9

CHAPTER II

THEORETICAL BACKGROUND AND HYPOTHESIS DEVELOPMENT

2.1 Stakeholder Theory

Theo
ory

The ssurvival
urvival of the co
company
comp
pan depends
anyy depe support
p ndds on the suppo r of stakeholders.
port

Social disclosure
disclosure is considered
con
onsiidered aass part of a ddialogue
iaalo
logu
guee between
between the company
c mpany and
co

stak
akeholders
rs ((Gray
stakeholders Graay et al.,
Gr ., 11995).
995). The company is nnot
99 ot the oonly
nlyy en
nl entity ope
era
r tes for
operates

his own
own benefit,
bennefit,
be t, aand
nd to gain support from stakeholders com
ompani
nies m
companies ust prov
us
must ovide
provide

bene
nefi
fits
ts to iits
benefits ts stakeholders. Edward Freeman (2001) on hiss article
artic
icle
le ssaid
aid th
hat
a
that

St
Stak
akehollders are those groups who have a stake in or claim on the firm.
Stakeholders fi Lawr
La wrencee
Lawrence

et al., ((2005),
2005), stakeholders are all the groups affected by, or that can
caan aff
ffeect, aan
affect, n

organi
ization’s decisions, policies, and operations. Stakeholder theoryy arguess that
organization’s thaat

corp
por
orat
a ions serve a broad
corporations ader
er ppublic
broader ublic purpose: to cr
crea
eate
te value for society
create y.
society.

Companies should maintain

mainttai
ainn a relationship with its stakeholders
stakeholdeers to
to

ac
acco
c mm
mmodate the desires and needs of its stakeholders, especiallyy st
accommodate stak
akeh
ehol
olde
ders
stakeholders

who have the power

who er tto
o th
the availa
labi
bili
lity
ty ooff resources th
availability that
at usedd ffor
or the op
opeerat
ational
operational

activi
iti
ties
es of th
activities thee company, such as
a laborr, corporate andd pr
labor, prod
oductt ma
product markets over

others (Chariri and Ghozali, 20

007). So, here
2007). here company does not only have a

responsibility to fulfil the shareholders

sharehholders int
terest but also have a responsibility to
interest

fulfil the stakeholders interest by do

doingg and disclosed CSR in their annual report

to maintain the stability of the company.

company
 10

2.2 Corporate Social Responsibility

Corporate Social Responsibility is not a newbie in the business world.

Corporate Social Responsibility means that a corporation should be held

accountable for any of its actions

ctiions that affect peo
act people,
eopl
p e, their communities, and their

environment, Lawrence
Law
wre World
rence et al., (2005). Based on The W orld Business Council of
or

Sustainability
Sustainability Development, Co
lity Corporate
Corp Social
porratte So
Soci Responsibility
c al R esponsibility is the continuing

comm
mitment byy business
commitment busine
ness
ss to
to contribute to economic
ic ddevelopment
evelopme
ev m nt while
le improving

th
he qualityy of life
the lif
ife of the
the workforce and their families as wel
ll as ooff th
well the comm
mmunity
community

and so
soci
ciet
ety at llarge.
society arge.

Corporate Social Responsibility (CSR) is defined ass the

Corporate th
he voluntary
volu
vo luntaryy

acti
act vitiees undertaken by a company to operate in an economic
activities c, soc
economic, cial
al andd
social

environnmentally sustainable manner. When companies operate in an economically,

environmentally ecconomicaally,
y,

sociallly and environmentally responsible manner, and they do so transparently,

so
socially tran
nsparen
ently, iitt

suc
ucce
ceed
ed, in pparticular
helps them succeed, arti
articu
c laar throug
gh en
through nco
cour
urag
agin
ingg sh
encouraging shar
ared
e value and soc
shared ocia
iall
social

lice
li c nse. Management and mitigation of
license. of social and environmental risk factors
facttor
orss are
ar

incr
increa
easi
singly
ly iimportant
increasingly mpor
mporta
tant
nt ffor
or bbusiness
usin
us ines
e s succes
ss abroad,
success abro
abroad
ad,, as tthe
he ccosts
osts
osts tto
o co
comp
mpan
anie
iess of
companies

lo
osi
sing
ng that
losing tha
h t social
soci
cial
al llicense,
icense
ic se, bo
both
th in term
rmss of share
terms shaare price
pri
rice
ce and
nd tthe
he bottom
m li
line
ne m ay be
may

significant. Corporate social respon

onsibility
y (CSR)
responsibility (CSR) refers to a business practice that

initiativees that benefit

involves participating in initiatives beneefit society.

