International Journal of Applied Business & International Management (IJABIM) Vol.
10 No.
3, pp.
December, 2025
E-ISSN: 2621-2862 P-ISSN: 2614-7432
https://w.
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php/IJABIM The Effect of Leverage.
Risk Management Committee, and Earnings Persistence on Real Earnings Management Gunawan1.
Januar Eko Prasetio2* Universitas Pembangunan Nasional Veteran Yogyakarta.
Sleman Regency.
Special Region of Yogyakarta, 55283.
Indonesia *Corresponding Email: januar_ep@upnyk.
ARTICLE INFORMATION
ABSTRACT
Publication information The banking industry is inherently vulnerable to financial manipulation due to Research article its high leverage structure, complex
transactions, and direct access to liquid
HOW TO CITE
financial assets.
Profit management can Gunawan.
, & Prasetio.
The be viewed as the right of managers to effect of leverage, risk management establish certain accounting policies from committee, and earnings persistence on an academic perspective.
however, it is real earnings management.
International often viewed as fraudulent behavior by Journal of Applied Business & International practitioners.
This study aims to examine Management, 10.
, 521-536.
how leverage, the risk management (RMC).
DOI:
https://doi.
org/10.
32535/ijabim.
4263 management (REM).
Using a quantitative approach and purposive sampling, the Copyright @ year owned by Author.
study analyzes 47 banking companies.
Published by IJABIM resulting in 198 usable observations after outlier removal.
The results show that leverage and the risk management committee have a significant effect on real earnings management, with significance values of 0.
014 (< 0.
042 (<
, respectively, while earnings This is an open-access article.
= 0.
does not have a License:
significant effect.
Simultaneous testing Attribution-Noncommercial-Share Alike also confirms a significant joint influence (CC BY-NC-SA) .
= 0.
, although the adjusted Rsquared value is only 0.
4%),
Received: 14 October 2025 indicating that the independent variables Accepted: 17 November 2025 collectively explain a limited portion of real Published: 20 December 2025 earnings management.
Future research is recommended to incorporate additional independent variables to better explain real earnings management.
Keywords:
Earnings Persistence.
Leverage.
Real Earnings Management.
Risk Management Committee.
Banking Industry International Journal of Applied Business & International Management (IJABIM) Vol.
10 No.
3, pp.
December, 2025
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php/IJABIM INTRODUCTION The banking industry is inherently vulnerable to financial manipulation due to its high leverage structure, complex transactions, and direct access to liquid financial assets.
Compared to other industries, banks face stronger incentives to present stable performance because fluctuations in reported earnings can immediately affect public trust, liquidity, and regulatory compliance.
This environment increases the relevance of real earnings management (REM), as bank managers may alter operational decisions such as discretionary expenses, loan-loss provisions, and credit disbursement timing to meet profit targets.
Unlike accrual management, which leaves cash flows unchanged.
REM directly affects banksAo cash liquidity and future performance, making it particularly consequential for the financial sector.
Financial statements are a measuring tool used by stakeholders to assess a company's performance over a given period.
The reliability of the data contained in financial statements is important for decision-making by both internal and external parties.
However, conflicts of interest between management, as the preparers of financial statements, and external parties or other stakeholders can give rise to earnings management practices.
Earnings management practices can be categorized into two types, which are REM and accrual earnings management (AEM).
AEM is a practice carried out by management in changing accounting methods when treating a transaction without changing the company's cash flow.
Unlike AEM.
REM is a practice of manipulating the company's operational activities, such as cash flow, discretionary expenses, and production, to achieve certain profit targets that can directly impact the company's cash flow in the current period and future cash flow (Abubakar et , 2.
Despite its importance, the academic literature provides mixed and unresolved evidence regarding the determinants of earnings management, particularly leverage, the effectiveness of the risk management committee (RMC), and earnings persistence.
Some studies suggest that leverage exacerbates earnings management, while others argue that it constrains managerial opportunism.
Pricillia et al.
, for example, found that leverage has a positive effect on earnings management, as debt pressure encourages managers to modify earnings to appear financially healthy.
In contrast.
Awad et al.
reported that leverage limits REM but does not significantly affect AEM.
