The Effect of Political Connections on Executive Compensation Through Earnings Management

Title: The Effect of Political Connections on Executive Compensation Through Earnings Management

Author: Dianty Sonia Puruhita

Affiliations : Masters Program in Accounting, Faculty of Economics and Business, Universitas Airlangga , Surabaya, Indonesia

Publisher: Universitas Airlangga

Abstract

This research aims to empirically prove the influence of political connections on executive compensation through earnings management. This research uses a sample of companies from all sectors except financial sector companies listed on the Indonesia Stock Exchange for the 2016-2018 period. The total sample in this study was 1,145 observations. The analysis technique used in this research uses the partial least squares (PLS) model with WarpPLS 6.0 statistical software. Political connections are measured using ratios, executive compensation is measured by the natural logarithm of total compensation received by the board, while earnings management is measured using the absolute value of discretionary accruals. The research results show that political connections directly have a significant positive effect on executive compensation. The research results also show that earnings management is able to mediate the influence of political connections on executive compensation.

Keywords: Political Connections, Executive Compensation, Profit Management

Sources: http://repository.unair.ac.id/94545/