2.3 Disclosure

2.3.1 Definition of Disclosure

Conceptually, the disclosure is an integral part of financial reporting

(Suwardjono, 2008). Disclosure means presenting useful information to those who

 11

need it. The information disclosed should be complete, clear, and able to represent

the exact economic condition (Hutapea, 2014). Based on Evans (2003) in

Suwardjono (2008), disclosure means supplying information in the financial

statements themselves, the nnotes

otes to th
ot the statements,
he st
stat
a ements, and the supplementary

associated with thee ddisclosure

isclosure statements. It does nnot
ot extend to public or

statements
private state management
ements made by m anag
anagementt or
emen iinformation
o in formation provided
pro v ded outside the
rovi

financia
iall statements.
financial

Mo e specifically,
More specifi
fica
callly, Wolk et al (2001) in Suwa
wardjono (2008)
Suwardjono (20
2008
08) interp
rpreting
interpreting

the definition
defi
defini
niti
tion of
of disclosure as followed:

“B
“Broadly interpreted, disclosure is concerned with infor
rma
mati
tionn iin
information n both
h

the financial statements and supplementary communicatio

ons including
communications incl
includ
u ingg

footnotes, post-statements events, management’s discussion and

and analysis
analyysis

of operations for the fortcoming year, financial and operatin

ng for
operating orecastss,
forecasts,

and ad
addi
diti
tion
onal
additionalal financial
fin
inan
anci
c all sstatements
tatemeents covering
cove
coveri
ring
ng segmental
seg
egme
mental disclosure and
and

extentions beyond historical ccost.”

o t.”
os

Di
Disc
sclo
losu
sure
Disclosurere is
is often
ofte
oftenn also
also interpreted
int
nter
erpr
pret
eted
ed as providing
prov
provid
idin
ingg more
more information
inf
nfor
orma
mati
tion
on than
tha
hann what
what can

be ddelivered
eliv
eliver
ered
ed iin
n th
the fo
form
rm of form
rmal financiall statement
formal ntss (S
statements (Suw
uwar
ardj
djon
ono,
(Suwardjono,o, 22008).
0088). This
00

seems in line with the idea of the

he FASB in its conceptual framework as follows

(SFAC No. 1, paragraph 5):

“Although financial repor

rti
t ng aand
reporting nd financial statements have essentially

the same objectives, some uuseful

seful information is better provided by

financial statements and some is better provided, or can only be provided,

by means of financial reporting other than financial statements.”

 12

2.3.2 Level of Disclosure

Level of disclosure is related to how much information should be

disclosed. There are three levels of disclosure proposed by Hendriksen and

Brenda (1992), which are:

a. Adequatee Disclosure
Disclosure

Th
his implies a m
This inimum
in
minimumm amount
amo
moun
untt of disclosure
dissclos
osur
ure congruous wi
with the negative

objectiv
ive of making
objective mak
aking the st
stat
atem
emen
entt no
statement nott misleadi
dinng.
misleading.

b. Fair
Fair Disclosure
Dis
isclossur
ure

Th implies
This implies an ethical objective of providing equal
al treat
atme
ment for all
treatment

pootential readers.
potential

c. Full Disclosure
Full

This implies the presentation of all relevant information. For some,

For e, iitt

means the presentation of superfluous information that sometime

sometim
me be
become
es
becomes

inapprop
opri
riat
atee.
inappropriate.

