Bid-Ask Spread on Earnings Management with Good Corporate
Governance as Moderation Variables: Banking Sector in Indonesia
IMAM GHOZALI, SUGENG WAHYUDI, HERSUGONDO
Department Management, Faculty of Economics and Business, Diponegoro University, INDONESIA
ANTON SATRIA PRABUWONO
Faculty of Computing and Information Technology, King Abdul Aziz University, Saudi Arabia
IMANG DAPIT PAMUNGKAS
Department of Accounting, Faculty of Economics and Business, Dian Nuswantoro University,
INDONESIA
Abstract: - This study aims to determine the effect of the bid-ask spread on earnings management and good
corporate governance (GCG) as moderating variables. The research method used is a quantitatively descriptive
research method that aims to examine the effect of bid-ask spread on the earning management moderated by
GCG. The population in this study are banking companies listed on the Indonesia Stock Exchange (IDX). In
this study, found that the sample was obtained using purposive sampling. So, the model in this study with 102
total samples. The analysis tool used is Warp-PLS 6.0. This study shows that the bid-ask spread significantly
influences on earnings management of banking companies on the IDX in the years 2014-2020. GCG cannot the
effects of bid-ask spreads on the earnings management of banking companies on the IDX in the years 2014-
2020.
Key-Words: - Bid-Ask Spread, Earnings Management, Good Corporate Governance
Received: June 17, 2021. Revised: December 21, 2021. Accepted: January 16, 2022. Published: January 18, 2022.
1 Introduction
Financial statements are an essential tool and source
of information used by outside parties to assess the
company's performance. The information provided
must be relevant and reliable to describe the actual
financial position of a company. Earning is one of
the primary goals of starting a business. This is the
main factor that leads managers to take many
avenues, such as earning management, to increase
their company's bottom line [1]. Management
always tries to perform well. The goal is also to
produce good financial reports. If management fails
to do this, it usually changes the financial statements
by increasing or decreasing profits, known as
earning management [2]. In financial accounting,
earning management is still controversial.
According to [3], earning management is a deviation
due to profit figures in the annual financial
statements.
Earning management arises from agency
problems, namely from the conflicts of interest
between owners and management. Earning
management measures are based on two behaviour
of managers, namely opportunistic behaviour and
efficient contract drafting. Both can affect the
results reported in the annual financial statements,
which can mislead users of annual financial
statements in making economic decisions. The part
of financial statements that shareholders often use to
make investment decisions is income information.
Because profit is an indicator that is widely used to
measure the success of the company's operational
performance, by agency theory, earnings
management practices are reflected in the
opportunistic behavior of management. [4]. Agency
theory explains that managers can act
opportunistically when the company performs
poorly by increasing book profit to hide poor
performance. Conversely, managers can work
opportunistically by lowering their book profit to
delay exemplary implementation [5].
There have been many cases of revenue
management in several banking companies,
particularly PT Bank Mandiri Syariah (BSM.) in
2018. The subsidiary of PT Bank Mandiri Tbk has
launched a fictional action worth Rs.1.1 trillion. The
Indonesian Anti-Corruption Society (MAKI)
assesses whether the money disbursed is not used by
submitting a financing proposal from the debtor so
that it is called fictitious. In addition, the question of
the disbursement of financing is used in self-
interest. Gave the allegedly fictional funding to
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Imam Ghozali, Sugeng Wahyudi,
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several companies such as PT A worth Rp 21.22
billion, PT GAI Rp 6.92 billion, PT QP Rp 3.49
billion, PT EEI Rp 9.52 billion, PT DSM Rp 7.64
billion, PT BBL Rp 34.53 billion, and PT MRP Rp
17.42 billion [6]. The following case earning
management at PT Bank Bukopin has proven
inaccurate year-end information over the past five
years. On April 25, 2018, it was determined that PT
Bank Bukopin had corrected its 2016 annual
financial statements. 1.08 trillion in Rp. 183.53
billion PT Bank Bukopin arranged several credit
card business outcomes unusually, leading to
significant information changes [7].
One of the causes of earnings management is the
bid-ask spread which becomes information
asymmetry, namely the distance between the lowest
offer price (bid) and the highest ask price (ask) [8].
