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Jurnal

Ekuitas: Jurnal Ekonomi dan Keuangan

Keyword

Free cash flow agency problem, value relevance, earnings and book value, earnings management.

Pengarang

Aulia Fuad Rahman

Subject

  1. ECONOMIC
  2. FINANCE

    [Abstrak]

    Free cash flow agency problem
    causes potential conflict of interest between managers and shareholders.
    Managers of firms with high free cash
    flow and of low growth opportunity tend to invest in marginal or even negative
    NPV project and use earnings management to camouflage the effects of
    non-wealth-maximizing investments. As a result, it is predicted that investors
    will react to earnings management and free cash flow agency problem and
    therefore reflected in stock price. In this sense, earnings management and free
    cash flow agency problem is predicted to have an impact on value relevance of
    accounting information. The objective of this study is to assess the impact of
    earnings management on value relevance of earnings and book value. This study
    also investigates the different effect of earnings management on value
    relevance of earnings and book value between free cash flow agency problem
    firms and non free cash flow agency problem firms. Result shows that earnings
    and book value are value relevance and earnings management decreases those
    value relevances. The result also conclude that the negative effect of earnings
    management on value relevance of earnings and book value is higher for free
    cash flow agency problem firms compared to non free cash flow agency problem
    firms.







    Periode

    Vol 15, Nomor 02, Tahun 2011

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