2.
2.3.
3.3 Type of Disclosure
2.3.3

Ther
Theree ar
There aree tw
twoo ki
kind
ndss or ttwo
kinds wo ttypes
ypes
yp es of
of di
disc
sclo
losu
sure
disclosurere which
whi
hich
ch aare
re manda
andatory
mandatory

disc
clo
losure
re and
disclosure and vol
lun
unttary disclosure.
voluntary disclosur
ure.

a. Voluntary Disclosure

th disclosure
Voluntary disclosure is the disclossure by the company beyond what is

required by the accounting sstandards

tanddards or regulations of regulatory bodies

(Suwardjono 2008).
(Suwardjono, 2008)

b. Mandatory Disclosure
 13

Mandatory disclosure is mandatory disclosure by the company as a form

of government intervention to overcome the potential market failures.

2.3.4 Corporate Social Responsibility Disclosure

Disclosure about CSR

ut C SR in Indonesia first re
regulated
gulated in ACT No. 40 of 2007
regu

corporation
on and in Gov
about corporatio Government
vernment Regulation No. 47
47 of 2012 concerning

Social and
nd Environ
nme
ment
ntal
Environmentala Res
espoons
nsib
bilit
ity off C
Responsibility orporation. Butt both of those
or
Corporation.

regu
ula
lations did
regulations did not explain about
abou
aboutt the
the items
it off sociall and envi
viro
r nmental
environmental

rresponsibility
esponsiibi
biliity that
that must
mu be disclosed. In August 2012, Ministry
Ministrry of Finance
Finance of the

Repu
ubl
blic
ic of Indonesia through Capital Market and F
Republic inanciial Instituti
in
Financial tion
Institution

Su
Supe
perv
r isor
ory Body (BAPEPAM-LK) issued Decision of the Chairman
Supervisory Chair
irmann of Capital
Capital
al

Ma
Market and Financial Institution Supervisory Body (BAPEPAM-LK)
(BAPEPAM-LK
K) No.
No. KEP-
KEP
P-

431/BL
L/2012 concerning the submission of annual report by listed com
431/BL/2012 mpany.
company.

In Decision of the Chairman of Capital Market and Financia

al In
Financial nstitutio
ionn
Institution

Supervisory Bod
dy ((BAPEPAM-LK)
Body BAPEPA
A PAM M-LK
LK)) No.. KEP-431/BL/2012,
KEP-431
431//BL/20
/2012
12, there is a regulat
atio
on
regulation

No. X.K.6 which is concerning the submission of annual report by listed company.
No. comp
co mpan
any.

In ppoint
oint
oint 2.a.1.g
2.aa.11.g
g said
sai
aidd that
that an
an an
annual report
rep
epor
ortt must
must contain
con
onta
tain
in corporate
cor
orpo
pora
rate
te social
soocial

resp
sponnsi
sibi
bili
lity
ty.. Furthermore
responsibility. Furtheerm
Fu rmore in point
poi
o nt 2.h.1,
2.h.1,
h BAPEPAM-LK
BAPEPA
BA AM-
M-LK
LK required
req
equi
uire
redd companies
comp
companies to

disclose its CSR activities that cover

cov
over policies,
policie
ies, types of program, and cost incurred

in the following aspects such as eenvironmental;

nvironmenntal; employment practices, health, and

work safety; social and communityy develo

opment; and product responsibility.
development;

2.4 Information Asymmetries

Information asymmetry is a condition describing that managers have

access to information on the company’s prospects which are not owned by outside
 14

parties (Sanjaya and Young, 2012). This condition will result in the magnitude of

the opportunity manager, to do things that are beneficial to their interests (Palguna

Putra, 2013).

There are two majo

major
jorr ttypes information
ypes of informati
tion
on asymmetry (Scott, 2009). First

is adverse selection.
tioon. Adverse selection is a type off iinformation
selecti n ormation asymmetry
nf

one
ne or more parties to a bbusiness
whereby on usin
usines transaction,
esss tr
ran
ansa potential
s ction, or pote
tent
n ial transaction,

have aan
n inform
mation advantage
information adva
advantage over other parties.
partiess. The
Th second
seco
cond is mo
moral hazard.

