Goods Companies
in Indonesia Stock Exchange)
A THESIS
Submitted in Partial Fulfillment of Requirements
for Obtaining The Degree of Economy Bachelor
BY :
FRANSISCA WINNY MORANTA GULTOM
Reg. No. 7103220027
FACULTY OF ECOMOMIC
STATE UNIVERSITY OF MEDAN
2014
ACKNOWLEDGEMENT
First and foremost, praise and thanks goes to my LORD Jesus Christ for
the many blessing undeservingly bestowed upon me. Because of His love and
faithfulness, the author finally able to complete this thesis with title “The
Influence of Earnings Management on The Cost of Debt (An Empirical Study
on Listed Consumer Goods Companies in Indonesia Stock Exchange)”. This
thesis intended to fulfill the requirement for undergraduate program in Accounting
Major on Faculty of Economics, State University of Medan.
The writing of this thesis has been one of the most significant academic
challenges I have ever had to face. It has given me lots of learning. It was really
challenging and fun, also seasoned with stressful experiences sometimes. It helps
me to explore a wider horizon of behavioural science, which I enjoy the most.
It would not have been possible to write this thesis without the help,
support, guidance and advice of the kind people around me, to only some of
whom it is possible to give particular mention here.
1.
Prof. Dr. Ibnu Hajar, M.Si. as The Rector of State University of Medan.
2.
Drs. Kustoro Budiarta, M.E. as The Dean in Faculty of Economic.
3.
Drs. La Ane, M.Si. as The Chief of Accounting Major.
4.
Drs. Jihen Ginting, M.Si., Ak. as The Secretary of Accounting Major and as
The Examiner in examining and giving comments and suggestions for this
thesis.
5.
Chandra Situmeang S.E., M.S.M., Ak. as The Advisor and The Supervisor.
I’m deeply grateful for his guidance, patience and support. His wisdom,
knowledge and commitment to the highest standards inspired and motivated
me. Thank you for always been a good role model in accounting.
6.
Muhammad Ishak, S.E., M.Si., Ak. as The Examiner in examining and giving
comments and suggestions for this thesis.
7.
Khairunnisa Harahap, S.E., M.Si. as The Examiner in examining and giving
comments and suggestions for this thesis.
8.
Lecturers and staffs on Accounting Major, Faculty of Economics, State
University of Medan.
9.
My sweet family: Gultom Family. I extend my respect to my parents: J.
Gultom, Ph. D. and N. Samosir, B. A., for their unconditional support, both
financially and emotionally throughout my study. There is no way to express
how much it meant to me. Thank you Mom and Dad for showing faith in me
and giving me liberty to choose what I desired. I consider myself the luckiest
girl in the world to have such a supportive family, standing behind me with
their love and support. This thesis is dedicated to you.
10. My fellow brothers and sisters in Christ, for their continual support and
encouragement throughout these past years: Kak Marriane McLaine, Kak
Donna Havard, Kak Erin, Kak Winda, Kak Vita, Kak Tiwi, Bang Binsar,
Bang Echan, Ingrid, Ester, Bellina (my sweetest sister ever), Vero, Dian
Amru, Meilyska, Goretti, Sarah, Vina, and Adevia,.
11. My dear friends Kak Tiwi, Kak Rizka, Vivin and Ribka. Discussions with
you have been illuminating and always helpful.
12. All of my friends in Accounting Major 2010 A Class, my deepest
appreciation goes to you guys. Especially for Shanty and Lia for keep giving
strength and encouraging, also other fighting friends KD, Suci, Hermila, Putri
Rizky, Zizah, Aisyah, Tika, Eva, Rini, Dwinda, April, Mega, Linda, Ilham,
Kaisar, Josua, Hary, Benny, Maman and etc (I can’t mention all of you one
by one but we will always be great friends each other).
13. All of my friends in LCE, I owe my deepest gratitude to you. Although I
missed spending time with you these three past months but your spirit keep
me up.
14. All people who were contributed to this thesis completion. As always it is
impossible to mention everybody who had an impact to this thesis.