Further evidence from Awad et al.
indicates that leverage negatively affects AEM but has no significant impact on REM when moderated by growth opportunities.
These inconsistent findings highlight the need for further investigation into how leverage influences different forms of earnings management.
Similarly, prior studies report inconsistent associations between RMC attributes, such as size, independence, expertise, and activity, and earnings management outcomes, raising questions about the committeeAos true governance role.
Elhaj et al.
found that RMC size, activity, and member qualifications negatively affect REM practices, although member independence was not significant.
In contrast.
Abubakar et al.
showed that the presence of an independent RMC significantly discourages earnings management, particularly when moderated by institutional ownership.
Supporting this view.
Lamidi et al.
found that RMC characteristics, including independence and gender diversity, influence bank financial performance.
More recently.
Musa et al.
demonstrated that the existence of an effective RMC suppresses earnings management.
Given these inconsistent findings, it is important to re-examine the role of the RMC in Indonesian companies, especially in light of increasing demands for transparency, accountability, and high-quality financial reporting.
International Journal of Applied Business & International Management (IJABIM) Vol.
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php/IJABIM Earnings persistence also exhibits contradictory effects across studies.
Kalbuana et al.
found that earnings persistence does not influence earnings management, arguing that firms with stable earnings have less incentive to manipulate them.
Conversely.
Setiawati et al.
reported a positive relationship, suggesting that even firms with consistent earnings may engage in earnings management to meet market Indonesian banks during the 2020Ae2024 period provide a timely empirical context to reexamine these relationships.
This period reflects the industryAos post-pandemic recovery, stricter OJK regulatory policies, heightened transparency requirements, and several high-profile fraud and financial engineering cases, all of which underscore the urgency of improving earnings quality.
Table 1.
Industries Affected by Accidental Fraud Rank Industry Government Construction Banking and financial services Healthcare Insurance Percentage Affected Source: ACFE Indonesia .
Based on data from ACFE Indonesia .
in Table 1, the banking and financial services industry ranks third as the sector most affected by workplace fraud in Indonesia, with a percentage of 12%.
This percentage shows that the banking sector still has a fairly high level of vulnerability to internal fraud compared to other sectors.
The high level of fraud in the banking industry is caused by several main factors.
First, the banking sector has direct access to vast financial assets and customer data, which increases the opportunity for abuse of authority or transaction manipulation.
Second, the complexity of the financial system and banking products allows for gaps in supervision that fraudsters can exploit to cover up their actions over a long period of time.
In addition, high pressure to meet performance targets also contributes to an increased risk of fraud.
Employees are often faced with demands to meet credit distribution or profit targets, which can encourage the manipulation of financial data and false reporting.
On the other hand, weaknesses in internal control systems, such as collusion between employees or weak internal audit functions, exacerbate this situation, as oversight becomes ineffective.
Figure 1.
Typical Velocity of Different Occupational Fraud Schemes (Median Loss per Mont.
Skimming Payroll Cash on hand
Noncash
Check and payment tampering $2,400 $2,800 $2,800 $2,900 $4,200 $4,200 $5,500 $5,600 $8,600 $15,400 Financial statement fraud
$42,600
Source: ACFE .
Based on data from ACFE .
in Figure 1, financial statement fraud is the type of fraud that causes the most rapid financial losses to victims.
The reason is that financial statement manipulation is usually carried out by senior management who have significant access to and authority over the presentation of financial data.
As a result, the International Journal of Applied Business & International Management (IJABIM) Vol.
10 No.
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https://w.
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Thus, compared to other forms of operational fraud, financial statement fraud is the most destructive type and has the potential to cause large losses in a short period of time.
Table 2.
The Departments Most at Risk of Committing Fraud in the Workplace Number of Percent of Median Loss
Departments Cases Cases (USD) Operations $100,000 Accounting $208,000 Sales $75,000 Customer service $55,000 Executive/upper management $793,000 Purchasing $143,000 Administrative support
$88,000
Finance $285,000 Source: ACFE .
Based on data from ACFE .
in Table 2, cases of fraud in Indonesia are spread across various departments within organizations, with varying levels of loss.
The operational department ranks highest with 227 cases or 14%, followed by the accounting and sales departments, which each account for 12% of the total cases.