Moral hazard
Moral haza
zard
rd iiss a type
ty
ype of information asymmetry whereby
whher
ereby onee or more
more pa
art
r ies to
parties

a bu
usi
sine
ness
s tra
business ansaction, or potential transaction, can observe
transaction, obseerv
rve their
th
hei
e r actions
actionss in

fu
ulf
lfiillmentt of the transaction but other parties cannot.
fulfillment

2.
2.55 Ear
rnings Quality
Earnings

Earnings quality is an indicator of the quality of financial iinformation.

nformati
tionn.

Hi gh quality
High quality financial information is derived from the high quality of ffinancial
inanci
c al

reporting (Surifah,
(Surif
ifah,
h 2010)).
2010). Ea
Earn
rnin
ings qquality
Earnings uali
uality
ty rrefers
efers
f to the
the ability of repo
ort
rted
ed
reported

earn
earnings to reflect the company's true earnings, as well as the usefulness
earnings useful
ulne
ness
ss of
of

repo
report
rted
ed eearnings
reported arni
arning
ngss to ppredict
redi
re dict
ct future
fut
utur
uree earn
nin
ings
gs. Ea
earnings. Earn
rnin
ings
gs quality
Earnings qua
uali
lity
ty also
als
lsoo refers
refe
refers
rs to
to the

stab
abillit
ity,
stability,y, persistence
per
ersi
sist
sten
ence aand
nd lack of variabi
bility iinn reported
variability ed earnings.
earni
ning
ngs.
s. The
The eevaluation
valu
luation of

earnings quality is often difficult,

difficuult, becau
use companies highlight a variety of
because

earnings figures: revenues, ope

erating earnings,
operating earrnings, net income, and pro forma

earnings (Bellovary et al, 2005). Barragato

B rrag
Ba gato and Markelevick (2008), states that

earnings quality is of interest to userss of

of financial statements because earnings are

utilized in making contracting and investment decisions. Earnings quality means

different things to different users of financial statements.

 15

So far, no definitive measure or appropriate to measure the quality of

earnings of a financial statement, only an approach that is being used to proxy the

quality of earnings. Therefore, earnings quality measure used by the researchers

could be different with otherr researchers (Surifah,

ressearchers (S
re (Sur
urifah, 2010). This research will use

earnings management
entt through discretionary accruals as
managemen as the proxy of earnings

quality.

2.6 Positive
Po
ositive Accounting
Acc
c ounttin
ingg Theory
Theory

Base
Basedd on S
Based cott (2009), for the purpose, the term
Scott ter
erm “positive”
“p
pos
osit
itiv
ive” refers
referrs to a

theory
ry that
that attempts
atte
tempts to make good predictions of real-world ev
ven
e ts. Th
events. Thus
u , positi
Thus, tive
positive

ac
acco
coun
u ting
ng theory is concerned with predicting such actions as thee cho
accounting hoic
ices off
choices

ac
acco
c unti
ting policies by firm’s managers and how managers wil
accounting ll respond
will resp
spon
ond to

propos
sed new accounting standards. Positive accounting theory take
proposed kes the vi
takes iew
w
view

th firms
that fir
irms organize themselves in the most efficient manner, so as too ma
aximizze
maximize

their prospectss fo
forr su
surv
rviv
ival
al. Po
survival. Positi
tivve accounting
Positive accouuntin
ng theory
theo
th eory
ry has
has tthree
hree
hr e hypotheses:

1. Bonus plan hypothesis

Bonu
Bo nuss plan
Bonus plan hhypothesis
ypot
yp othe
hesi
siss ta
talk
lks ab
talks abou
outt ma
about mana
nage
gers
rs ooff co
managers comp
mpan
anyy wi
company with
th bbonus
onus

plan
plans aree m
plans ore likely too choose accounting
more acccounting procedures
pro
oce
cedu
duress th
that
at shi
hift
ft reported
shift

earnings from future pe

eriods to thee current period.
periods

2. Debt covenant hypothesis

hypothessis
i

Debt covenant hypothesiss talks

tal
alks about the closer a company is to

violation of accounting-based debt covenants, the more likely the

company manager is to select accounting procedures that shift reported

earnings from future periods to the current period.