The author realizes this thesis is far away from perfect. Therefore if there
are any errors in this thesis as well as shortcomings, the author accept criticism
and constructive suggestions to perfect this research. Finally, the author hope this
thesis may be useful for related society, institution and other researchers.
Medan ,
March 2014
Fransisca Winny Moranta Gultom
Reg. No. 7103220027
ABSTRACT
Fransisca Winny Moranta Gultom. Reg. No. 7103220027. The Influence of
Earnings Management on The Cost of Debt. Thesis, Accounting Study
Program, Faculty of Economic, State University of Medan, 2014.
The problem in this research is whether earnings management has
influence on cost of debt. This research is aimed to find out the empirical
evidence of the influence of earnings management on the cost of debt on
consumer goods companies listed in Indonesian Stock Exchange (IDX) in year
2012.
The population in this research are all consumer goods companies listed in
Indonesia Stock Exchange in 2012. From 36 listed companies, 35 companies were
selected as the samples. Judgment sampling is used as a method of sample
selection. The data used in this research is secondary data, by collecting and
downloading the financial statements from Indonesian Stock Exchange site
http://www.idx.co.id. Data analysis technique used was simple regression.
The results obtained with significance level α = 5%, indicates that earnings
management has no effect on the cost of debt. In this research the hypothesis
testing of the second and third are ignored because it moderates first hypothesis.
The second and third hypotheses as moderating will not strengthen or weaken the
relationship between earnings management and the cost of debt, because of the
remaining first hypothesis showed no influence between earnings management
and cost of debt.
The conclusion of the research hypothesis states that the first hypothesis is
rejected. This means that earnings management has no influence on the cost of
debt on consumer goods companies listed in Indonesian Stock Exchanges.
Keywords: Earnings Management, Cost of Debt
ABSTRAK
Fransisca Winny Moranta Gultom. NIM 7103220027. Pengaruh Manajemen
Laba Terhadap Biaya Utang. Skripsi, Program Studi Akuntansi, Fakultas
Ekonomi, Universitas Negeri Medan 2014.
Permasalahan yang dibahas dalam penelitian ini yaitu apakah manajemen
laba berpengaruh terhadap biaya utang. Penelitian ini ditujukan untuk mengetahui
bukti empiris dari pengaruh manajemen laba terhadap biaya utang di perusahaan
barang konsumsi yang terdaftar di Bursa Efek Indonesia pada tahun 2012.
Populasi dalam penelitian ini adalah seluruh perusahaan barang konsumsi
yang terdaftar di Bursa Efek Indonesia pada tahun 2012. Dari 36 perusahaan yang
terdaftar, dipilih 35 perusahaan sebagai sampel dengan menggunakan metode
judgement sampling. Data yang digunakan dalam penelitian ini adalah data
sekunder, dengan cara mengumpulkan laporan keuangan dari situs Bursa Efek
Indonesia pada situs internet. Teknik analisis data yang digunakan adalah analisis
regresi sederhana.
Hasil yang diperoleh dengan taraf signifikansi α = 5%, menunjukkan
bahwa manajemen laba tidak berpengaruh terhadap biaya utang. Dalam penelitian
ini pengujian terhadap hipotesis kedua dan ketiga diabaikan karena berfungsi
untuk memoderasi hipotesis pertama. Hipotesis kedua dan ketiga tidak akan
memperkuat atau memperlemah hubungan antara manajemen laba dan biaya
utang karena dari hipotesis pertama yang tersisa tidak menujukkan pengaruh
manajemen laba terhadap biaya utang.
Kesimpulan dari hasil penelitian menyatakan bahwa hipotesis pertama
ditolak. Hal ini berarti bahwa manajemen laba tidak berpengaruh terhadap biaya
utang pada perusahaan barang konsumsi yang terdaftar di Bursa Efek Indonesia.
Kata Kunci: Manajemen Laba, Biaya Utang
TABLES
Tables 2.1 Previous Study ................................................................................
29
Tables 4.1 Determination of Sample ...............................................................
42
Tables 4.2 List of Selected Consumer Goods Companies ...............................
