Related Party Transactions, Family Ownership, and Earnings Management in Indonesia

Levina Ulfa Subastian, Ari Kuncara Widagdo, Doddy Setiawan


The purpose of earnings management practice is to reach the profit goals the company wants to achieve. Therefore, this study aims to determine the relationship between related party transactions and earnings management in Indonesia by balanced panel data from consumer goods companies listed on the Indonesia Stock Exchange (IDX) from 2017 to 2019. The number of samples used in this study was 102 firm-year observations. The results showed that related party transactions positively and significantly improved corporate earnings management, with discretionary accrual as a proxy. The presence of family ownership strengthens the relationship between related party transactions and earnings management. Also, it shows that the control variable: public accountant from BIG4, company size, company losses, and ROA affect accrual earnings management. The leverage does not affect accrual earnings management. The study result indicates that family business ownership encourages an entrenchment effect that is detrimental to the company. It is carried out through related party transactions then manipulated by using accrual earnings management practices.

DOI: 10.26905/jkdp.v25i3.5778


discretionary accruals; earnings management; family ownership structure; related party transaction

Full Text:



Aharony, J., Wang, J., & Yuan, H. (2010). Tunneling as an incentive for earnings management during the IPO process in China. Journal of Accounting and Public Policy, 29(1), 1–26.

Alhadab, M., Abdullatif, M., & Mansour, I. (2020). Related party transactions and earnings management in Jordan: The role of ownership structure. Journal of Financial Reporting and Accounting, 18(3), 505–531.

Ali, S. M., Salleh, N. M., & Hassan, M. S. (2008). Ownership structure and earnings management in Malaysian listed companies: the size effect. Asian Journal of Business and Accounting, 1(2), 89–116.

Avabruth, S. M., & Saravanan, P. (2018). Earnings management preferences of family firms and its impact on the market value of the firm. SSRN Electronic Journal.

Braam, G., Nandy, M., Weitzel, U., & Lodh, S. (2015). Accrual-based and real earnings management and political connections. International Journal of Accounting, 50(2), 111–141.

Brahmana, R. K., Setiawan, D., & Hooy, C. W. (2019). Controlling shareholders and the effect of diversification on firm value: evidence from Indonesian listed firms. Journal of Asia Business Studies, 13(3), 362–383.

Chen, J. J., Chengb, P., & Xiao, X. (2011). Related party transactions as a source of earnings management. Applied Financial Economics, 21(3), 165–181.

Cheng, P., & Chen, J. (2007). Related party transactions: a second source for earnings management – evidence from Chinese IPOs. American Accounting Association, Chicago.

Dechow, P. M., & Skinner, D. J. (2000). Earnings management: reconciling the views of accounting academics, practitioners, and regulators. Accounting Horizons, 14(2), 235–250.

Dechow, P. M., Sloan, R. G., & Sweeney, A. P. (1996). Causes and consequences of earnings manipulation: An analysis of firms subject to enforcement actions by the SEC. Contemporary Accounting Research, 13(1), 1–36.

Ding, Y., Zhang, H., & Zhang, J. (2007). Private vs. state ownership and earnings management: Evidence from Chinese listed companies. Corporate Governance: An International Review, 15(2), 223–238.

Dyanty, V., Utama, S., Rossieta, H., & Veronica, S. (2012). Pengaruh kepemilikan pengendali akhir, kepemilikan keluarga, serta praktek corporate governance terhadap transaksi pihak berelasi dan kualitas laba. Jurnal Simposium Nasional Akuntansi XV Banjarmasin, 20–22.

El-Helaly, M. (2016). Related party transactions and accounting quality in Greece. International Journal of Accounting and Information Management, 24(4), 375–390.

El-Helaly, M., Georgiou, I., & Lowe, A. D. (2018). The interplay between related party transactions and earnings management: The role of audit quality. Journal of International Accounting, Auditing, and Taxation, 32, 47–60.

Gordon, E. A., & Henry, E. (2005). Related party transactions and earnings management. SSRN Electronic Journal.

Gujarati, D. N., Porter, D. C., & Gunasekar, S. (2012). Basic econometrics. Tata McGRaw-Hill Education.