 16

3. Political cost hypothesis

Political cost hypothesis talks about the greater the political cost faced

by a firm, the more likely the manager is to choose accounting

defer
procedures that de
defe earnings
fer reported earni
ing
ngss from current to future periods.

From those
hose hypotheses, we can know that the
tho the existence of positive

accounting
ccounting theory is the
ac he door
dooor way
way of earnings
earrni management
n ngs manageme
ment practices.

2.7 Ea
Earnings Management
Managem
e ent

Base
Based onn S
Based cott (2009), earnings management is the
Scott th choice
ch
hoi
oice
ce by
by a manager
maana
n ger

of aaccounting
ccou
cco ntin
ng policies, or actions affecting earnings, so ass to ac
achi
hiev
eve som
achieve me
some

sp
spec
ecif
ific reported
specific reported earnings objective. Earnings management mayy be defined
def
efin
ined ass

“r
“rea
e sonnable and legal management decision making and reportingg inten
“reasonable ende
ded to
intended

achiev
ve stable and predictable financial results.” Earnings manageme
achieve ent is no
management ot to
not o

bee cconfused
onnfused with illegal activities to manipulate financial statementss and
nd rep
por
ortt
report

results that do nott reflect

refl
flect economic
econnom
omic
ic reality.
reaali
lity
ty. Earnings
Earniings management is the use
Ea se ooff

ac
acco
counting techniques to produce financial reports that may paint an ooverly
accounting verrly
ve

po
posi
siti
tive
positiveve picture
pic
ictu
ture
re of
of a company's
comp
compan
any'
y'ss bu
busi
sine
n ss activities
business act
ctiv
ivit
itie
iess an
andd fi
fina
nanc
ncia
iall po
financial posi
siti
tion
on. Ea
position. Earn
rniings
Earnings

Ma
Mana
nage
geme
ment
nt takes
Management tak
akes advantage
adv
dvantage of
of how accounting
acco
ounting rules
rul
ules
e can
an be
be applied
appl
applie
iedd and are

legitimately flexible when companies

compaanies can incur
incur expenses and recognize revenue.

It can be difficult to differentiatee these allow

wable practices from earnings fraud or
allowable

manipulation. Earnings management

managemen
ent theoretically
theo
oretically represents this grey area, but it

is often used as a synonym for earning

gs manipulation or earnings fraud.
earnings

Discretionary Accrual – Earnings Management

 17

Accrual earnings management is the practice of earnings management

which is carried out by the company through the accrual components in the

financial statements. Accrual itself is recognition of where the transactions are

recognized, recorded, and presented

pres
pr he ffinancial
eseented in the i ancial statements when incurred
in

without regard whether

ther the cash flow is received or paid
wheth paid.
id.. Because of the nature of

using
ng assumptions or estimates,
accrual usin esttim
imattes accruals
es,, ac
accru ls are often uused
rua sed as a tool by

manage
gement to manipulate
management maani
nipu
p la
late earnings. Accru
ual ppolicy
Accrual olic
olicy is divided
divid
ded into two

di
iscretionar
aryy ac
discretionary accr
cruals aand
accruals nd nondiscretionary accruals
ls.. Discre
accruals. eti
tion
onar
aryy accrua
Discretionary al policy
accrual

is undertaken
und
nder
erta
take
ken by the will of management with a specific purpose.
pu e. In
In th
tthis
is case,
case,

di
isc
screti
tionarry accrual is closely related to earnings management bbecause
discretionary ecaus
usee it is don
ne
done

