Does Earnings Quality Really Matter? An Evidence from Indonesian State-Owned Bank

Abstract

The main purpose of this study is to examine earnings quality and their impact on the financial performance of Indonesian state-owned banks from the period of 2006 up to 2018. The indicators for earnings quality are discretionary accruals and earnings persistence while measurements for financial performance are return on assets, return on equity, rate return on loans and total asset turn over. This research covers 4 Indonesian state-owned banks. The data for the study were analyzed using Partial Least Square (PLS). Apparently, testing the effect of earnings quality in Indonesian state-owned banks reveals not a significant result, as unexpected. The result of this study slightly different from other previews research. The mainstream of theoretical asserts that earnings quality has a positive effect on financial performance. This study shows that although earnings quality doesn’t have a significant effect on financial performance, it doesn’t mean that companies can make earnings management on their earnings. This study also recommends that companies not only pursue company profit but also keep other factors to obtain good company performance for the short and long term.