Pre-Managed Earnings Moderate the Effects of the Capital Adequacy Ratio, Derivative Instruments, and Reporting Diversification on Earnings Management

Abstrak

This study aims to examine and analyze: a) the effects of the capital adequacy ratio, derivative instruments, and revenue diversification on earnings management; b) the role of pre-managed earnings in moderating the effects of the capital adequacy ratio, derivative instruments, and revenue diversification on earnings management. This research employed secondary data from the banking sector listed on the Indonesia Stock Exchange (IDX) with purposive sampling for the 2022–2024 period, involving 43 banks (129 observations). The data were analyzed using panel regression. The results indicate that the capital adequacy ratio has a negative and significant effect on earnings management, whereas derivative instruments and revenue diversification do not affect earnings management. Pre-managed earnings strengthens the influence of the capital adequacy ratio on earnings management, making it a quasi-moderator. Conversely, pre-managed earnings does not strengthen the influence of derivative instruments and revenue diversification on earnings management, functioning as a predictor variable rather than a moderator. The implications of this study are twofold: theoretical and practical. Theoretically, the findings enrich the literature on determinants of earnings management in the banking sector, particularly the moderating role of pre-managed earnings. Practically, the findings provide a reference for investors in assessing financial reporting quality and investment risk; for banks in evaluating financial management practices related to capital adequacy, derivative instruments, and revenue diversification; and for regulators such as the Financial Services Authority (OJK) and Bank Indonesia (BI) in strengthening banking supervision and regulatory frameworks.