Abstract—This study aimed to examine the effect of earnings management on firm stock returns with audit quality as a moderating variable. Earnings management as measured by discretionary accruals estimated using the cross-sectional modified Jones (1991) model, audit quality is measured by the reputation of the auditor, Big 4 Audit Firm. The hypothesis of this study are: first, earnings management negatively affect stock returns; and the second there is effects of earnings management on stock return greater for companies audited by Big 4 Audit Firm compared with Non-Big 4 Audit Firm. Sample of study is manufacturing companies listed on the Indonesia Stock Exchange in 2010, as many 149 companies. Analysis model used multiple regression model. The results showed that earnings management negatively affect stock returns. Quality audit can strengthen the relationship negatively earnings management with stock return. The relationship negatively earnings management with stock return greater for companies audited by Big 4 Audit Firm compared with Non Big 4 Audit Firm. Audit Quality can moderate the relationship negatively earnings management with stock return.
Index Terms—Earnings management, discretionary accruals, audit quality.
Nuryaman is wirh Economic Faculty of Widyatama University, Bandung- Indonesia (e-mail: email@example.com)
Cite:Nuryaman, "The Influence of Earnings Management on Stock Return and the Role of Audit Quality as a Moderating Variable," International Journal of Trade, Economics and Finance vol. 4, no. 2, pp. 73-78, 2013.