DO POLITICAL CONNECTIONS FACILITATE FINANCIAL STATEMENT MANIPULATION? EVIDENCE FROM EARNINGS VOLATILITY AND FINANCIAL TARGETS (AN EMPIRICAL STUDY OF STATE-OWNED ENTERPRISES AND THEIR SUBSIDIARIES LISTED ON THE INDONESIA STOCK EXCHANGE FROM 2021 TO 2024)

Abstract

This study aims to analyze the influence of earnings volatility and financial targets on financial statement manipulation, with political connections as a moderating variable, in SOEs and SOE subsidiaries listed on the Indonesia Stock Exchange for the 2021–2024 period. The study employs a quantitative approach using secondary data obtained from companies’ financial statements and annual reports. The research sample was selected using purposive sampling, resulting in 25 companies with a total of 100 firm-year observations. Financial statement manipulation was measured using the Beneish M-Score, while data analysis was conducted using linear regression and moderated regression analysis. The results indicate that earnings volatility does not affect financial statement manipulation, whereas financial targets have a positive effect on financial statement manipulation. Furthermore, political connections fail to moderate the effect of earnings volatility on financial statement manipulation but amplify the effect of financial targets on financial statement manipulation. These findings confirm that pressure to achieve performance targets and opportunities arising from political connections are important factors that increase the risk of financial statement manipulation in SOEs. This study contributes to regulators, investors, and corporate governance practitioners in enhancing oversight and transparency in financial reporting.