What Drives Companies Listed on Islamic Index to Practice Creative Accounting? Evidence from Indonesia

Abstract

This research is aimed to find out the determinants of creative accounting in the companies listed on Jakarta Islamic Index. It examines whether profitability and corporate governance attributes play a role in companies practicing creative accounting. Sample consists of 25 companies that are listed consecutively in the Jakarta Islamic Index for the 2018–2020 period resulting in 75 total number of observations. Hypotheses were tested using multiple linear regression analysis methods. The results showed that simultaneously profitability and good corporate governance have an effect on creative accounting. Meanwhile, profitability, managerial ownership, and size of the board of commissioners influence the practice of creative accounting, nevertheless institutional ownership and the audit committee have no effect. The findings of this study reveals the most significant influence of managerial ownership towards the practice of creative accounting which may imply that corporate policy in distributing managerial ownership may need to be carefully handled. This study also implies that managerial intention for creative accounting may be similar to the companies in non-Islamic compliant stocks.