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Masalah Keagenan Aliran Kas Bebas, Manajemen Laba, dan Relevansi Nilai Informasi Akuntansi

Aulia Fuad Rahman
Fakultas Ekonomi Universitas Brawijaya

Ulfi Kartika Oktaviana
Fakultas Ekonomi UIN Maliki Malang

Abstract

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.

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

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The relevance of the value of accounting information has received extensive attention in the research and accounting practice (Barth et al., 2001; Holthausen and Watts, 2001). Accounting information is said to be relevant if it is used as a basis for decision making (Barth et al., 2001). In other words, the relevance value indicates how well the accounting information may represent information that is used by users in making an assessment of the company.

Previous research has shown that the value relevance of accounting information (earnings) down from time to time (Collins et al., 1997, Francis and Schipper 1999). One cause of the relevance of the earnings drop was due to the low quality of accounting information (Lev, 1989). The quality of accounting information is determined partly by his form of earnings management performed opportunistically to mislead users of financial statements (Whelan and McNamara, 2004; Habib, 2004).

In another study, Rahman and Norman (2008) found that the value relevance of accounting information down because of high agency problems offree cash flow (free cash flow agency problem, hereafter abbreviated FCFAP). The argument presented Rahman and Norman (2008) is that managers in companies that have FCFAP likely to abuse their authority in the use offree cash flow, that is by investing in projects that are not profitable or too risky projects that could hurt the company (Jensen and Meckling, 1976) . To camouflage the activities that decrease the value of the company, managers make opportunistic earnings management to increase reported earnings (Chung et al. 2005). Therefore, companies have tended to do management FCFAP earnings opportunistically (Chung et al.,2005), investors reacted negatively impact on the decline and then the value relevance of accounting information.

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