Information asymmetry occurs when investors and
management have different information that causes
investors to lose their decision-making. Studies by
[3] show that the bid-ask spread positively affects
earning management. Suppose the spread is large,
the greater the chance for managers to take action to
control earnings. Large spreads indicate the
imbalance in information ownership between
external parties and internal parties. Managers
efficiently manage results out of their interest or the
urge to perform well because outside parties do not
know their state and prospects. These results agree
[9] that the asymmetry of information with bid-ask
spread positively affects earning management.
However, the results from the research by [2] show
that the bid-ask spread does not affect earnings
management.
There are several differences in the study results,
such as [10], [11] study, which shows that the bid-
ask spread positively affects earnings management.
Meanwhile, research by [2] indicates a negative
impact between bid-ask spreads on earnings
management. Research by [11] that the bid-ask
spread has a positive and significant effect on
earnings management practices because the
activities of the managers are not precisely known to
the investors. However, the results of this study are
not identical to the research by [12]. The results of
this study contradict [9], [13]–[16] that information
asymmetry does not have a significant impact on
earning management.
GCG is one of the company's regulatory and
control systems to create added value for the
stakeholders [17]. The GCG concept essentially
requires transparency for all of this information to
protect all interests of the principal [18].
Implementing corporate governance that is not
maximized will lead to information asymmetry
conditions that will cause agents to take measures to
control earnings. The corporate governance
mechanism can produce financial reports in which
the description contains profit information.
Companies need to implement a better monitoring
and control system to reduce earning management
practices [19]. GCG is a way to ensure that capital
owners are confident about getting the returns on
their investments. GCG also aims to control the
relationship between clients to minimize errors [20].
[3] shows that GCG can weaken the effect of
bid-ask spreads on earnings management practices.
Based on the research results by [16], it is proven
that GCG can mitigate the impact of information
asymmetry on earnings management. However, in
contrast to the effects of [8], it shows that GCG
cannot minimize the impact of bid-ask spreads on
earnings management. The results of these studies
indicate that there are inconsistencies, it requires
further testing. Novelty in this study adds Good
Corporate Governance as moderation variables to
the relationship between bid-ask spread on earnings
management. This study aims to determine the
effect of the bid-ask spread on earnings
management. The benefits of this research are
expected to be used to increase knowledge, broaden
insight, and complement previous research.
Furthermore, it can be used as input and as
additional reference material for investors. Investors
are advised to pay attention to the supporting
factors, namely, to continue implementing better
corporate governance in the company every year
before investing. The next step is to find out
whether GCG, as a moderating variable, can
strengthen or weaken the impact of bid-ask spreads
on earnings management.
2 Literature Review
2.1 Agency Theory
According to agency theory, agents and
shareholders have different interests because of the
various goals of the two [4]. The owner of the
company strives for a high return on investment; the
agent, on the other hand, strives for maximum
personal compensation from his performance,
measured by the company's profit. Therefore, the
management tries to manipulate the actual profit
situation of the company to get maximum
compensation. This is an opportunity for the
administration to do earning management.
Information asymmetry can occur in uneven
communication between agents and principals
because agents exhibit dysfunctional behavior.
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Agency theory states that an oversight mechanism
can reduce conflicts between agents and principals.
In contrast to GCG, it can reconcile various interests
that exist in the company. The existence of
oversight will prevent management from taking
action. This can be disadvantageous for
shareholders, so that can reduce costs or losses due
to management measures.
2.2 Earning Management
Earning control is a form of variance that affects the
profit figures in the financial statements. According
to [21], an information imbalance can create
opportunities for earning management. Earning
management can be done through provisioning
policies or real-world activities [22]. Earning
control measures show that the reported income
does not match the actual economic situation, so the
reported income can be higher or lower. Results
reports that do not describe economic
conditions/positions are only made at the request of
management so that management appears to be
performing well. According to [23], "Earning
management is the activity of executives who intend
to influence and intervene in the company's annual
financial statements." If the manager carries out the
earning management, that is, decides on the
method/system and accounting standard used. This
corresponds to the company's needs presented in the
financial statements; this step does not include cases
of fraud and management errors. However, suppose
during the action to amend the financial statements,
the manager did it only for his benefit, taking
advantage of the client's misunderstanding regarding
the information about the real state of the company.