43
Tables 4.3 Discretionary Accruals of Earnings Management ..........................
46
Tables 4.4 Cost of Debt ...................................................................................
47
Tables 4.5 Accounts Receivable Turnover ......................................................
48
Tables 4.6 Inventory Turnover ........................................................................
49
Tables 4.7 Test of Normality ...........................................................................
51
Tables 4.8 Test of Normality after Trimming .................................................
52
Tables 4.9 Regression Result ..........................................................................
53
Tables 4.10 Hypothesis Result ........................................................................
54
FIGURES
Figures 2.1 The Scheme of Conceptual Framework ........................................
31
APPENDIX A
RESULT OF
DATA
TABULATION
LIST OF SELECTED CONSUMER GOODS COMPANIES
No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
Code
ADES
AISA
ALTO
CEKA
DAVO
DLTA
DVLA
GGRM
HMSP
ICBP
INAF
INDF
KAEF
KDSI
KICI
KLBF
LMPI
MBTO
MERK
MRAT
MYOR
PSDN
PYFA
RMBA
ROTI
SCPI
SKBM
SKLT
SQBB
STTP
TCID
TSPC
ULTJ
UNVR
WIIM
Company
PT Akasha Wira International Tbk
PT Tiga Pilar Sejahtera Food Tbk
PT Tri Banyan Tirta Tbk
PT Cahaya Kalbar Tbk
PT Davomas Abadi Tbk
PT Delta Djakarta Tbk
PT Darya-Varia Laboratoria Tbk
PT Gudang Garam Tbk
PT HM Sampoerna Tbk
PT Indofood CBP Sukses Makmur Tbk
PT Indofarma (Persero) Tbk
PT Indofood Sukses Makmur Tbk
PT Kimia Farma (Persero) Tbk
PT Kedawung Setia Industrial Tbk
PT Kedaung Indah Can Tbk
PT Kalbe Farma Tbk
PT Langgeng Makmur Industry Tbk
PT Martina Berto Tbk
PT Merck Tbk
PT Mustika Ratu Tbk
PT Mayora Indah Tbk
PT Prasidha Aneka Niaga Tbk
PT Pyridam Farma Tbk
PT Bentoel International Investama Tbk
PT Nippon Indosari Corpindo Tbk
PT Schering-Plough Indonesia Tbk
PT Sekar Bumi Tbk.
PT Sekar Laut Tbk
PT Taisho Pharmaceutical Indonesia Tbk
PT Siantar Top Tbk
PT Mandom Indonesia Tbk
PT Tempo Scan Pacific Tbk
PT Ultra Jaya Milk Tbk
PT Unilever Indonesia Tbk
PT Wismilak Inti Makmur Tbk
DATA TABULATION
No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
Code
ADES
AISA
ALTO
CEKA
DAVO
DLTA
DVLA
GGRM
HMSP
ICBP
INAF
INDF
KAEF
KDSI
KICI
KLBF
LMPI
MBTO
MERK
MRAT
MYOR
PSDN
PYFA
RMBA
ROTI
SCPI
SKBM
SKLT
SQBB
STTP
TCID
TSPC
ULTJ
UNVR
WIIM
DA
-0,406427903
-0,205596162
-0,094118681
-0,146036367
-1,113232308
-0,346882648
-0,109560346
-0,17502437
2,810799085
-0,211296344
0,026083783
-0,48231005
-0,151129706
-0,208746212
-0,060483421
-0,193633759
-0,226346555
25,77654568
-0,004768179
-0,041786133
-0,21764719
-0,267812178
-0,236396518
-0,115512669
-0,691647428
-0,261834337
-0,491615476
-0,321210596
-0,124090416
-0,300416442
-0,293732767
-0,164542859
-0,371863934
-0,408748911
-0,114161143
COD
ART
ITO
0,08165
0,07477
0,08080
0,02578
0,05521
0,05521
0,00342
0,03363
0,00186
0,01044
0,03252
0,03961
0,00939
0,03561
0,01947
0,00248
0,06674
0,01824
0,00315
0,01684
