(2)
contractual agreements
involving
external
shareholders and
managers,
(3)
personal
compensation schemes, and (4) to accomplish target earnings and market expectations.
As
a
result
of
the
conflict
of
interest
between
the
agent
and
the
principal,
the
corporate
managers
might
engage
in
activities known
as
earnings
management in
order
to adjust the
financial
information which aiming on
increasing the
value of the company
in
the
eyes
of
the
investors.
In
reality,
the
investors
concentrate on
how
well
the
company’s performance
in generating
profit and
merely not caring
for the overall
process.
According
to
Scott
(2000),
earnings
management
can
be
classified
into
two,
they
are
(1)
efficient
earnings
management
which
is
performed
in
communicating
the
private
information
with
the
purpose
of
improving
earnings
informativeness,
and
(2)
opportunistic earnings
management which
occur
when
managers
use
discretion
opportunistically for
maximizing their personal
utility. The author
is
motivated to do this
study
due
to
the
widespread opinion
that
most
companies
in
Indonesia
performed
opportunistic earnings
management. Earnings
management
defined
as
the
process
of
adjusting
the
financial
information in
accordance
with
the
applying
legal
frameworks.
Although the
manipulation
acts comply with the
legal frameworks, these acts are
oriented
towards
the
fulfillment
of
specific
self-serving objectives
and
as
the
financial
information provide
valuable
information for
external
parties,
it
may
lead
to
misinterpretation of the company’s value.
Hence,
the
management
should
limit
these
earnings
management practices
through
effective
monitoring in
which
then
the
monitoring concept
developed
into
corporate
governance mechanisms
which
also
known
as
good
corporate
governance
(GCG).
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