In that case, this revenue management action is
known as a fraud by the manager. Management
aims to obscure the users' understanding of financial
statements. Conceptually, efforts are made to cover
up, delay disclosure, and change any financial or
information from managers to mislead interested
parties in the company's financial statements and
terms and conditions and performance. The more
information the company has in the hands of the
managers than the shareholders. More and more
managers will have the opportunity to operate
earning management.
2.3 Bid-Ask Spread
[24] explains that the bid-ask spread is a function of
three cost components: warehousing, order
fulfillment, and asymmetric information. [25]
emphasize that studies of transaction
costs/proximity costs should distinguish trader
spreads from market spreads. Furthermore, [26]
stated that the trader's spread of a stock is the
difference between the offer price and the offer
price, which is determined individually by the trader
when the shares are traded. The market spread is the
difference between the highest bid price and the
lowest ask price of traders trading stocks together.
Thus, market spreads can be smaller when
compared to dealer spreads.
This is one of the factors that investors consider
when deciding whether to hold or sell the stocks.
According to [27] that the bid-ask spread is a
function of transaction costs. Assets with larger
spaces are projected to generate higher expected
returns, so investors expect a long holding period.
Bid-ask spread dealers and brokers are often used by
investors when buying and selling stocks or
securities. The traders and brokers sell supplies to
investors at the asking price. If the investor already
owns the store and wants to sell it, the dealer or
broker will buy the stock at the bid price. The
difference between the asking price and the bid
price is known as the spread. The bid price is the
highest price offered, while the lowest priced one is
willing to accept to sell the stock is called the asking
price. The larger the spread, the higher the
probability of controlling earnings. If the spread is
large, the stock's liquidity will be less. This is
because the demand for supplies decreases, so the
liquidity of stocks falls. The higher the bid-ask
spread, the higher the likelihood of earning
management practices.
2.4 Good Corporate Governance
According to [20], corporate governance is a system
that regulates, controls, and monitors business
control processes. GCG is a concept that can
increase economic efficiency and involves multiple
connections between company executives, directors,
shareholders, government, employees, and other
corporate actors [28]. Corporate governance also
provides opportunities for setting corporate goals
and making decisions about performance
monitoring techniques. One of the appropriate steps
to monitor contractual issues and constraints on
opportunistic management behaviour is corporate
governance [29]. Regarding the agency issue,
corporate governance, which has a conceptual
meaning based on agency theory, is expected to help
give investors confidence/reassurance that investors
are getting a return on the money/capital they
purchase that you invested or invested.
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2.5 The Effect of the Bid-Ask Spread on
Earning Management
Some researchers have found that bid-ask spreads
can affect earnings management. [2], [10] show that
the bid-ask spread positively affects earnings
management when the spread is large, the more
opportunities for managers to conduct earning
management. Financial reports are the most
important and are needed to reach an agreement on
the investment in the company by outside parties.
The signaling theory states that there is an
imbalance between internal and external parties.
Investors do not have that information; it leads
managers to conduct revenue management and give
misleading signals to investors [30]. Studies [3]
show that the bid-ask spread positively affects
earning management. When the space is ample, the
more excellent the opportunity for managers to
conduct earning management. The results of large
spreads evidence the imbalance in information
ownership between internal and external parties.
Managers efficiently manage earnings out of
personal interests or want to perform well when
outside parties are unaware of the company's state.
In further studies, the information asymmetry
using the bid-ask spread harms earning management
[8]. Every company does not desire information
asymmetry as it can influence the development of
earning management measures. The information
asymmetry is indicated by the difference to the bid-
ask, measured by the spread. Then the investigation
of information asymmetry carried out by Wiharno &
Rahayu, (2018), calculated using the bid-ask
distance, has a positive effect on earnings
management. Similarly, studying the information
asymmetry represented by the bid-ask spread
positively impacts earning management [9].