0,04747
0,05922
0,03850
0,11151
0,05521
0,02911
0,01879
0,01524
0,05521
0,04820
0,05521
0,00558
0,01446
0,00930
0,04988
126,2617219
31,8424694
3,947165784
217,6052828
3,375965698
-66,81174983
13,85617648
106,8123751
270,3093666
-676,1985833
13,48181428
493,8970263
50,03282269
57,77762686
38,69467683
49,54309
16,78908621
6,314259711
-23,66089999
9,098665247
29,02674524
565,304875
27,14553713
-106,2270561
36,28850773
-35,72959816
45,83713114
76,64265183
17,97329288
18,28742972
45,66691657
45,28192571
67,05139036
77,97385759
385,4572006
8,39469
5,88010
3,37346
3,19995
4,19866
18,05365
8,65520
1,79363
5,42045
12,53339
6,51692
6,99206
7,57079
7,91767
2,35446
7,13822
3,35387
13,55259
15,02272
7,25950
7,41428
6,71071
6,47726
2,71749
61,21777
2,74522
14,42835
1,50641
12,25673
6,34957
6,86630
8,89491
7,99769
14,09302
2,40569
Description:
DA
: Discretionary Accruals (Proxy of Earnings Management)
COD
: Cost of Debt
ART
: Accounts Receivable Turnover
ITO
: Inventory Turnover
APPENDIX B
SPSS RESULT
1. NORMALITY TEST I
NPar Tests
Notes
Output Created
05-Mar-2014 13:24:56
Comments
Input
Data
D:\SPSS SISCA\SPSS XY.sav
Active Dataset
DataSet1
Filter
Weight
Split File
N of Rows in Working Data File
Missing Value Handling
Definition of Missing
35
User-defined missing values are treated as
missing.
Cases Used
Statistics for each test are based on all
cases with valid data for the variable(s)
used in that test.
Syntax
NPAR TESTS
/K-S(NORMAL)=cod em
/MISSING ANALYSIS.
Resources
Processor Time
00 00:00:00,032
Elapsed Time
00 00:00:00,031
Number of Cases Allowed
a
157286
a. Based on availability of workspace memory.
One-Sample Kolmogorov-Smirnov Test
Earnings
Cost of debt
N
management
35
35
,0365631428571
,5729947582857
43
14
,0270361349451
4,420991072374
64
931
Absolute
,136
,492
Positive
,136
,492
Negative
-,100
-,359
Kolmogorov-Smirnov Z
,807
2,911
Asymp. Sig. (2-tailed)
,533
,000
Normal Parameters
a,b
Mean
Std. Deviation
Most Extreme Differences
Notes
Output Created
05-Mar-2014 13:24:56
Comments
Input
Data
D:\SPSS SISCA\SPSS XY.sav
Active Dataset
DataSet1
Filter
Weight
Split File
N of Rows in Working Data File
Missing Value Handling
Definition of Missing
35
User-defined missing values are treated as
missing.
Cases Used
Statistics for each test are based on all
cases with valid data for the variable(s)
used in that test.
Syntax
NPAR TESTS
/K-S(NORMAL)=cod em
/MISSING ANALYSIS.
Resources
Processor Time
00 00:00:00,032
Elapsed Time
00 00:00:00,031
Number of Cases Allowed
a
157286
a. Test distribution is Normal.
b. Calculated from data.
2. NORMALITY TEST II
NPar Tests
Notes
Output Created
05-Mar-2014 13:26:52
Comments
Input
Data
D:\SPSS SISCA\SPSS XY.sav
Active Dataset
DataSet1
Filter
Weight
Split File
N of Rows in Working Data File
Missing Value Handling
Definition of Missing
32
User-defined missing values are treated
as missing.
Cases Used
Statistics for each test are based on all
cases with valid data for the variable(s)
used in that test.
Syntax
NPAR TESTS
/K-S(NORMAL)=cod em
/MISSING ANALYSIS.