Haji-Abdullah, N. M., & Wan-Hussin, W. N. (2015). Related party transactions, audit committees and real earnings management: the moderating impact of family ownership. Advanced Science Letters, 21(6), 2033–2037.

Hasnan, S., Daie, M. S., & Hussain, A. R. M. (2016). Related party transactions and earnings quality: does corporate governance matter? International Journal of Economics and Management, 10(2), 189–219.

Hastuti, S. (2014). Titik kritis manajemen laba pada perubahan tahap life cycle perusahaan: analisis manajemen laba riil dan manajemen aaba akrual. Jurnal Akuntansi Dan Keuangan Indonesia, 8(2), 107–122.

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.

Hu, S. H., Li, G., Xu, Y. H., & Fan, X. A. (2012). Effects of internal governance factors on cross-border-related party transactions of Chinese companies. Emerging Markets Finance and Trade, 48(SUP1), 58–73.

Jalan, A., Badrinath, S. G., & Al-Gamrh, B. (2020). Women on audit committees and the relationship between related party transactions and earnings management. Strategic Change, 29(3), 389–406.

Jansen, I. P., Ramnath, S., & Yohn, T. L. (2012). A diagnostic for earnings management using changes in asset turnover and profit margin. Contemporary Accounting Research, 29(1), 221–251.

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.

Johnson, S., La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. (2000). Tunneling. American Economic Review, 90(2), 22–27.

Jones, J. J. (1991). Earnings management during import relief investigations. Journal of Accounting Research, 29(2), 193–228.

Juvita, D., & Siregar, S. V. (2013). Pengaruh corporate governance terhadap hubungan besaran dan pengungkapan transaksi pihak berelasi dengan manajemen laba: studi empiris perubahan PSAK No.7. Jurnal Akuntansi Dan Auditing, 10(1), 45–67.

Kharista, M., Purnomosidhi, B., & Subekti, I. (2020). The practice of expropriation through related party transactions In Indonesia. Jurnal Reviu Akuntansi Dan Keuangan, 10(2), 371–383.

Kuan, L., Tower, G., Rusmin, R., & Van Der Zahn, J.-L. W. M. (2010). Related party transactions and earnings management. Jurnal Akuntansi Dan Auditing Indonesia, 14(2), 115–193.

Kumala, R., & Siregar, S. V. (2020). Corporate social responsibility, family ownership, and earnings management: the case of Indonesia. Social Responsibility Journal.

Limanto, G. K., & Herusetya, A. (2017). The association between related party transactions and real earnings management: internal governance mechanism as moderating variables. SHS Web of Conferences, 34, 04008.

Lisboa, I. (2016). Impact of the financial crisis and family control on earning management of Portuguese listed firms. European Journal of Family Business, 6(2), 118–131.

Maigoshi, Z. S., Latif, R. A., & Kamardin, H. (2016). Earnings management: A case of related party transactions. International Journal of Economics and Financial Issues, 6(7S), 51–55.

Marchini, P. L., Mazza, T., & Medioli, A. (2018a). Related party transactions, corporate governance, and earnings management. Corporate Governance: The International Journal of Business in Society, 18(6), 1124–1146.

Marchini, P. L., Mazza, T., & Medioli, A. (2018b). The impact of related party transactions on earnings management: some insights from the Italian context. Journal of Management and Governance, 22(4), 981–1014.

Mardjono, E. S., Chen, Y.-S., & He, L.-J. (2020). Earning management and the effect characteristics of the audit committee, independent commissioners: Evidence from Indonesia. International Journal of Business and Society, 21(2), 569–587.

Mita, A. F., & Utama, S. (2015). The influence of corporate governance mechanism on the relationship between related party transactions and earnings management. International Research Journal of Business Studies, 7(1), 1–12.

Mohammed, N. H. (2019). Related party transactions, family firm, and firm performance empirical evidence from Turkey. Accounting Analysis Journal, 8(3), 179–183.

Muda, I., Maulana, W., Siregar, H. S., & Indra, N. (2018). The analysis of effects of good corporate governance on earnings management in Indonesia with panel data approach. Iranian Economic Review, 22(2), 599–625.