H1: Bid-ask spread has a positive effect on earning
management
2.6 The Effect of Good Corporate
Governance in Moderating the Relationship
between Bid-Ask Spread on Earnings
Management
GCG will encourage transparency of financial
documents and reports as well as practical and
efficient supervision. The existence of transparency
in the reporting of financial statements allows
owners to monitor managers' performance, thereby
minimizing earnings management practices.
Manager intervention in preparing financial
statements to increase personal profit is known as
earnings management. [21] notes that corporate
governance can reduce the practice of earnings
management. In companies with large bid-ask
spreads, internal parties have more information than
external parties in creating earnings management
opportunities. If the company has GCG, the
supervision is tighter, so it can eliminate earnings
management practices. The existence of GCG is
expected to weaken the relationship between Bid-
ask spread and earnings management. A study by
[14] shows that corporate governance moderates the
effect of bid-ask spreads on earnings management.
Based on the agency theory of [32], earning
management can be minimized with GCG. GCG can
control actions that agents should not carry out.
Research by [3] shows that corporate governance
can dampen the effects of the bid-ask spread on
earnings management. Companies require the
implementation of corporate governance to prevent
revenue management practices. Investors can also
consider corporate governance before making
investment decisions. This study aligns with [8] that
corporate governance can moderate the impact of
the bid-ask spread on earnings management. Studies
by [23] also show that corporate governance can
mitigate information asymmetries on earning
management. A company that is still weak in
implementing corporate governance can create
opportunities for several parties to maximize their
interests. With excellent and correct corporate
governance can avoid excessive revenue
management. The implementation of GCG is
urgently required for the company as a reference for
a transparent, efficient, and legally compliant
market. The performance of corporate governance
with applicable principles and guidelines can
minimize information inequality in the company
[33].
H2
H1
Fig. 1: Research Model
GCG can control irregularities that agents shouldn't.
CGPI is a research and rating program organized by
IICG to implement GCG in Indonesia in listed
companies. The CGPI rating is carried out to
improve the quality of executing the GCG principles
by listed companies in Indonesia. The IICG ranking
of the scores of listed companies aims to positively
influence the future of the company. FCGI believes
Bid-Ask Spread
Good Corporate Governance
Earning Management
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that implementing GCG can achieve several
benefits, namely: (1) facilitating the capital increase,
(2) reducing the cost of capital, (3) improving
economic and business performance, (4)
Determining share prices [34].
H2: GCG weakens the relationship between the bid-
ask spread and earning management.
3 Method
The type of data in this study is quantitative data in
the form of numbers in the annual report, stock
prices, and research from IICG in the form of
Corporate Governance Perception Index (CGPI)
scores. The data source used in this study is
secondary data from the annual financial statements
of banking companies for 2014-2020. The data
source in this study is the annual financial
statements listed in the (IDX) for the period 2014-
2020 and taken from www.IDX.co.id. The bid-ask
data is from Yahoo Financial in the historical data
section. Then you can access the CGPI rating data
by contacting the Indonesian Institute of Corporate
Governance (IICG) office or SWA magazine
www.swa.co.id. The examination of the influence of
the variable GCG in the connection between
information asymmetry and earning management is
carried out with the help of a regression equation
through an interaction test, moderated regression
analysis (MRA). According to [35], MRA is a
particular application of multiple linear regression
that includes interactive elements in the regression
equation (multiplication of two or more independent
variables). The following table describes the
operating variables used in this study, as shown in
Table 1.