Resources
Processor Time
00 00:00:00,016
Elapsed Time
00 00:00:00,015
Number of Cases Allowed
a
157286
a. Based on availability of workspace memory.
One-Sample Kolmogorov-Smirnov Test
Earnings
Cost of debt
N
Normal Parameters
a,b
Mean
management
32
32
,0376375000000
-
00 ,23185299740625
0
Std. Deviation
,0271956480152 ,15413065325982
20
6
Absolute
,123
,113
Positive
,123
,061
Negative
-,098
-,113
Kolmogorov-Smirnov Z
,695
,641
Asymp. Sig. (2-tailed)
,719
,806
Most Extreme Differences
a. Test distribution is Normal.
b. Calculated from data.
Notes
Output Created
05-Mar-2014 13:31:05
Comments
Input
Data
D:\SPSS SISCA\SPSS XY.sav
Active Dataset
DataSet1
Filter
Weight
Split File
N of Rows in Working Data File
32
Syntax
GRAPH
/HISTOGRAM=cod.
Resources
Processor Time
00 00:00:04,508
Elapsed Time
00 00:00:03,979
3. SIMPLE LINEAR REGRESSION
Regression
Notes
Output Created
17-Mar-2014 05:11:57
Comments
Input
Data
D:\SPSS SISCA\SPSS XY.sav
Active Dataset
DataSet1
Filter
Weight
Split File
N of Rows in Working Data File
Missing Value Handling
Definition of Missing
32
User-defined missing values are treated
as missing.
Cases Used
Statistics are based on cases with no
missing values for any variable used.
Syntax
REGRESSION
/MISSING LISTWISE
/STATISTICS
COEFF
OUTS
R
ANOVA
/CRITERIA=PIN(.05) POUT(.10)
/NOORIGIN
/DEPENDENT cod
/METHOD=ENTER em.
Resources
Processor Time
00 00:00:00,015
Elapsed Time
00 00:00:00,038
Memory Required
Additional Memory Required for
Residual Plots
1436 bytes
0 bytes
Variables Entered/Removed
b
Variables
Model
Variables Entered
1
earnings
Removed
Method
.
Enter
management
a. All requested variables entered.
b. Dependent Variable: cost of debt
Model Summary
Model
R
1
Adjusted R
Std. Error of the
Square
Estimate
R Square
,110
a
,012
-,021 ,02747619517253
9
a. Predictors: (Constant), earnings management
b
ANOVA
Model
1
Sum of Squares
df
Mean Square
Regression
,000
1
,000
Residual
,023
30
,001
Total
,023
31
F
Sig.
,370
,547
a
a. Predictors: (Constant), earnings management
b. Dependent Variable: cost of debt
Coefficients
a
Standardized
Unstandardized Coefficients
Model
1
B
(Constant)
earnings
management
a. Dependent Variable: cost of debt
Std. Error
,033
,009
-,019
,032
Coefficients
Beta
-,110
t
Sig.
3,734
,001
-,608
,547
APPENDIX C
ADMINISTRATION
DAFTAR RIWAYAT HIDUP
DATA PRIBADI PENELITI
Nama
:
Tempat/Tanggal Lahir
:
Jenis kelamin
:
Agama
:
Alamat
:
Telepon/HP
:
Fransisca Winny Moranta Gultom
Medan/30 Juli 1991
Perempuan
Kristen Protestan
Jalan Notes Lrg. Gereja No. 53, Medan
081260463521
DATA ORANGTUA
Nama Ayah
Pekerjaan
Nama Ibu
Pekerjaan
: Jamahir Gultom, Ph. D.
: Dosen – PNS
: Nurhayani Samosir, B.A.