However, the highest level of losses does not always occur in the departments with the highest number of cases.
The executive or top management department shows the highest median loss, reaching USD 793,000, even though it only accounts for 9% of the total cases.
This reflects that higher positions in the organizational hierarchy tend to have greater access and authority over company assets, so the potential for losses due to fraud is also Overall, this data confirms that the frequency and financial impact of fraud vary according to the level of authority and function of departments within an organization.
Departments directly involved in fund management, accounting, or strategic decision-making tend to have higher fraud risk and potential losses compared to operational and service Table 3.
Cases by Country or Territory in the Asia-Pacific Region Country or Territory Number of Cases China Australia Indonesia Malaysia Singapore Source: ACFE .
According to ACFE .
data in Table 3.
Indonesia ranks third in the Asia-Pacific region in terms of fraud cases, with a total of 25 cases in 2024.
In 2025, there was breaking news from the state-owned enterprise PT Kimia Farma Tbk (KAEF), a stateowned company in the pharmaceutical sector, reporting losses amounting to trillions of The government, through the Ministry of State-Owned Enterprises, detected alleged financial engineering at the company's subsidiaries, particularly at PT Kimia Farma Apotek (KFA) during the 2021Ae2022 period.
The alleged manipulation involved recording sales or distribution as if they were running well when in fact they were not.
addition, operating expenses increased significantly, and operational efficiency became International Journal of Applied Business & International Management (IJABIM) Vol.
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php/IJABIM an issue, including the large number of factories that were built but were considered This study aims to empirically analyze the effects of leverage.
Risk Management Committee characteristics, and earnings persistence on REM in Indonesian banking institutions during 2020-2024.
Theoretically, this study contributes to the refinement of agency theory and positive accounting theory by clarifying how contractual pressures, governance mechanisms, and earnings attributes interact within a highly regulated and high-leverage industry.
Empirically, it provides updated evidence from IndonesiaAos postpandemic banking sector, a context characterized by regulatory tightening and rising concerns over financial reporting credibility.
The novelty of this study lies in simultaneously examining leverage, multi-dimensional RMC attributes, and earnings persistence on both REM and AEM within a single integrated model, something rarely tested in prior Indonesian or international banking research.
LITERATURE REVIEW
Agency Theory Agency theory explains the contractual relationship between investors .
and managers .
who act on behalf of owners (Jensen & Meckling, 2.
Management tends to engage in opportunistic actions such as earnings management to maximize personal interests, while principals want to increase company value (Prasetio et al.
, 2023.
Sarjiyono & Prasetio, 2.
This perspective on earnings management raises questions regarding the transparency and quality of a company's financial Signal Theory Signaling theory is an attempt by management to reduce information asymmetry by conveying reliable information to the market (Spence, 1.
Signaling theory provides an explanation of information asymmetry regarding problems that may arise between internal and external stakeholders of a company.
This gap can be reduced by sending signals to external parties.
High-quality financial reports, including consistency in generating profits, can be a positive signal for investors.
Conversely, profit management practices damage the credibility of the signals given by the company.
Positive Accounting Theory Positive Accounting Theory, developed by Watts and Zimmerman .
, emphasizes that managers choose accounting policies to maximize their utility based on contracts, bonus plan hypotheses, political costs, and debt covenants (Deegan, 2.
accordance with financial accounting standards that have adopted IFRS, corporate management is permitted to select the accounting techniques it wishes to apply.
This is in line with positive accounting theory, which states that corporate management accounting procedures do not have to be identical to those of other companies, and corporations are given the freedom to select the best procedures for them in order to reduce contract costs and maximize company value (Scott, 2.
With the freedom to choose the accounting system to be used, managers have a tendency to adopt actions in positive accounting theory called opportunistic actions, which are actions that trigger a person to engage in earnings management.
Real Earnings Management (REM) REM is the act of managers modifying the company's actual operational activities, rather than through accrual engineering, with the aim of achieving certain profit targets or avoiding reporting losses (Roychowdhury et al.
, 2.
International Journal of Applied Business & International Management (IJABIM) Vol.
