Earnings Management in Corporate Governance: A Systematic Literature Review

Increased profits will attract shareholders. In order to attract their attention, companies will conduct various ways about the financial health and company performance that are available in the public domain before they are publicized. Therefore, the company has the motivation to implement earnings management that can increase profits to improve its performance results. Therefore, this research aims to determine the impact of earnings management on corporate governance. This research method used a systematic literature review with Preferred Reporting Items for Systematic Reviews and Meta-analysis (PRISMA) guidelines for articles that have been published during 2010-2023. Around 170 articles were obtained from journal databases, such as Emerald Insight, Scopus, Science Direct, and others. Furthermore, data validation and testing were conducted to obtain 50 articles that could be used as the main research. The main point of this literature study is to examine the earnings management function in corporate governance in various published articles.


INTRODUCTION
Profit is an important factor in the business world. In addition, profit is the key to the success of company in attracting investors to invest their capital (Chiang et al., 2017a). The existence of profit in a company, the company can assess the company's financial performance. Earnings information is used to determine whether the company is profitable in its operational activities. Therefore, companies are motivated to manipulate profits. Increased profits will attract shareholders. In order to attract their attention, companies will conduct various ways about the financial health and company performance that are available in the public domain before they are publicized. Therefore, the company has the motivation to implement earnings management that can increase profits to improve its performance results (Baskaran et al., 2020). They will tend to report stable and improved financial results, while still complying with applicable accounting principles and standards.
Several surveys and studies have confirmed that agency theory indicates that the fundamental cause of earnings management is the conflict of interest between shareholders and management. Research focuses on how supervision of management through internal or external governance mechanisms such as compensation and capital structure can reduce earnings management (Wei et al., 2013). The concept of corporate governance is the company's benchmark system in controlling its operational activities. Good corporate governance can have a farreaching effect on the company's management system and is expected to minimize fraud or manipulation in the company. Campa and Donnelly (2014) stated that corporate governance can limit earnings management as evidence of its effectiveness. It is also expected that the existence of corporate governance can increase supervision of corporate profits and reduce management manipulation and increase reliability in financial statements (Paminto et al., 2020).
Corporate governance is basically related to the control of top managers' behavior in a company, which intends to protect the interests of shareholders against information from various external and internal parties. The concept of corporate governance can obtain two important things, that is, shareholders can obtain correct and precise information; and the second is the company's obligation to disclose accurately all information regarding company activities, ownership, and stakeholders. Therefore, companies need to manipulate earnings on financial statements in a company. Several previous studies proved that many researchers are interested in the topic of earnings management in corporate governance, such as Leventis and Dimitropoulos (2012) found that companies with efficient governance report small positive earnings at a lower rate than companies with weak governance. Companies with good governance engage less in aggressive earnings management behavior through the usage of discretionary accruals, CKPN (Reserve for Impairment Losses), and RSGL (Realized Security Gains and Losses) compared to companies with poor governance. In addition, this topic has received a lot of attention in various countries such as the UK from research of Iqbal and Strong (2010); Vietnam from research of Le et al (2021), Nguyen et al (2021); Saudi Arabia from research of Al-Thuneibat et al (2016), Habbash (2019), Al-Shattarat (2021); Japan from research of Nakashima (2019); China from research of Yuan et al (2022), Farag & Mallin (2018); New Zealand from research of Chapple et al (2018) ; Latin America from research of Mellado and Saona (2020); and Africa from research of Mensah and Boachie (2023), Musa et al (2023). This research aims to find out about earnings management in corporate governance with literature research procedures as literature in conducting this research.

Earnings Management
Earnings management occurs when managers use their assessment of financial statements that provide a description of company results that are not in accordance with the economy or predetermined targets. Bilan and Jurickova (2021) stated that earnings management allows information about the profit earned by the company to be less than optimal, making the company's performance worse. It aims to mislead stakeholders in calculating the accounting numbers reported in a company's financial statements (Roma et al., 2020). The managers of socially responsible companies publish more transparent and reliable financial reports to comply with stakeholder expectations and interests in their reputation (Yongtae et al., 2012).
Previous research on earnings management in corporate governance found mixed results. Cormier et al (2013) stated that the board of directors uses the supervisory role as corporate governance in committing less earnings management. In addition, Berry-Stölzle et al (2018) also stated that the negative relationship between CEO and earnings management. Saleh et al (2022) stated that board independence has a positive relationship with accrual-based and real earnings manipulation, board independence cannot control earnings manipulation practices. The research of Habib et al (2022) which found a relationship between Real Earnings Management (REM); Achleitner et al (2014); Purwaningsih & Kusuma (2020); and Accruals Earnings Management (AEM) on earnings quality. Jeong & Choi (2019) discovered a relationship between Real Earnings Management (REM) and earnings quality. While research from Sun (2020) discovered that accruals mispricing in Australia, the market overestimates the persistence of accruals and underestimates the persistence of cash flow which causes the market to be overpriced. The existence of earnings management can lead to a good reputation for the company. Furthermore, a good reputation will encourage companies to minimize earnings management practices so that they can generate higher profits (Harymawan & Nurillah, 2017). Therefore, investors will be interested in investing

