Sanusi, Fauji and Januarsi, Yeni and Purbasari, Intan and Akhmadi, Akhmadi (2023) The discipline vs complement role of product market competition and market power: Evidence from real earnings management in an emerging market. Cogent Business & Management, 10 (1). pp. 1-23. ISSN 2331-1975

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Abstract

We empirically study the role of product market competition and market power, discipline vs complement role, on real earnings management (REM) in Indonesia. Using 1800 firm-year observations from 2012 to 2020, we discover that the competition has an inverse association with REM, implying that product market competition plays a role in disciplining managers from engaging REM. Despite the negative association observed, we do not have evidence of any significant rela�tionship between market power and REM. These findings hold for a set of robustness tests. We also evidenced that the discipline role of competition in REM will be more pronounced after the Economic ASEAN Community (EAC) period and pre-COVID-19 as well as in small firms and income-increasing firms. Although we cannot include corporate governance variable in our model due to data constrain, to the best of our knowledge, the current study will be the first study examining the role of market competition and market power on REM by considering the external shock, EAC

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