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, there are three main methods involved in REM The first is sales manipulation, in which companies accelerate revenue recognition or boost current-period sales, often by offering large discounts or loosening credit terms, to create a temporary increase in sales volume.
The second is overproduction, where firms intentionally produce more goods than market demand requires in order to lower per-unit costs through the broader allocation of fixed costs.
The third is discretionary cost-cutting, in which organizations deliberately reduce certain expenses to improve short-term profitability.
however, this strategy may undermine longterm competitiveness by limiting investments in innovation, marketing activities, and the upkeep of productive assets.
Hypotheses Development Leverage High structure of banking debt is a normal characteristic in the banking industry as part of the banking business model (Sukma & Prasetio, 2.
Leverage can increase financial risk, but it can also encourage efficient use of capital (Paramita & Prasetio.
Based on the debt covenant hypothesis of positive accounting theory, high leverage encourages managers to engage in earnings management to avoid breaching debt covenants.
From an agency theory perspective, leverage can serve as a disciplinary mechanism because it limits the free cash flow available to managers, thus decreasing the probability of opportunistic actions and the engagement in earnings management In other words, debt repayment obligations force managers to be more cautious in managing company resources (Awad et al.
, 2.
Research conducted by Pricillia et al.
and Tulcanaza-Prieto et al.
also shows that leverage has a positive effect on REM.
H1: Leverage has a positive effect on REM.
Risk Management Committee (RMC) RMC is a special committee formed by the board of directors and reports directly to the The RMC plays a crucial role in strengthening governance and oversight of risk management, including financial reporting.
According to Musa et al.
, the higher the proportion of independent or non-executive members on the RMC, the higher the level of oversight of actual profit management practices.
Executive involvement in the committee can influence organizational policy.
Referring to agency theory, managers have incentives to manipulate profits in order to show good performance for the sake of bonuses, reputation, or to protect their positions.
H2: RMC size has a negative effect on real profit management.
Earnings Persistence Earnings persistence reflects high earnings quality, so that the more persistent the earnings, the lower the level of manipulation in financial reporting.
Within the Indonesian capital market context, firms exhibiting high earnings persistence convey a favorable signal to investors about the stability of their performance and the reliability of future earnings prospects, which in turn can attract greater investment and reduce the company's cost of equity (Ningsih et al.
, 2.
Conversely, low earnings persistence can send a negative signal about performance instability, thereby increasing investor risk (Setiawati et al.
, 2.
H3: Earnings persistence has a negative effect on earnings management.
Figure 2.
Conceptual Framework International Journal of Applied Business & International Management (IJABIM) Vol.
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RMC (X.
, and Earnings Persistence (X.
on REM (Y).
This model is based on agency theory, signal theory, and positive accounting theory.
RESEARCH METHOD
This study employs a quantitative method grounded in a positivist philosophy, aiming to test hypotheses within a specific population.
The population of this study consists of banking companies listed on the Indonesia Stock Exchange (IDX) during the 2020Ae2024 A purposive sampling technique is applied to select the research sample.
Purposive sampling refers to a sampling method in which samples are selected based on specific considerations or predetermined criteria (Sugiyono, 2.
In this study, the sample includes banking companies that consistently publish and submit their financial reports to the Indonesia Stock Exchange from 2020 to 2024 and provide complete data for all variables examined in the research.
In this research, outlier treatment was performed by removing 37 samples identified as extreme data.
These samples had values that deviated significantly from the normal distribution, potentially disrupting the fulfillment of classical assumptions and reducing the accuracy of regression estimates.
The removal was carried out to prevent distortion of results, ensure a more stable model, and make the research findings more reliable and representative of the conditions of the majority of samples.
Table 4.
Research Sample Criteria Criteria Number Banking sub-sector companies listed on the Indonesia Stock Exchange (IDX) from 2020 to 2024.
Companies that consistently release and submit financial reports to the .
Indonesia Stock Exchange (IDX) from 2020 to 2024.
Companies that provide complete data related to the variables.
Number of Research Samples Observation data .
x 5-year research perio.
Outlier data Number of observation data after outliers As summarized in Table 4, the initial population consists of 47 banking sub-sector companies listed on the Indonesia Stock Exchange during the 2020Ae2024 period.