RESEARCH METHODOLOGY
The researchers used the Preferred Reporting Items for Systematic Reviews and Meta-analysis (PRISMA) guidelines to select and source the articles to be used. This research was conducted using a systematic literature review approach on earnings management in corporate governance. There are several selection processes in conducting this research, such as selecting online data sources as research literature, determining keywords as inclusion and exclusion criteria, extracting data, and examining and analyzing the results to answer research questions.

Figure 1. Data Selection Process
This data selection is used to find papers that are in accordance with the research topic, which is earnings management in corporate governance. These are the sources we used to source and select SLR data, such as Scopus, Emerald Insight, Science Direct, JSTOR, Taylor & Francis, and Wiley. The keywords used are researches related to the title of this research on earnings management in corporate governance. This research used published articles from 2010 to 2023 as an inclusion consideration. Articles were selected based on predetermined keywords regarding earnings management in corporate governance. This literature study reviewed 170 articles from all databases. Furthermore, from these 170 articles, this research selected 92 articles. These were categorized as research candidates based on the  (2023) These research questions were created based on the needs of the selected topic, as follows: RQ1: What are the journals related to earnings management in corporate governance? RQ2 : What are the variables used in research related to earnings management in corporate governance? RQ3: What are the factors that affect earnings management in corporate governance? RQ4: What methods are used in collecting data from this research? RQ5: What are the results of earnings management research in corporate governance?

The Result of RQ1: The Journals related to The Variables in this Research
There are 50 journals related to earnings management in corporate governance in this research. These journals discussed earnings management in corporate governance during 2010-2023 using a quantitative approach.

The Result of RQ2: Variables used in Earnings Management in Corporate Governance
Research variables are also used as topics that will be used in determining the discussion in the research. This research topic is earnings management in corporate governance which focuses on 5 topics will describe on the following table below:

Result of RQ3: The Factors that affect Earnings Management in Corporate Governance
According to research that has been published in journals, there are 5 factors that affect earnings management, such as earnings quality, good corporate governance, corporate ownership structure, real earnings management, and discretionary accruals. These factors can be found on the following table below:

Result of RQ4: Methods used in Previous Articles
The method often used in earnings management research in corporate governance is using a quantitative approach which can be found in table 5 below:

Result of RQ5: Research Results
Based on the results of Research Question 5 (RQ5) about the research results regarding earnings management in corporate governance can be found in table 6. The findings are divided based on the findings that represent the entire research.

No.
Title Researcher Results

1.
The incidence of earnings management on information asymmetry in an uncertain environment: Some Canadian evidence Cormier et al, (2013) In Canadian companies, corporate governance is associated with less earnings management, the board of directors takes a supervisory role so that ownership can be concentrated.

2.
The impact of corporate governance mechanisms on real and accrual earnings management practices: evidence from Jordan This research discovered that the presence of large shareholders exacerbates earnings management (REM and AEM). 3.
An assessment of corporate governance reforms in Italy based on a This research stated that agency theory offers several descriptions of the relationship between corporate governance and earnings management practices.

5.
The effect of corporate governance on earnings management around UK rights issues This research analyzes with regard to various corporate governance mechanisms such as the role of the board, and ownership, advisory, and capital structure in controlling firms from managing earnings around rights issues in the UK. 6.

Is Earnings Quality Associated with Corporate Social Responsibility
Kim et al, CSR companies tend not to be aggressive in earnings management through discretionary accruals or real activity manipulation.

7.
Real earnings management and corporate governance: a study of Latin America Mellado & Saona, (2020) The research identified several ownership structure issues that cause some concern about the interests of minority shareholders.

