COMPANY SIZE, LEVERAGE, PROFITABILITY, SALES GROWTH, AND FREE CASH FLOW: THEIR EFFECT ON REAL EARNINGS MANAGEMENT AMONG CONSUMER NON-CYCLICAL FIRMS ON THE INDONESIAN STOCK EXCHANGE, 2022-2024

Abstract

Company size, leverage, profitability, sales growth, and free cash flow may all shape how firms manage real earnings. This study tests that relationship among consumer non-cyclical firms listed on the Indonesia Stock Exchange (IDX) between 2022 and 2024. The research follows a quantitative design and draws on secondary data from audited annual financial reports. Out of a population of 128 companies, purposive sampling yields a final sample of 74 firms and 222 firm-year observations. Real earnings management (REM) is measured using the Roychowdhury (2006) framework through three measurement proxies, namely abnormal operating cash flows, abnormal production expenditures, and abnormal discretionary spending. The empirical examination employs panel data regression facilitated by EViews 13. Findings from the Chow, Hausman, and Lagrange Multiplier tests designate the Random Effect Model as the most suitable estimation approach. The empirical evidence indicates that sales growth and free cash flow exert positive and statistically significant effects on real earnings management (REM). In contrast, firm size, leverage, and profitability exhibit no statistically significant association with REM. This pattern supports agency theory: the pressure to sustain sales performance, combined with the presence of discretionary cash, gives management greater room to act opportunistically through real activities manipulation. These results carry practical value for investors, creditors, and corporate governance mechanisms aiming to detect REM practices at an early stage.