All companies met the purposive sampling criteria, as they consistently submitted financial reports to the IDX and provided complete data related to the research variables.
therefore, no firms were excluded at this stage.
With a five-year observation period, the total number of firm-year observations amounts to 235 data points.
Following the outlier testing process, 37 observations were excluded, resulting in a final sample of 198 firmyear observations used in the empirical analysis.
This final dataset is considered sufficient to represent the population and support robust hypothesis testing.
International Journal of Applied Business & International Management (IJABIM) Vol.
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https://w.
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php/IJABIM The present investigation applies multiple regression to analyze the data, which is basically a study of dependent variables with one or more independent variables.
The SPSS 27 program is also used in this regression research.
The regression equation of this research is:
REM = 1 LEV 2 RMC 3 PRST ei
REM
1, 2, 3
LEV
RMC
PRST
yuA Real earnings management Constant Regression coefficient Leverage Risk managament committee Earnings persistence Error term Leverage Leverage is the use of debt in a company's capital structure, which is generally measured by the ratio of debt-to-equity or total assets.
A high degree of leverage reflects a larger proportion of the company's financing that comes from debt rather than equity (Maulana & Prasetio, 2025.
Religiosa & Surjandari, 2.
From an agency theory perspective, leverage can serve as a disciplinary mechanism because it limits the free cash flow available to managers, thus decreasing the probability of opportunistic behavior and earnings management practices.
In other words, debt repayment obligations force managers to be more cautious in managing company resources (Awad et al.
, 2.
However, high leverage can also encourage managers to engage in earnings management to avoid violating debt covenants and maintain the company's reputation in the eyes of creditors (Al-Shattarat, 2.
According to Kashmir .
, in a study by Darmawan et al.
, the leverage ratio is measured by:
yayceycayc ycycu yaycycycnycyc ycIycaycycnycu = ycNycuycycayco yayceycayc yaycycycnycyc Risk Management Committee (RMC) The RMC variable in this study was measured by counting the number of board members serving on the companyAos risk committee at the end of the annual reporting period.
higher number of committee members indicates an enhanced capacity for oversight and decision-making within the committee (Musa et al.
, 2.
In the study by Awad et al.
RMC was measured by:
ycIycAya ycIyaycsya = ycAycycoycayceyc ycuyce ycaycuycaycycc ycoyceycoycayceycyc ycyceycycycnycuyci ycuycu ycEayce ycIycAya Earnings Persistence Persistent earnings indicate a firmAos capability to sustain stable and long-term financial performance while conveying a favorable signal to the market regarding its future prospects (Setiawati et al.
, 2.
The higher the profit persistence, the higher the profit quality because it reflects sustainable economic performance, not just transitory events or accrual management (Putra, 2.
In the study conducted by Setiawati et al.
the formula used in previous studies was:
ycEycIycIycN = yayaAycNycOe1 Oe yayaAycNyc ycNycuycycayco yaycycyceyc Real Earnings Management (REM) According to Roychowdhury et al.
REM is a form of deviation from normal International Journal of Applied Business & International Management (IJABIM) Vol.
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This practice is carried out by managers with the aim of misleading some stakeholders into believing that certain financial reporting targets have been achieved through normal business operations.
REM is carried out through operational decisions such as sales, production, and discretionary expenditure policies, thus having direct consequences on the company's cash flow and economic performance over both the short and long term.
The regression model for normal operating cash flow, according to Roychowdhury et al.
, is as follows:
yayaycCyc
ycIyc
OIycIyc
= yca0 yca1 ( ) yca2 ( ) yca3 ( ) yuAyc
ycNyaycOe1
ycNyaycOe1
ycNyaycOe1
ycNyaycOe1
RESULTS
Descriptive Statistics Analysis According to Sugiyono .
, descriptive statistics are statistics used to analyze data by describing or depicting the data that has been collected as it is, without the aim of drawing general conclusions or making generalizations.
Table 5.
Descriptive Statistics Result Variables Minimum Maximum Mean Leverage RMC Earnings Persistence REM Valid N .
Std.
Deviation Source: SPSS Data Processing Result .
Table 5 presents a total of 198 observations used in this research.
