This study aims to analyze and provides empirical evidence about the effect of earnings management on stock return with audit quality and the effectiveness of audit committee as the moderating variables. Earnings management is measured by discretionary accruals, estimated using the cross-sectional Modified Jones Model. Audit quality is measured by dummy variable of audit firm size, Big 4 or Non-Big 4; and the effectiveness of audit committee is measured by the number of audit committee meetings held in one year. The sample of this study is manufacturing companies listed in the Indonesia Stock Exchange in 2012-2014. The results of this study show that earnings management negatively affect stock return, and audit quality and the effectiveness of audit committee can moderate the relationship of earnings management with stock return. This results indicate that the two monitoring mechanisms work effectively to mitigate the deteriorating effect of earnings management to stock return.
- Earnings management; stock return; audit quality; effectiveness of audit committee.