Financial report is the most important report that must be prepared by companies that put their stock in the market (public companies). According to Financial Accounting Standard Boards (FASB), financial reporting should provide information that is useful to present and potential investors and creditors and other users in making rational investment and also for making decisions. In fact, there are differences between information that presented to the shareholders and information known by manager. Moreover, through the preparing process of financial report, there is different interest between manager and shareholders. Managers tend to do earnings management in order to meet their needs.
This paper examines the effect of corporate governance that measured with managerial ownership, institutional ownership, board size and proportion of independent board on earnings management and dividends. Earnings management will measures with discretionary accrual with Modified Jones Model and dividends will measures with dividend payout ratio. The basic idea of this study just want to analyze that corporate governance is negatively associated on earnings management and earnings management is associated in dividend payout ratio. Good implementation of corporate governance can constrained the manager’s act to do earnings management.
The sample in this research is go public companies in consumer goods sector listed on Indonesia Stock Exchange 2008-2012 years in a row. In an election sample is used technique purposive sampling, namely samples set based on provided information. So, in total there are 164 firm years in this study.