The descriptive analysis indicates that leverage, measured by the debt-to-equity ratio, ranges from a minimum of 0.
06 to a maximum of 115.
06, with a mean value of 5.
2325 and a standard deviation of 0.
The RMC variable shows a minimum value of 1 and a maximum of 12, with an average of 5.
92 and a standard deviation of 2.
Furthermore, profit persistence has a mean value of 0.
0001, ranging from -0.
25 to 0.
35, and a standard deviation of 0.
The dependent variable.
REM, records a mean of 0.
0178, a minimum of -0.
013, a maximum of 0.
17, and a standard deviation of 0.
Classic Assumption Test Table 6.
Classic Assumption Test Normality Asymp Sig.
-Taile.
Tolerance Leverage RMC Multicollinearity Earnings Persistence VIF Leverage RMC Earnings Persistence Autocorrelation Durbin Watson Significance Heteroscedasticity Leverage RMC Earnings Persistence Normal Multicollinearity Free Multicollinearity Free No Autocorrelation Free of Heteroscedasticity International Journal of Applied Business & International Management (IJABIM) Vol.
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Based on the results of the classical assumption test shown in Table 6, the research data are deemed normally distributed when the Asymp.
Sig.
-taile.
value exceeds 0.
while a value below 0.
05 indicates a non-normal distribution.
Accordingly, the data in this study satisfy the normality assumption, as the Asymp.
Sig.
-taile.
The value obtained The results of the multicollinearity test indicate that the tolerance value for leverage is 000 (>0.
with a VIF value of 1.
000 (<.
Similarly, the RMC variable has a tolerance value of 1.
000 (>0.
and a VIF value of 1.
000 (<.
Meanwhile, the earnings persistence variable records a tolerance value of 0.
999 (>0.
and a VIF value of 1.
(<.
Therefore, these results confirm that no multicollinearity exists among the independent variables in this model.
Based on the results of the autocorrelation test, the DurbinAeWatson statistic obtained is The decision-making criteria based on this test are that if the DW value is in the range of DU C DW C 4-DU, it can be concluded that there is no autocorrelation in the regression model.
With a sample size of 198 and three independent variables .
, the lower limit .
L) is 1.
641, while the upper limit .
U) is 1.
The value of 4AedU is calculated to be 2.
This shows that 1.
758 < 2.
020 < 2.
242, so it can be concluded that there is no indication of autocorrelation in this study.
Based on the results of the heteroscedasticity test, the variable of leverage shows a significance value of 0.
116, the RMC variable shows a significance value of 0.
725, and the earnings persistence variable shows a significance value of 0.
Based on these test results, it can be concluded that this regression model is free from Multiple Linear Regression Analysis Table 7.
Multiple Linear Regression Coefficientsa Unstandardized Standardized Model Coefficients Coefficients Sig.
Std.
Error Beta 1 (Constan.
Leverage RMC Earnings Persistence Source: SPSS Data Processing Result .
Y = -0.
001 X1 0.
003 X2 0.
161 X3 0.
Based on the regression equation, the constant value of -0.
010 indicates that in the absence of any influence from the independent variables, the earnings management value would be -0.
The regression coefficient for the leverage variable is 0.
suggesting that a one-unit increase in leverage leads to an increase in earnings management by 0.
001, assuming other variables remain constant.
The regression coefficient for the RMC variable is 0.
003, implying that a one-unit increase in the committee size results in a 0.
003 increase in earnings management, with other variables held constant.
Meanwhile, the regression coefficient for the earnings persistence variable is 0.
161, meaning that each one-unit increase in earnings persistence raises earnings management by 0.
161, assuming other variables remain constant .
ee Table International Journal of Applied Business & International Management (IJABIM) Vol.
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Hypothesis Test Results Significance Anova Simultant X1.
X2.
X3 simultaneously Model of Significance (F Tes.
008 influences the dependent variable Regression Standardized Coefficients Beta Partial Significance (T Tes.
Determination Coefficient Leverage RMC Earnings Persistence Significance Leverage RMC Earnings Persistence Adjusted R Square Positive Affect Positive Affect Positive Affect Affect Affect Does Not Affect X1.
X2.
