Determinants of Earnings Management: Operating Cash Flow, Profitability, and Firm Age in Food and Beverage Companies on the Indonesia Stock Exchange (Manajemen Bisnis dan Keuangan Korporat)

Summary

• The study covers 58 food and beverage firms on the Indonesia Stock Exchange during 2022–2024, giving 174 firm-year observations, of which 149 remained after outlier screening.p.1
• Operating cash flow is negatively and significantly associated with discretionary accruals.p.1
• Profitability is positively and significantly associated with discretionary accruals.p.1
• Firm age is not significantly associated with discretionary accruals.p.1
• The estimated regression is DA = -0.058 - 1.067CFO + 0.895ROA + 0.000AGE.p.11
• R Square is 0.764 and Adjusted R Square is 0.759, so the model explains 75.9% of the variation in discretionary accruals.p.11

Key insights

1. Firms with stronger operating cash flow report accruals that raise income less.p.1
2. More profitable firms report accruals that raise income more or lower it less.p.1
3. The t value of operating cash flow was -21.522 with Sig. below 0.001, so the hypothesis of a negative effect was accepted.p.11
4. Firm age had a t value of 1.615 and Sig. 0.108, so the hypothesis of a negative effect was rejected.p.11
5. The average signed discretionary accrual is negative at −0.0771, so results describe the direction of accruals, not the size of earnings management.p.13
6. The authors recommend that investors look at operating cash flow and report quality, not only profitability.p.14