over thee management of the company in which managemen

over nt wi
management will
ll m ake
make

ad
dju
j stm
ments to earnings to meet specific interests.
adjustments

22.
2.88 Previous
Prrevious Research

Number
of Researcher Research
Rese
sear
a ch title Result
research
re
ese
s arch
1. Zhou and
Zhou and Di
Disclosure
Disc
sclo
losu
s re QQuality
uali
ua lity
ty and
nd Indi
Indica
Indicates
cate
tess that
that there
the
here
re isis a
Lobo
Loobo Earnings
Earnin
E ings Management
gs M anagem men
entt statistically
stat
st i tically significant
atis sign
si gnif
ifiicant
(2001)
(200
(2 01) negative
nega
ne gati
tive
ve relationship
rel
elat
ationship
between corporate
disclosure and earnings
management. Firms that
disclose less tend to
engage more in earnings
management and vice
versa.
2. Yeh et al., Can Information Find that there is a
(2014) Transparency Improve statistically reliable
Earnings Quality association between the
Attributes? Evidence level of information
from an Enhanced: transparency and each of
 18

Disclosure Regime in these earnings attributes,

Taiwan implying that a
disclosure mechanism
design can enhance
management
accountability in
financial reporting.
3. Cui et al., Does Corporate Social Fi Find that CSR activities
(2012)
(20
(2 012) Responsibility
Reesponsibility Reduce reduce ce information
Information
Info
form
mat
atio
on asymmetry
asymmetr tryy more than
Asymmetry?
Asym
ymme
metrry?? iinformation
in formation asymmetry
decreases
decreaeases CSR aactivities
R ac tivities
4. Sanjaya and
Sanjaya
San and Voluntary Disclosur
Disclosure
uree The re resu
result
sultlt of this study
stu
t dy is
Young
Y oun
ungg and Earnings vo voluntary
voluntar aryy disclosure
disclo losure
(2012)
(20
(2 012) Management at Bank nega negatively
ati
tively affects
affec
ects
Companies Listed in earningss management.
m anagagemen nt.
t
Indonesia Stock The result lt indicates
inddic
icat
ateses thatt
Exchange increased
more increa ase
s d vo voluntary
volu unt
ntary
disclosure influences
inf
nfluluen
ences
decreased
more decrease earnings
ed earning gs
management. Therefor Therefore,ore,
voluntary disc closurre iss
disclosure
very important nt ffor
or users rs
of ffinancial
inancial statements..
in
5. I Gusti Pengaruh
Pengar
aruh
u Tingkat Trying to prove the the
Bagus A. Pengungkapan
Pengungkgkapan Item effect of the disclosu disclosure
sure
re off
W. Palguna Corporate Social the items in tthe he ssocial
ocia
oc ial
Putra
Putr
Pu traa Responsibility
Resp
Re spon
onsibiliity responsibility
resp
respononsi
sibi
bilility
ty which
whihich
ch isis a
(2013)
(20113) Terhadap
Terhhad ap Manajemen
adap Manajjemen vo voluntary
voluluntary disclosure
disc
di sclolosure
Laba
ba (Studi
(Studdi pada to towards
towa ard
rdss earnings
earnings
Perusahaan
Perusa
sahaan yang manageme
management. nt.
t
Terdaftar
Terddaftar di Indeks
Inndeks SRI-
I Results from this study
KEHATI
KEH Selama
HATI Selam ma Tahun demonstrate that the
2009–2011)
20099–2011) disclosure of the items of
this CSR have influence
on earnings management
which has implications
for the quality of
earnings.
6. Arvina PENGARUH Trying to examine the
Arief PENGUNGKAPAN influence of corporate
(2014) CORPORATE SOCIAL social responsibility
 19