X3 simultaneously able to influence or provide an explanation for the dependent variable, by 4.
Source: SPSS Data Processing Result .
Based on Table 8, the simultaneous significance test (F-tes.
produces a significance value of 0.
008, which is below the 0.
05 threshold.
This result indicates that leverage.
RMC size, and earnings persistence simultaneously have a statistically significant effect on REM.
Therefore, the regression model is considered valid and appropriate for further The results of the partial significance test .
-tes.
show that leverage has a significance value of 0.
014, which is less than 0.
05, accompanied by a positive standardized coefficient ( = 0.
This finding indicates that leverage has a positive and statistically significant effect on REM, supporting H1, which proposes that leverage positively influences real earnings management.
Similarly, the RMC size variable shows a significance value of 0.
042, which is below the 05 level, with a positive standardized coefficient ( = 0.
This result confirms that RMC size has a statistically significant effect on REM.
Thus.
H2 is accepted in terms of statistical significance.
however, the positive direction of the coefficient indicates that the effect is opposite to the hypothesized negative relationship.
In contrast, earnings persistence has a significance value of 0.
186, which exceeds the 05 threshold, despite having a positive standardized coefficient ( = 0.
This result suggests that earnings persistence does not have a statistically significant effect on REM.
Consequently.
H3 is rejected, as the empirical evidence does not support the proposed negative influence of earnings persistence on earnings management.
Finally, the coefficient of determination indicates that the adjusted R-square value is 044, meaning that leverage.
RMC size, and earnings persistence jointly explain 4.
of the variation in real earnings management.
The remaining 95.
6% of the variation is attributable to other factors not included in the research model.
DISCUSSION
International Journal of Applied Business & International Management (IJABIM) Vol.
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php/IJABIM The Effect of Leverage on REM In Table 8 regarding the partial test results, the significance value of the leverage variable measured by the debt-to-equity ratio is 0.
014 < 0.
05 with a regression coefficient (B) value of leverage of 0.
This value indicates a one-way relationship between the leverage variable and REM.
Thus, the leverage variable has a significant positive effect on REM.
The results of this study are in line with previous studies conducted by Pricillia et al.
When debt covenant pressure increases, managers will be encouraged to increase profits so as not to violate debt agreements and maintain the company's image in the eyes of creditors and investors.
Regulatory conditions during the 2020Ae2024 period further strengthened these incentives.
During the COVID-19 pandemic, the OJK implemented various stimulus policies such as asset quality relaxation, credit restructuring policies, and a moratorium on collectability.
Although aimed at maintaining banking stability, these policies created more flexible managerial space so that banks could manage their operating income to maintain good performance ratios.
After the recovery period, when stimulus began to be reduced, pressure to maintain health indicators such as Capital Adequacy Ratio (CAR).
Non-Performing Loan (NPL), and Return on Assets (ROA) increased again.
This situation encouraged highly leveraged banks to conduct REM to maintain their financial position and market confidence.
Meanwhile, these results differ from studies conducted by Al-Shattarat .
and Awad et al.
, which show that leverage has no effect on REM.
The higher a company's leverage ratio, the greater the risk of default.
Therefore, managers will choose to signal high profits to appear capable of meeting the company's financial obligations.
This is because it is difficult for external parties to assess the actual financial condition, thus creating room for managers to manipulate the company's profits.
As a result, management is encouraged to engage in earnings management to present stable and healthy financial performance in order to appear capable of meeting the company's financial obligations.
Thus, the first hypothesis is accepted.
The Effect of RMC on REM Referring to Table 8 of the partial test results, the RMC has a significance value of 0.
< 0.
05 with a regression coefficient (B) value of 0.
143, indicating that the RMC variable has a significant positive effect on the REM variable.
This finding confirms that RMC size significantly influences REM.
however, the direction of the effect is positive.
The results of this study differ from previous studies conducted by Awad et al.
, which show that the size of the RMC has a negative effect on earnings management.
Research findings showing the positive effect of RMC size on REM can be explained through the institutional context of Indonesian banking.
In practice, large committees do not always reflect strong risk oversight.
