The purpose of this study is to explore the impact among business strategy,
market competition, leverage and earnings management. This study uses Porter’s
typology of business strategies; cost leadership and differentiation. First, it
examines the relationships between business strategy and earnings management.
Further, it analyzes the joint effect of business strategy and market competition to
earnings management. Furthermore, the researcher examined the relationship
between leverage to earnings management.
This study uses secondary data. The population consists of manufacturing
firms listed in Indonesia Stock Exchange. This study uses purposive sampling and
takes some criterias. Firms included in this study are being listed in IDX before
2011 and also provides annual reports from 2012 until 2014. The samples
consists of 129 observations. In this research Ordinary Least Square used to be
analysis technique.
The result of this study show that firms that follow cost leadership strategy
(cost leaders) are more likely to have a higher level of real earnings management
and firms that follow differentiation strategy (differentiators) are less likely to use
real earnings management. For cost leaders, the market competition further
increases the level of real earnings management, whereas the level of earnings
management of differentiators is also significantly impacted by the market
competition. Furthermore, the results show that leverage within the company has
no significant effect on earnings managemen
