Keyword

Narcissistic CEOs, quality of internal audit function, real earnings management, cash flow from operation (CFO), production costs, discretionary expenses

Abstract

This study aims to investigate the roles of internal audit quality on the effects of narcissistic Chief Executive Officers (CEOs) to earnings management through real activities manipulation.  The research design is quantitative method using secondary data. The sample used in this study consisted of  116 manufacturing Companies which are listed on Indonesia Stock Exchanges for the period of 2013 to 2015. Earnings management through real activities manipulation which is also called real earnings management is proxied with three patterns: cash flow from operation (CFO), production costs, and discretionary expenses as developed by Roychowdhury (2006). The results show that narcissistic CEOs has a positive and significant effect toward real earnings management in the pattern of cash flow from operation and in the pattern of discretionary expenses. Narcissistic CEOs has no effect toward real earnings management in production costs pattern. The results of this study also provide empirical evidence that quality of internal audit can alleviate the influence of narcissistic CEOs toward real earnings management in the pattern of cash flow from operation. Meanwhile, internal audit quality can not mitigate the effects of narcissistic CEOs toward real earnings management in the patterns of production costs and  discretionary expenses. 


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