RESPONSIBILITY disclosure on earning

TERHADAP management practice.
MANAJEMEN LABA The result of this study
(Studi Kasus Pada show that corporate
Perusahaan Non social responsibility
Keuangan
Ke uanngan dan
eua dan Jasa disclosure not sifnificant
yang Terdaftar di BE
BEI influenced and have
tahun 2010-2012) positively on earning
po
management
mana age
gement
7. Yong tae Is Earnings
Eararniing
ngss Qu Qual
Quality
a ity Documented
Document nted that
Kim, Associated
Asso
s ci
ciat
ated dwwith
itth iincrease
in crease in CSR
Myung
M
My ungg Corporate
Corp
por
orat
atee Social
al performance
perfor
ormance is
Seok
Seo
Seok ParPark,
arkk, Responsibility? negatively
nega ati
tive
vely
ly associated
asssoc
o iated
Benson
Bensson with
wi earnings
earnin ngs
Wier (2012)
Wi management,
mana age
g ment nt, with
wi
ethical managers
ma rs
engaging in enhanced enha
en hancn ed d
CSR activities t es and
activiiti and lless ess
earnings man management.
nag a em men nt.
t
88.. Hong and The Relationship Explore the rrelationship
elatiionship ip
Andersen Between Corporate between corpo orate soci
corporate cial
social
(2011) Social Responsibility responsibility (CSR) (CSR) R) andd
and Earnings earnings
r m anaagement
management nt
Mana
Ma nagement::
Management: An (EM)
(E M)..
(EM).
Expllor
orat
a oryy St
Exploratory Study Results show that more more
socially respo ons
nsib
responsibleiblee
firms have hig ighe
higher her ququal
alit
qualityity
accr
ac crua
ualss
accruals aand
nd lless
ess
acti
ac t vity-based EM
activity-based EM, bboth oth
o whi
of which
hich
ch iimpact
mpaact fi
mp financial
reporting
report tin quality.
ingg qu ality.
l
9. Yip et al., Corp
Corporate
rporate Social Examine whether
(2011) Responsibility
Resp
sponsibility Corporate Social
Reporting
Repoorting andd Earnings Responsibility (CSR)
Management:
Mana g mentt: The Role
age disclosure is related to
Political
of Polit
tic
i all Costs earnings management
and if the relationship is
mitigated by political
cost considerations or by
the firm’s ethical
predisposition.
Find a significant
 20

relationship between
CSR reporting and
earnings management,
and more specifically,
we find evidence of a
negative
(complementary)
relationship in the oil and
re
gas in industry while we
find evidence
vidence of a
evi
ppositive
po sitive (substitutive)
(substitutive)
relationship
relatio ship in the food
ion
industry.
induust
stry
ry..

2.9 Hy
Hypothesis
Hypo
p thes
esis Development

CSR disclosure is believed as an action to fulfill the stake

stakeholders’
k ho
hold
lders’

interest.
t restt. CSR disclosure considered increasingly taking a role in the present
inte prresentt due to

the shi
ift in the concept of profit which began to lead to the concept ooff the ttriple
shift riple

bott
tom line (profit, pplanet,
bottom lane
lanett, people)
peo
eople) initiated bby
y Jo
John
hn Elkington and iincreasingly
ncreasingl
nc glyy

into the mainstream of business ethics

ethhicss ((Palguna
et Palguna Putra, 2013). It is in linee wi
with
th

Kim
m et
Kim e al., (2012) statement that CSR is an issue of growing interes
estt, and
interest, and tthe
he

repo
reportingg of socially
reporting soc
ocia
iall
llyy responsible
resp
respon
onsibl
iblee activity
acti
activi
vity
ty is
is becoming
becomi
be ming
ng moree pr
or
more prev
eval
alen
entt as iinvestors,
prevalent nves
nv estors,

cust
tom
omers, and
customers, andd other
oth
theer stakeholders
stakeholderrs demandd greater transpa
pare
rency abou
transparency b ut aall
about ll aspects

of business.

In Indonesia there are som

me issuess arise about the implementation of CSR
some

and one of it is company’s transparency

transparen
ency
y iissue
ssue in disclosing the budget and activity

of CSR
CSR. It is proved by news on RiauSatu.com
RiauSatu com on April 2015 which stated that

“Ketua Pansus CSR berharap Pemerintah dan Perusahaan Transparan.” The

news talked about the transparency of CSR’s budget and the company’s CSR
 21

activities. Having problem in transparency will cause the increasing in

information asymmetry between company and stakeholder. Richardson (1998)

stated that when information asymmetry is high, stakeholders do not have

sufficient resources or access

acceess tto n ormation to monitor manager’s
nt iinformation
o relevant nf

actions. It leads to creation

creation of opportunities for earni
earnings
ing
ngs management practices.

