MOTIVATION OF EARNINGS MANAGEMENT ACCORDING TO AGENCY THEORY AND SIGNALS THEORY AND ITS RELEVANCE WITH GCG AND CSR

Abstract

This paper aims to provide a descriptive explanation by reviewing previous research regarding the implications of agency theory and signal theory in motivation to practice earnings management. The implications of agency theory and signal theory on the application of earnings management are grouped into opportunistic motivation and signal motivation. It can be concluded that agency theory in opportunistic motivation describes the manager's efforts to fulfill his utility by carrying out earnings management to maintain profit stability so that it is between the bogey point and the cap on the typical bonus scheme graph. Good Corporate Governance is an alternative to reducing earnings management actions. Meanwhile, signal motivation requires management to ensure its performance by using two earnings management models, namely accrual earnings management and real earnings management. Accrual earnings management and real earnings management as information signals have been proven to influence earnings predictability. Managers carrying out corporate environmental disclosure as a CSR action is a signal that can divert shareholders' attention from monitoring earnings management actions.