Political Connections Moderate Profitability, Liquidity, and Accounting Conservatism on Earnings Quality (Case Study of Manufacturing Companies Listed on the IDX in 2020-2023) Sri Ayem*, Umi Wahidah, Nur Anita Chandra Putry, Puji Lestari
Accounting Study Program, Sarjanawiyata Tamansiswa University, Jalan Kusumanegara 157, Yogyakarta 55165, Indonesia
*sri.ayem[at]ustjogja.ac.id
Abstract
This research aims to identify the factors that affect earnings quality in manufacturing companies in Indonesia. The quality of earnings reported by companies is a crucial factor for investors and stakeholders when making informed decisions. This research was motivated by the unique business environment in Indonesia, where political connections could significantly influence corporate practices and financial reporting. The research method employed in this research was the quantitative method, using a purposive sampling technique on manufacturing companies listed on the IDX from 2020 to 2023. The results show that profitability negatively affects earnings quality while accounting conservatism positively influences earnings quality. However, liquidity does not affect earnings quality. Moreover, political connections moderate the relationship between profitability and earnings quality. It can be inferred that companies focused on increasing short-term profits tend to compromise earnings quality. Furthermore, a company^s ability to meet short-term obligations does not necessarily reflect its earnings quality. The role of accounting conservatism signals good earnings quality. Meanwhile, the moderating effect of political connections suggests that companies with political ties can enhance the impact of profitability on earnings quality by adhering to better accounting standards.
Keywords: political connections, conservatism, earnings quality, liquidity, profitability
