Articles
DOI DOI: 10.62441/actainnovations.vi.664

WHEN TAX–ACCOUNTING MISALIGNMENT MEETS FINANCIAL DISTRESS: CONDITIONAL GOVERNANCE AND THE CHOICE OF EARNINGS MANAGEMENT IN INDONESIA

Wellia Novita1, Masyhuri Hamidi1, Moh Fany Alfarisy1, Suhanda1
  1. 1 Business and Economic Faculty, Management Department, Andalas University, Business and Economic Faculty, Management Department, Andalas University 234

Abstract

This study examines the joint effects of tax-policy–accounting misalignment and financial distress on firms’ earnings management behavior and investigates whether institutional ownership moderates managerial responses under compounded institutional pressures. While prior studies typically analyze tax aggressiveness, financial distress, and governance mechanisms in isolation, this study argues that these incentives interact in a non-additive manner, shaping both the intensity and the form of earnings management. Using panel data from non-financial firms listed on the Indonesia Stock Exchange over the period 2014–2023, the analysis distinguishes between accrual-based and real earnings management to capture potential substitution across reporting channels. The results show that earnings management intensifies primarily when tax-policy–accounting misalignment and financial distress occur simultaneously, rather than independently. Moreover, institutional ownership constrains accrual-based earnings management only under heightened combined pressure, while real earnings management remains more persistent, suggesting a shift toward less observable forms of manipulation when monitoring increases. These findings indicate that institutional ownership functions as a conditional governance mechanism rather than a universal disciplining device. From a policy perspective, the results highlight the limitations of relying solely on ownership structure to curb reporting distortions and underscore the need for coordinated accounting and tax oversight, particularly in emerging market settings characterized by regulatory complexity and heterogeneous enforcement.

How to Cite

Novita, W., Hamidi, M., Alfarisy, M. F., & Suhanda. (2026). WHEN TAX–ACCOUNTING MISALIGNMENT MEETS FINANCIAL DISTRESS: CONDITIONAL GOVERNANCE AND THE CHOICE OF EARNINGS MANAGEMENT IN INDONESIA. ACTA INNOVATIONS, 61, 39–51. https://doi.org/10.62441/actainnovations.vi.664
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