The Effect of Good Corporate Governance, External Financing, and Leverage on Earnings Management in Infrastructure Sector Companies

Abstract

Earnings management remains an important issue because it may reduce the reliability of financial reporting and influence stakeholders' decision-making. This study aims to examine the effect of Good Corporate Governance (GCG), External Financing, and Leverage on earnings management in infrastructure sector companies listed on the Indonesia Stock Exchange (IDX) during the 2020–2024 period. This research employs a quantitative approach using secondary data obtained from annual reports and financial statements, with a purposive sampling technique resulting in 258 firm-year observations. Earnings management is measured using the Modified Jones Model, while the data are analyzed using multiple linear regression with IBM SPSS Statistics. The findings reveal that Good Corporate Governance does not have a significant effect on earnings management, External Financing has a positive and significant effect on earnings management, and Leverage does not have a significant effect on earnings management. These results show that pressure arising from external financing plays a more prominent role in encouraging earnings management practices than corporate governance mechanisms and capital structure. Therefore, companies should strengthen financial reporting transparency and governance effectiveness, particularly when relying on external sources of financing.