: Ibu Rumah Tangga
PENDIDIKAN
2010 – 2014
2006 – 2009
2003 – 2006
1997 – 2003
1996 – 1997
: Universitas Negeri Medan
: SMA Negeri 4 Medan
: SMP Swasta Kristen Kalam Kudus Medan
: SD Swasta Kristen Kalam Kudus Medan
: TK Swasta Kristen Kalam Kudus Medan
Medan,
Maret 2014
Yang Menyatakan
Fransisca Winny Moranta Gultom
NIM 7103220027
CHAPTER I
INTRODUCTION
1.1
Background of The Study
A company needs funds to finance its operations. One of them is by the
debt. Debt can come from bank loans or corporate bonds. Cost of debt is the rate
of return that must be repaid to the company's debts. The return rate is the
expected yield for the willingness of investors and creditors bear the risk. This is
what makes company urgently needs to consider the cost of corporate debt. If the
company's cost of debt is high, then the selling costs of company's products will
also increase due to increased production costs. This condition will be hard to
compete with other companies. Company will also be difficult to accept projects
due to high cost of debt. The company will be difficult to accept the project if the
estimated cash flows of the company is not as profitable (counting based on the
present value of future cash flows).
World Bank site reveals a comparison between inflation and interest rates
to borrow. In ASEAN comparison between inflation and borrowing interest rates
have varied differences. World Bank data shows that interest rate to borrow as one
proxy for measuring cost of debt, in Indonesia, in 2012 at a rate ranging from
12.4% to 5.4% of inflation which is higher than some other ASEAN countries
such as Malaysia from 4.9% to 3.2% of inflation, Singapore from 5.4% to 5.3% of
inflation, and Thailand from 6.9% to 3.8% of inflation. Cost of debt in Indonesia
is quite high. The interest rate is also higher than China which is in the range from
6.6% to 5.45% of inflation. It shows that interest rate to borrow in Indonesia
1
by taking into account the inflation rate is still quite high which indicates a high
cost of corporate debt in Indonesia.
An interest rate is the rate at which interest is paid by a borrower for the
use of money that they borrow from a lender (creditor). Interest rate set by the
central bank of country as a reference to relative interest rate to each country. In
Indonesia, the interest rate set by Bank Indonesia become the basis for calculating
interest rates. When the interest rate set by Bank Indonesia increased, then at the
same time interest rate set by the company when issuing bonds will also increase,
so the interest rate that can be borrowed or proxied by cost of debt will increase as
well.
High cost of debt is also due on each business risks. When the government
raises the interest rate, the increase is also borne by the investor. Business risk is
the potential change in the level of return on an investment. Business risk is the
uncertainty in projections of the company for return or profit in the future. Keown
et al. (2010) suggested that cost of debt is the rate of return expected by investors
over the debt, which is the return that is required when giving a loan to the
company. In order to understand the business risks of a company, stakeholders
(internal or external parties) need sufficient information about a company. The
required information was obtained from financial statements of company. In terms
of financial reporting, managers can perform earnings management to mislead
stakeholders of the company's economic performance. Earnings management is
accounting policy choice by manager in order to achieve his own goals.
Meanwhile, according to (Copeland in Utami, 2005), earnings management is
management efforts to maximize or minimize income, including income
smoothing in accordance with the desire of management.
Manager knows more about the company's internal information and
prospects in the future than the owner. This privilege is used by managers as an
opportunistic behavior in disclosing information about the company. Supposedly
the manager shall provide a signal about the state of the company to the owner
through disclosure of accounting information in the financial statements.
However, most of the times the information submitted is not acceptable according
to the actual condition of the company. This condition is known as asymmetric
information that received by investors as a bad signal. Bad signal derived from
earnings management practices in company. When the information is not real at
the same time the quality of financial reporting is in doubt. The doubtful of
financial reporting leads to lower earnings quality. It means investors are aware
that they have to bear high risk over uncertainty. This uncertainty will lead to high
cost of debt.
Companies with good conditions indicated by the effectiveness of the
company to utilize its resources. The utilization of resources is characterized by
the ability of the company to be able to generate profits from its activities. In this
study, researcher prefer to use account receivable turnover and inventory turnover
to analyze how company’s activities in making profit. Measurements with that
ratios were chosen to do in the consumer goods company. The consumer goods
company must have a high activity of the company. This company has the
characteristics of trading and manufacturing companies simultaneously. The
identity indicates a good signal to be able to assess the activity of the company,
especially in generating profits. Moreover, if company really has good activity,
surely, the tendency to perform earnings management is not required. Similarly
with debt. If both corporate activity and profit target is achieved, then the
company does not have to pay the high cost of debt, as funding from the
company's borrowing will also be smaller.