Table 1. Definition of Operational Variables
Variable
Proxy
Scale
Source
Earning
Management
TAit = NIit –
OCFit
=
………………(1)
NDA.it =
Ratio
[3]
……………..(2)
DAit =
–
NDAit………...(3)
Information :
NI.it = net profit
of company i in
the t-period
OCFit = cash
operating activities
of the company i
in the t-period
T.A.C.it = total
company accrual i
in the t-period
DAit =
discretionary
accrual of a
company i in the t-
period
TAit-1 = total
company accrual i
in the t-period
N.D.A.it = non-
discretionary
accrual of
company i in the t-
period
Revit = company
income i in the t-
period
Recit = company
receivables i in the
t-period
P.P.E.it = fixed
assets before the
accumulation of
company i in the t-
period
Bid-Ask
Spread
Spread =
Information :
Ask i,t = Highest
ask price asked
Bid i,t = Lowest
bid price accepted
Ratio
[3]
Good
Corporate
Governance
CGPI
Ratio
[3]
Source: data that has been processed, (2021)
Based on several specified criteria, the sampling
method used is targeted sampling. The sample is
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based on the following criteria [3]; a) Go to public
banking companies listed in the IDX. b) The model
company has published an annual report for the
2014-2020 financial year. c) The example company
has year-end bid and ask data, so there are 17 banks
with annual report observations for 2014-2020, so
there are 102 observations. Below are the sampling
criteria for banking companies in the IDX for the
period 2014-2020. The sampling criteria used are as
follows:
Table 2. Data Sample
No.
Sample Criteria
Total
1.
Banking companies listed on the
Indonesia Stock Exchange (IDX) for
the period 2014-2020
46
2.
Banking companies that do not
follow the CGPI assessment by IICG
in 2014-2020
(29)
3.
Banking companies that do not use
rupiah in their financial statements
for 2014-2020
(0)
Number of Research Samples
17
Observation Year
6
Total Data
102
Source: data that has been processed, (2021)
4 Result and Discussion
The results of this study displayed are secondary
data processed using the Warp-PLS 6.0 program.
Carried out the results for testing on 102 samples
with the following results:
Table 3. Model Fit
Criteria
Cut of Value
Results
Evaluation
Average Path
Coefficient
(APC)
P = 0.001
0.232
Fit Model
Average R-
Squared (ARS)
P < 0.001
0.367
Fit Model
Average
Adjusted R-
Squared
(AARS)
P < 0.001
0.317
Fit Model
Average block
VIF (AVIF)
acceptable if
<= 5, ideally
<= 3.3
1.084
Fit Model
Average Full
Collinearity
VIF (AFVIF)
acceptable if
<= 5, ideally
<= 3.3
1.327
Fit Model
Tenenhaus GoF
(GoF)
small >= 0.1,
medium >=
0.25, large
>= 0.36
0.409
Fit Model
Sympson’s
paradox ratio
acceptable if
>= 0.7,
0.858
Fit Model
(SPR)
ideally = 1
R-squared
contribution
ratio (RSCR)
acceptable if
>= 0.9,
ideally = 1
0.974
Fit Model
Statistical
suppression
ratio (SSR)
acceptable if
>= 0.7
0.751
Fit Model
Nonlinear
bivariate
causality
direction ratio
(NLBCDR)
acceptable if
>= 0.7
0.778
Fit Model
Source: Warp-PLS 6.0 output processed, (2021)
Table 3 shows the model fit indicators, which
can conclude that the model has a good fit, where
the P-value for the Average path coefficient (APC)
is 0.232, so the APC value meets the model fit.
Average R-squared (ARS) and average adjusted R-
squared (AARS). Which means the model fit. The
resulting average block VIF (AVIF), Average full
collinearity VIF (AFVIF) meet less than 5. This
means that the research data is declared fit and does
not have multicollinearity problems between
indicators. The resulting Tanenhaus GoF (GoF) is
0.409>0.36, which means the model is good.
Sympson's paradox ratio (SPR) and R-squared
contribution ratio (RSCR) produce a value equal to
1, which means there is no causality problem in the
model. Meanwhile, the Statistical suppression ratio
(SSR) and Nonlinear bivariate causality direction
ratio (NLBCDR) resulted in a value of 0.778<0.7,
which means weak causality.
Table 4. Descriptive Statistics
N
Min
Max
Mean
Std.
Dev
BAS
102
.000
14.271
2.466
2.382
EM
102
-.678
2.436
-.186
.647
GCG
102
85.750
94.860
8.784
2.327
Valid N
(listwise)
102
Source: SPSS output, (2021)
Table 5. Path Coefficient
Variable
Path
Coefficients
P-Value
Result
BAS
0.406
0.003
Effect
GCG* BAS
-0.239
0.060
No effect
Source: Warp-PLS 6.0 output processed
Table 6. Hypothesis Testing Results
H
Hypothesis
Description
Path
Coeff
icient
Value
P-
Value
Decision
H1
Bid-ask spread has a
0.406
0.003
Accepted
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significant positive
effect on earnings
management
H2
Corporate
governance
moderates the effect
of bid-ask spread on
earnings
management.
