Revealing the Effect of Bonus Compensation, Political Costs, and Opportunistic Behavior on Earnings Management Practices in the Indonesian Insurance Industry
DOI:
https://doi.org/10.55927/fjas.v4i1.13453Keywords:
Earnings Management, Bonus Compensation, Political Costs, Opportunistic Behavior, Indonesian Insurance IndustryAbstract
This study analyzes the effect of compensation bonuses, political costs, and opportunistic behavior on earnings management in the Indonesian insurance sector for the period 2019-2023, which was chosen due to increased regulatory pressure and economic challenges due to the COVID-19 pandemic. Using a quantitative approach, this study analyzes secondary data from the financial statements of insurance companies listed on the Indonesia Stock Exchange using multiple regression methods. The results show that political costs are significantly positively related to earnings management, supporting Positive Accounting Theory, while bonus compensation is significantly negatively related, in line with Agency Theory, which asserts that performance-based incentives can reduce earnings manipulation. Opportunistic behavior has no significant effect, indicating the limitations of the proxy in the context of the insurance industry. This research enriches the literature and offers practical insights for regulators and policy makers.
Downloads
References
Adhikari, A., Zhang, Y., & Lin, W. (2023). Earnings management practices in the insurance industry: A review of determinants and implications. Journal of Financial Reporting, 45(2), 102–120. https://doi.org/10.1007/s11633-023-1599-9
Bebchuk, L. A., & Fried, J. M. (2004). Pay without performance: The unfulfilled promise of executive compensation. Harvard University Press.
Belz, T., Hagen, D., & Steffens, C. (2018). Taxes and firm size: Political cost or political power? Journal of Accounting and Public Policy, 37(1), 29–52. https://doi.org/10.1016/j.jaccpubpol.2017.12.002
Bergh, D., Ketchen, D., Orlandi, I., Heugens, P., & Boyd, B. (2018). Information asymmetry in management research: Past accomplishments and future opportunities. Journal of Management, 45(1), 122–158.
Bergstresser, D., & Philippon, T. (2006). CEO incentives and earnings management: Evidence from the stock options. Journal of Financial Economics, 80(3), 511–529. https://doi.org/10.1016/j.jfineco.2004.10.014
Box, G. E. P., & Cox, D. R. (1964). An Analysis of Transformations. Journal of the Royal Statistical Society Series B: Statistical Methodology, 26(2), 211–243. https://doi.org/10.1111/j.2517-6161.1964.tb00553.x
Brink, A. (2020). The role of restricted stock in reducing real earnings management. https://consensus.app/papers/restricted-stock-and-real-earnings-management-brink/901234
Chen, J., Li, X., & Wu, Z. (2020). Earnings management and regulatory environment: Evidence from the insurance industry. International Review of Financial Analysis, 68, 101310.
Dechow, P. M., Ge, W., & Schrand, C. M. (2020). Understanding earnings quality: A review of the proxies, their determinants, and their consequences. Journal of Accounting and Economics, 50(2–3), 344–401.
DeFond, M. L., & Jiambalvo, J. (1994). Debt covenant violation and manipulation of accruals. Journal of Accounting and Economics, 17(1–2), 145–176.
Elfira, A. (2017). Pengaruh bonus kompensasi dan leverage terhadap manajemen laba (Studi empiris pada perusahaan manufaktur yang terdaftar di Bursa Efek Indonesia tahun 2009-2012). Jurnal Akuntansi, 2, 2.
Ghazali, A. W., Shafie, N. A., & Sanusi, Z. M. (2015). Earnings Management: An Analysis of Opportunistic Behaviour, Monitoring Mechanism and Financial Distress. Procedia Economics and Finance, 28(April), 190–201.
Ghozali, I. (2018). Aplikasi Analisis Multivariate dengan Program IBM SPSS 26. Badan Penerbit Universitas Diponegoro.
Gunny, K. A. (2010). The Relation Between Earnings Management Using Real Activities Manipulation and Future Performance: Evidence from Meeting Earnings Benchmarks. Contemporary Accounting Research, 27(3), 855–888.
Healy, P. M. (1985). The effect of bonus schemes on accounting decisions. Journal of Accounting and Economics, 7(1–3), 85–107.
Healy, P. M., & Palepu, K. G. (2001). Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature. Journal of Accounting and Economics, 31(1–3), 405–440.
Healy, P. M., & Wahlen, J. M. (1999). A review of the earnings management literature and its implications for standard setting. Accounting Horizons, 13(4), 365–383. https://doi.org/10.2308/acch.1999.13.4.365
Holderness, C. G. (2017). Equity compensation and its influence on real activity manipulation.
Huang, R., Sun, J., & Wang, H. (2021). Agency costs, information asymmetry, and earnings management: Evidence from highly regulated industries. Journal of Financial Regulation and Compliance, 29(4), 365–382.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs, and ownership structure. Journal of Financial Economics, 3(4), 305–360. https://doi.org/10.1016/0304-405X(76)90026-X
Jiraporn, P., Miller, G. A., Yoon, S. S., & Kim, Y. S. (2019). Earnings management, shareholder rights, and leverage: A panel data analysis. Review of Quantitative Finance and Accounting, 32(4), 667–689.
Kahneman, D., & Tversky, A. (1979). Prospect Theory: An Analysis of Decision under Risk. Econometrica, 47(2), 263–291.
Karim, R., Susanto, D., & Purnomo, H. (2022). The role of regulatory compliance in mitigating earnings management in Indonesian insurance firms. Asia-Pacific Journal of Accounting & Economics, 29(3), 218–237.
Kuzior, A. (2023). Transparency in the insurance market: The role of regulatory frameworks.
Li, C., & Zhang, Y. (2020). Information asymmetry and earnings management: Evidence from emerging markets. Journal of Corporate Finance, 62, 101570.
Maryati, S., & Siswanti, W. (2022). Earnings management in the insurance industry during economic uncertainty: Evidence from Indonesia. Journal of Risk Management, 48(2), 230–245. https://doi.org/10.1111/jrm.2022.01234
Nissim, D. (2010). Analysis and valuation of insurance companies.
Osborne, J. W. (2010). Improving your data transformations: Applying the Box-Cox transformation. Practical Assessment, Research and Evaluation, 15(12).
Priantinah, D. (2016). The influence of managerial ownership and compensation on earnings management. Jurnal Ekonomi Dan Bisnis, 14(2), 113–122.
Prihastomo, T., & Khafid, M. (2018). Bonus compensation and its impact on earnings management: Evidence from Indonesian firms. Jurnal Akuntansi Indonesia, 7(1), 45–59.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2025 Tatas Ridho Nugroho, Hari Setiono, Muhammad Bahril Ilmiddaviq

This work is licensed under a Creative Commons Attribution 4.0 International License.