In line with this, Rao and Rao Madhusudhana Prahlada (2009) stated that
the activity of the company is important to establish a chain of company
performance. Effectiveness of the company indicating the best time to utilize the
company's activities in generating profits. The company must be able to adapt to
the appropriate time in order to move well so that continuity of the company is
also guaranteed. As a form of improvising its business, as well as the company
should maintain its effectiveness.
Empirical research that support high cost of debt due to earnings
management practices supported by research Valipour and Moradbeygi (2011).
They observed that the low quality of earnings, will result in a higher cost of debt.
The low earnings quality due to earnings manipulation detected by investors as a
form of earnings management. It can be concluded that firms aggressively use
accruals to manage earnings to avoid covenant violations and reduce the cost of
financing, including cost of debt.
This result is in contrast to Gray, Koh and Tong (2009) which states that
there is no relationship between earnings management in the accrual process with
high cost of debt of the company. Their research in Austaralia concluded that the
quality of accruals that are not associated with the cost of debt. The quality of
accruals considered only affects cost of equity in the equity market, but had no
effect on cost of debt in debt market.
Previous studies have shown inconsistent results. Therefore, researcher
will examine the effect of earnings management on the cost of debt. In this
research efectiveness of the company is used to examine whether effectiveness of
the company will strengthen or weaken the relation between earnings
management and the cost of debt. In accordance with this background, the
researcher is interested to research “The Influence of Earnings Management on
The Cost of Debt (An Empirical Study on Listed Consumer Goods
Companies in Indonesia Stock Exchange).”
1.2
Identification of The Problem
As related to the background, the identification problem are as follows:
1. What is the reason of company in considering its cost of debt?
2. Do company’s efectiveness describe earnings management practice?
3. Do earnings management influence on the cost of debt?
4. Does company’s efectiveness moderate on the relation of earnings
management and cost of debt?
1.3
Limitation of Problem
The problem of this research is limited to the influence of earnings
management on the cost of debt that moderates by company’s efectiveness which
are accounts receivable turnover and inventory turnover on listed consumer goods
companies in Indonesia Stock Exchange (IDX) during in 2012.
1.4
Research Question
From the background of the problem, the research questions are formulated
as follows :
1.
Do earnings management influence on the cost of debt?
2.
Does company’s accounts receivable turnover moderate the relation of
earnings management and cost of debt?
3.
Does company’s inventory turnover moderate the relation of earnings
management and cost of debt?
1.5
Research Objective
According to the problem, research objectives are as follows:
1.
To analyze the influence of earnings management on the cost of debt
2.
To analyze the influence of accounts receivable turnover to the relation of
earnings management and cost of debt
3.
To analyze the influence of inventory turnover to the relation of earnings
management and cost of debt
1.6
Research Contributions
The contributions of the study are as follows:
1.
For researcher, to prove empirically the influence of earnings management on
the cost of debt
2.
For academics, the results of this research are expected to contribute
additional information that available for students in studying similar material
3.
For next researchers, as reference material and resources to conduct further
research
CHAPTER V
CONCLUSION AND SUGGESTION
5.1 Conclusion
From research analysis and discussion which has been elaborated before
and based on data obtained from research as which has been discussed in this
research, the conclusion is based on the regression test, hypothesis test rejects H1
(0.547 > 0.05). It means earnings management has no influence on cost of debt.
5.2 Suggestion
Based on conclusions explained before and research findings, hence
submitted suggestions as follows.
1. Researcher suggest next researcher to expand the sample where the sample
is not limited at consumer goods companies but also expanding the
sample all of manufacturing companies that listed in Indonesia Stock
Exchange.
2. Researcher suggest next researcher to use other variables that have not
been included in this research such as cost of equity or cost of capital or
other ratios that can be affected by earnings management and a range of
data time series so it can explain the overall effects of earnings
management.
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