Dye (1988)) aand Titman

nd Trueman andd Tit
itma (1988)
m n (19 8) in Zhou and Lobo
(198 Lobo (2001) show

analytic
ically that the ex
analytically exis
i te
tence of informati
existence ion aasymmetry
information symm
symmet
e ry between management
management

an
nd shareh
and hol
olde
ders
rs is a ne
shareholders nec
cessary condition for earn
necessary nin
ings
g man
earnings nag
agem
emen
e t. Thu
management. us,
s when
Thus,

earnin
ngs m
earnings anag
gem
ement increases it will affect quality of earnings
management earnin
ings
g off co
comp
mpan
a y.
company.

Gl
Glosten and Milgrom (1985) in Zhou and Lobo (2001)
(2
200
0 1) sstated
tate
tatedd tha
at
that

info
informat
ation asymmetry will decrease if the level of corporate disclosu
information sure increases.
disclosure inc
ncre
reases.

It is also
alsso proved by Lang and Lundholm (1993) in Zhou and Lobo (2001),
(22001), whi
ich
which

s ate th
st
state hat firms having greater incentives to disclose more informationn to m
that itigatte
it
mitigate

adversee selectionn wh
when there iiss greater information
infformation asymmetry.
in asym
as ymmetry. Sanjaya
Sanjaya and
and

Y ung (2012) found that the increasi

Yo
Young sing
ng on presentation of voluntary disclosure,
increasing disclo
losu
sure
re,

info
informat
atio
ionn asymmetry
information asym
y metryy can be reduced so that earnings
earninggs mana
nage
gem
ment
nt ccan
management an be

prev
preven
ented. Zhao an
prevented. andd L obo
bo (2001
Lobo 01)) al
(2001) also
so found
nd negative
neg
gat
ativ
ivee relationship
ip between
bet
etween

corporat
atee di
corporate disc
sclo
losure and earningss manage
disclosure gement. Firms thatt ddisclose
management. iscl
isclos
osee lless
ess tend to

engage more in earnings management

manageement and vice
vice versa. When company less engage

in earnings management their quality

quaality of ea
earnings will increase. Many researches

already test about the influence of ddisclosure

isclosure to earnings management or

di l
disclosure tto earnings
i lit and
quality, d th h
they have th lt which
the same results hi h iis di l
disclosure

negatively influence earnings management and positively influence earnings

 22

quality (Zhou and Lobo, 2001; Yeh et al., 2014; Sanjaya and Young, 2012;

Blanco et al., 2014).

Many researchers research about the influence and the association

gs qquality
between CSR and earnings uality or CSR and
and earnings management, and the

results is mix. Some

So researchers find that CSR has negative
negative influence and

with
associationn with earnings management
manaagementt aand
geme will
nd w ill give
il gi positive impact
impa
im p ct to earnings

qualit
ty (Hongg and An
quality Ande
d rs
r en, 2011; Kim et al., 20
Andersen, 2012
12; Ekawati,
2012; Ek
kaw
a ati, 2012;
201
012; Palguna

Pu 20113; Isyanto,
Putra, 2013; Isy
syanto,, 2014).
20 othe
herr researchers
On the other hand, other r search
re cher
erss st
sstate
ate th
hat
a CSR
that

has po
posi
siti
tive influence
positive inf
nflluence and association with earnings manag
gem
e en
nt an
management nd will ggive
and ive

ne
ega
gative im
negative mpact to earnings quality (Chih et al., 2008; Yip et al.,
impact al., 2011;
2011
20 11;; Arief,
A ieff,
Ar

2014
20 14).
2014).

Due to the mix results from previous researchers then the hyp
pothesis ccan
hypothesis an
n

be form
mulated as follow:
formulated

Ha: The Levell off C orporate

te S
Corporate ocia
oci l Re
Social Resp
spon
onsibi
ibili
lity Disclosures
Responsibility Diisclosures
l Influencee the
the

Earn
Ear ings Quality
Earnings