-
0.239
0.060
Rejected
Source: Warp-PLS 6.0 output processed, (2021)
4.1 Bid-ask Spread on Earning Management
The hypothesis test results result in a p-value of
0.003 so that the variable bid-ask spread has a
significant influence on earnings management. The
first hypothesis of this study is rejected because a
large spread increases the manager's ability to
manage earnings. Large spreads can indicate an
information imbalance between internal and
external parties. Managers easily control profits out
of their interest or are pressured to perform well in
the company because external parties themselves do
not know its condition and prospects. The results of
this study are consistent with the research carried
out [3] also showed a negative correlation between
bid-ask spreads as a proxy for information
asymmetry in earnings management.
The low prevalence of thinning transactions on
the stock exchange, reinforced by the OJK capital
market statistics 2018. This shows the value
compared with the number of public offers in 2017
and 2018, averages 252.6 and 283.2. Asymmetrical
relationships, which rely more on equity than debt
financing. The information asymmetry does not
influence earnings management due to the
possibility of good economic growth and the
potential of financial reporting based on qualitative
principles. Studies support the results of this study
by [8], [9], [13].
The presence of a bid-ask spread can encourage
managers to provide information that is not
occurring. The results of this study are also
supported by previous research, namely research by
[2], [10], that information asymmetry affects
earning management. This aligns with the [11]
study, which shows that information asymmetry
positively impacts revenue management practices.
Agency theory implies that information
asymmetries exist between managers to take earning
management measures aimed at acting
opportunistically, namely to maximize personal
profit. From this, can conclude that information
asymmetry has a positive correlation and impacts
earning management. In other words, if the bid-ask
spread is high, it can affect earnings management
practices.
The first hypothesis in this study is accepted
because when the spread is large, the more excellent
the opportunity for managers to carry out earnings
management. Large spreads can indicate an
imbalance of information ownership between
internal parties and external parties. Because
external parties do not know the state and prospects
of the company in the future, managers can easily
carry out earnings management for their interests or
because of the urge to show good performance.
Managers manage earnings as much as possible to
achieve performance targets and compensation
bonuses, reduce the possibility of violating debt
covenants, and reduce political costs. However, due
to the intervention of parliament, it can minimize
management's flexibility to manage earnings by
providing better and better information to outsiders.
The quality of the financial statements will show the
company's earnings management level; this will
show a large spread. Therefore, when the spread on
the company is large, it will increase the manager's
opportunity to carry out earnings management.
4.2 Good Corporate Governance Moderates
Bid-Ask Spread on Earning Management
The results of testing the second hypothesis show
that corporate governance cannot moderate the
effect of the bid-ask spread on earning management.
So, can conclude that the second hypothesis of this
study was rejected. The results of this study are by
the research of [3]. The purpose of implementing
GCG is to reduce agency problems. Agency
problems can occur because there is a conflict of
interest between the agent and the principal. The
agent wants to fulfill his interests but must also
improve the welfare of the principal. These
differences in interests can motivate earnings
management practices. The implementation of good
corporate governance is expected to reduce the
opportunism of managers in managing the company.
Managers' opportunistic behavior is born from a
conflict of interest between managers as agents and
stakeholders as principals. There is a tendency for
managers to behave in moral hazard to avoid risk by
utilizing information imbalance (information
asymmetry). Applying the principles of good
corporate governance consisting of transparency,
accountability, responsibility, and fairness is
expected to safeguard the interests of various parties
within the company, including losses to outsiders
due to the manager's opportunistic behavior. So,
even though the spread is large and there is an
opportunity to carry out earnings management, the
possibility of opportunistic behaviour can be
suppressed by GCG.