Munir, S., & Gul, R. J. (2012). Related Party Transactions, Family Firms, and Firm Performance: Some Malaysian Evidence. SSRN Electronic Journal.

Munir, S., Saleh, N. M., Jaffar, R., & Yatim, P. (2013). Family ownership, related-party transactions, and earnings quality. Asian Academy of Management Journal of Accounting and Finance, 9(1), 129–153.

Murhadi, W. R. (2009). Studi pengaruh good corporate governance terhadap praktik earnings management pada perusahaan terdaftar di PT Bursa Efek Indonesia. Jurnal Manajemen Dan Kewirausahaan, 11(1), 1–10.

Paiva, I. S., Lourenço, I. C., & Dias Curto, J. (2019). Earnings management in family versus non-family firms: the influence of analyst coverage. Spanish Journal of Finance and Accounting/Revista Espanola de Financiacion y Contabilidad, 48(2), 113–133.

Penman, S. H. (2013). Financial Statement Analysis and Security Valuation (5th ed.). McGraw-Hill.

PwC. (2014). Survey Bisnis Keluarga 2014. November, November, 1–35.

Rahmat, M. M., Muniandy, B., & Ahmed, K. (2020). Do related party transactions affect earnings quality? Evidence from East Asia. International Journal of Accounting and Information Management, 28(1), 147–166.

Razzaque, R. M. R., Ali, M. J., & Mather, P. R. (2016). Real earnings management in family firms: Evidence from an emerging economy. Pacific-Basin Finance Journal, 40, 237–250.

Scott, W. R., & O'Brien, P. C. (1997). Financial accounting theory (Vol.3. pp.). Upper Saddle River, NJ: Prentice Hall.

Setiawan, D., Lian, B. B., Phua, K., & Trinugroho, I. (2016). Ownership structure and dividend policy in Indonesia. Journal of Asia Business Studies, 10, 230–252.

Siregar, I. F., Roekhudin, R., & Purwanti, L. (2018). Firm value predictor and the role of corporate social responsibility. Jurnal Keuangan Dan Perbankan, 22(3), 475–485.

Siregar, S. V., & Utama, S. (2008). Type of earnings management and the effect of ownership structure, firm size, and corporate-governance practices: Evidence from Indonesia. The International Journal of Accounting, 43(1), 1–27.

Suprianto, E., & Setiawan, D. (2018). Impact of family control on the relationship between earning management and future performance in Indonesia. Business and Economic Horizons (BEH), 14(2), 342–354.

Tai, Y. (2017). Earnings management in family firms : the role of inside directors. Jiao Da Guan Li Xue Bao, 37(1), 77–114.

Tian, X., Yang, T., & Yu, T. R. (2018). Real earnings management in family firms: evidence from Chinese listed firms. International Journal of Revenue Management, 10(2), 77–106.

Wahab, E. A. A., Haron, H., Lok, C. L., & Yahya, S. (2011). Does corporate governance matter? Evidence from related party transactions in Malaysia. International Corporate Governance. Emerald Group Publishing Limited, 14, 131–164.

Widyaningdyah, A. U. (2001). Analisis faktor-faktor yang berpengaruh terhadap earnings management pada perusahaan go public di Indonesia. Jurnal Akuntansi Dan Keuangan, 3(2), 89–101.

Yendrawati, R., & Paramitha, S. A. (2014). Transaksi pihak hubungan istimewa dan manajemen laba pada penawaran saham perdana. Jurnal Keuangan Dan Perbankan, 18(1), 80–87.



  • There are currently no refbacks.

Jurnal Keuangan dan Perbankan (Journal of Finance and Banking)

Diploma Program of Banking and Finance, Faculty of Economics and Business, University of Merdeka Malang

Published by University of Merdeka Malang

Mailing Address:
2nd floor Finance and Banking Building, Jl. Terusan Raya Dieng No. 57 Malang, East Java, Indonesia
Phone: +62 813-3180-1534

This work is licensed under a Creative
Commons Attribution-ShareAlike 4.0