8.
Corporate governance mechanisms and earnings management: The moderating role of female directors Corporate governance mechanisms contribute insignificant role in corporate earnings management practices. Gender diversity is a necessary condition for corporate governance mechanisms to have an impact on earnings management.

9.
Earnings management, policy uncertainty and firm life cycle stages: evidence from publicly traded companies in the USA and Brazil Roma et al., (2020) This research indicates that policy uncertainty is related to corporate discretionary accruals negatively, while throughout the life cycle stages, a significant positive relationship is identified at key stages but with different exposures.

10.
Internal corporate governance mechanisms and earnings manipulation practices in MENA countries Saleh et al., Institutional ownership in MENA countries has a negative impact on real earnings manipulation and accruals, the firm's board size affects the decision to participate in REM practices to enhance the firm's reputation in the market.

11.
Earnings opacity and corporate governance for Chinese listed firms: the There is a negative correlation between formal governance mechanisms, such as council and audit quality, and revenue opacity role of the board and external auditors for CLCs using two different types of proxies (i.e. equal weight and PCA weight).

12.
Association between earnings management and earnings quality: Comparative study between insider and outsider economics clusters Both AEM and REM earnings management are related to earnings quality. The negative correlation between AEM and earnings quality indicates that the greater the practice of AEM, the lower the earnings quality. REM is positively related to earnings quality. It indicates that the higher the REM practice, the higher the earnings quality.

13.
Do Reputable Companies Produce a High Quality of Financial Statements?
The correlation between corporate reputation and earnings quality has a positive and significant relationship. Companies with a good reputation will be more motivated to minimize earnings management practices as an effort to maintain the company's reputation. 14.
Survey research on earnings quality: Evidence from Japan Nakashima, There were 6 points regarding earnings quality, such as the importance of earnings quality; high earnings quality; determinants of earnings quality; earnings management motivation; earnings-affecting accounting; and earnings misstatement through a comparison of managers' ideas between Japan and America.

15.
Corporate governance that influences an investment intention in the asean-stars thai listed companies: A marketing application for brokerage firms Ngamchom et al, (2018) The result of this research indicates that investors' perspective on good corporate governance affects the perception of earnings quality which leads to investment interest.

16.
Role of discretionary earning management in corporate governancevalue and corporate governance-risk relationships Asghar et al, (2020) This research has several policy implications. First, directors make optimal use of their governance role. Second, managers should be aware of their accountabilities. Third, supervisory authorities should ensure that there is at least one independent member on the directors' board.

Do non-staggered board elections matter to earnings
Chiang et al, The research discovered that using discretionary accrual quality and the value relevance of earnings and book value?
activity in the presence of director elections leads to reduced earnings persistence, thus indicating that the discretionary accruals used exhibit a poorer quality of earnings accretion.

18.
Corporate governance and ownership structure: The results of this research indicated that CG practices have a positive impact on CFR and a slight negative impact on CFL. This finding suggested that companies with better CG practices tend to promote alignment of interests between controlling and non-controlling shareholders and inhibit shareholder entrenchment incentives. 19.
The role of accrual estimation errors to determine accrual and earnings quality Darjezi, Earnings management through manipulation of real activities reduces the persistence of earnings or cash flows.

22.
Ownership structure and earnings management: Empirical evidence from Vietnam

CONCLUSION
The objective of this research is to find out the earnings management in corporate governance. This research used 170 articles from 2010-2023, and there were 50 articles that were used as the main research. This research used systematic literature review method which aims to analyze the published journals, variables related to the topic of this research, factors affecting earnings management in corporate governance, methods used in the data collection of this research, and previous research results that are used as research materials in this research.
The result of RQ1, the journals used are vary, with a similarity of 36 journals. The results of RQ2, our research focused on 5 topics, such as corporate governance as a determinant of earnings management, earnings management measurement, ownership structure of the company, characteristics of the board of directors, and low values of REM (Real Earning Management) and AEM (Accrual Earning Management) reflect sustainable earnings management. The result of RQ3, there were 5 factors that affect earnings management in corporate governance, including Discretionary Accrual & Total Accrual, REM & AEM, Corporate Governance, Earnings Quality, and Ownership Structure. The result of RQ4, the method used in previous researches was using quantitative methods, which is a method that is related to numbers to find out about the profit generated by the company. The result of RQ5, the result of the research concluded that earnings management is very influential on corporate governance.
Our research has limitations in that our sample is quite small, considering the limited database and keywords in the selection of this research paper. Further research can expand the sample by adding keywords and a longer research period so that it can provide more accurate results.