WSEAS TRANSACTIONS on BUSINESS and ECONOMICS
DOI: 10.37394/23207.2022.19.34
Imam Ghozali, Sugeng Wahyudi,
Hersugondo, Anton Satria Prabuwono,
Imang Dapit Pamungkas
E-ISSN: 2224-2899
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This is because IICG and SWA the magazine
announced the previous year's survey results in the
following year. Therefore, the results of the CGPI
assessment are less than optimal in the year they
should be. IICG and SWA announce information
related to GCG. The CGPI score can cause this to
happen because the CGPI score from the survey
from the IICG does not reflect the actual corporate
governance in the relevant year. Thus, the results of
the CGPI assessment are less than optimal in the
year they should be. The occurrence of conflicts
between owners and managers of the company can
be reduced to a control mechanism that can
harmonize the interests of a company. The results of
this study are by [11] that GCG cannot moderate the
relationship between bid-ask spreads on earnings
management. According to agency theory, the
application of GCG is believed to moderate the
effect of the bid-ask spread on earnings
management. According to agency theory, can be
minimized earnings management actions by
implementing GCG by aligning the interests of
various parties. The trick is to increase supervision
of management performance and accountability to
reduce the level of earnings management.
The delay in submitting information related to
GCG can be interpreted that the GCG index does
not affect the possibility of management to carry out
earnings management. Therefore, the
implementation of GCG does not reduce the level of
corporate earnings management. Although the study
results show that GCG cannot weaken the effect of
bid-ask spreads on earnings management, corporate
stakeholders should consider implementing GCG to
control and prevent earnings management actions.
Information related to GCG announced by IICG and
SWA magazine is one of the signals given by the
company to reduce the occurrence of information
asymmetry. Can use it to make decisions in the
capital market. The delay in delivering information
related to GCG shows that the GCG index does not
affect the possibility of management to carry out
earnings management. Therefore, the
implementation of GCG does not reduce the
company's earnings management level. The results
of this study indicate that although GCG cannot
weaken the effect of bid-ask spread on earnings
management, corporate stakeholders should
consider the application of GCG as an effort to
control and prevent earnings management actions.
However, the hypothesis in this study was rejected.
5 Conclusion
Based on the results of hypothesis testing, it can be
concluded as follows: (1) Bid-ask spread has a
positive effect on earnings management. So, if
investors want to make investment decisions and if
investors want to see if there are indications of
earnings management in the company. Investors can
consider it by looking at and analyzing the value of
the bid-ask spread. (2) GCG cannot moderate the
effect of bid-ask spread on earnings management.
Applying good rules is needed to prevent
opportunities for earnings management practices,
such as strengthening and implementing internal
control systems. Investors can also consider
corporate governance factors before making
investment decisions. This study has several
limitations, such as the variables used are limited to
only one independent variable with one moderating
variable. In addition, the sample of this study is
limited because it uses the CGPI proxy. Conflicts
between owners and managers of the company can
be reduced to a control mechanism that can
harmonize various interests within the company.
Based on the research results and conclusions,
can give various recommendations. Suggestions for
further research are to expand and increase the
number of research samples by extending the
research period. Furthermore, using proxies other
than CGPI to measure corporate governance
variables. The number of companies participating in
the research/CGPI rating is minimal, and adding
other variables can affect earnings management.
Investors are advised to pay attention to the
supporting factors, namely, to continue
implementing better corporate governance in the
company every year before investing. In future
research, can use other proxies to measure earnings
management, namely accrual earnings management.
Acknowledgment:
This research was funded by the World Class
Research Diponegoro University, Grant No. 118-
01/UN7.6.1/PP/2021 for the 2021 and 2022 fiscal
years.
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Hersugondo, Anton Satria Prabuwono,
Imang Dapit Pamungkas
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Contribution of Individual Authors to the
Creation of a Scientific Article (Ghostwriting
Policy)
Imam Ghozali find research ideas.
Sugeng Wahyudi focus on phenomena and
research GAP.
Hersugondo analyzing data.
Abdul Karim collecting data.
Anton Satria Prabuwono method, translating
and proofreading article.
Imang Dapit Pamungkas Corresponding
Author, Submit article, Mendeley references
and Revision article.
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DOI: 10.37394/23207.2022.19.34
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Hersugondo, Anton Satria Prabuwono,
Imang Dapit Pamungkas
E-ISSN: 2224-2899
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