The composition of RMC members is often dominated by executives or individuals who lack independence, thereby weakening the control function and making the committee more of a formality than an effective oversight In addition, the potential for overlapping roles between RMC members and the board structure can also reduce the focus of oversight, so that a large committee actually opens up space for activity-based profit management practices.
To further examine this mechanism, future research could separate samples based on the level of independence, expertise, or frequency of RMC meetings.
Testing the interaction between RMC size and these attributes could also help identify whether the positive effect on REM only appears in committees that are weak in governance.
This approach allows for a more accurate assessment of whether RMC size truly reflects supervisory effectiveness or merely symbolic compliance in banking governance.
International Journal of Applied Business & International Management (IJABIM) Vol.
10 No.
3, pp.
December, 2025
E-ISSN: 2621-2862 P-ISSN: 2614-7432
https://w.
com/index.
php/IJABIM Accordingly, although RMC size is statistically significant, the second hypothesis, which proposes a negative effect of RMC size on real earnings management, is not supported in terms of effect direction.
The Effect of Earnings Persistence on REM Earnings persistence is the ability of a companyAos current earnings to predict future The higher the earnings persistence value, the more stable and higher quality a companyAos earnings are.
Referring to the partial test results in Table 8, the significance value of the earnings persistence variable is 0.
186 > 0.
05, which indicates that earnings persistence does not have a significant effect on earnings management.
The results of this study are in line with the research conducted by Kalbuana et al.
and differ from the research conducted by Setiawati et al.
The earnings persistence variable does not have a significant effect on REM because the measure of persistence calculated from changes in earnings before tax to total assets is quite sensitive to fluctuations in interest income, credit loss provisions, and macro banking conditions.
As a result, this indicator does not always reflect the long-term profit stability that is relevant to management decisions on REM.
High or low earnings persistence does not always influence managersAo opportunistic behavior if the principalAos monitoring mechanism is effective because the agency conflict space has been reduced.
When investors or external parties no longer consider profit stability as the main indicator of company quality, generating consistent profits may not necessarily attract market attention because there are other indicators, such as financial or non-financial information disclosure.
Thus, the third hypothesis in this study is rejected.
CONCLUSION
This study examines the effect of leverage.
RMC, and earnings persistence on REM in Indonesian banking companies during 2020Ae2024.
The findings indicate that leverage positively affects REM, suggesting that banks with higher leverage face stronger pressure to meet regulatory financial ratios, which can encourage manipulation of operating activities.
The RMC also shows a positive effect on REM, likely due to limited independence and weak monitoring effectiveness.
Meanwhile, earnings persistence does not have a significant influence on REM, indicating that stable earnings are no longer a primary signal of firm quality in the banking sector.
Theoretically, the study highlights that governance proxies, especially RMC characteristics, can behave heterogeneously across contexts, and that using RMC size alone may be an inadequate indicator of governance effectiveness.
For practitioners and regulators, the findings suggest the need to monitor the composition of RMCs more closely and to require disclosures on member independence and committee activities to strengthen oversight.
LIMITATION
This research has limitations because the variables of leverage.
RMC, and earnings persistence can only explain 4.
4% of the REM variable, while 95.
6% is influenced by other factors that were not examined.
This shows that the independent variables in this study have a very limited ability to explain the dependent variable.
Furthermore, this study uses REM in banking, which tends to be difficult to identify because most of the bankAos operational activities are highly dependent on strict regulatory policies and accounting standards.
This is due to the characteristics of the banking industry, which differ from other sectors, particularly in terms of financial structure, regulations, and financial reporting methods.
Based on the results of testing and analysis in this study, it is hoped that future research can use data from a broader time frame in order to increase the validity and reliability of the findings obtained and use other independent variables that are able to explain REM more broadly.
International Journal of Applied Business & International Management (IJABIM) Vol.
10 No.
3, pp.
December, 2025
E-ISSN: 2621-2862 P-ISSN: 2614-7432
https://w.
com/index.
php/IJABIM ACKNOWLEDGMENT The author would like to thank the informants, colleagues, and everyone who supported the completion of this research.
Their involvement greatly enriched the quality and depth of this research.
DECLARATION OF CONFLICTING INTERESTS
No potential contradictions related to interests have been made known by the authors of this article.
REFERENCES