Does Capital Structure Affect Management Behaviour In Conducting Creative Accounting? Evidence From South East Asia Market

Arisyahidin¹, Marhaendra Kusuma² , Che Manisah Mohd Kasim³, Mariano Nunes⁴

Abstract

(Purpose) To test the effect of capital structure on creative accounting and to test the moderating role of corporate governance in this effect. (Methodology) Data comes from financial statements of listed companies in Southeast Asia for 2020 – 2023, with observation data of 7,446 firm-years. Data analysis using Moderated Regression Analysis. (Results) Hypothesis testing shows that capital structure has a positive effect on creative accounting actions, and corporate governance weakens this effect. The higher the debt, the greater the pressure and cash savings so that debt interest payments can be met, spurring management to carry out creative accounting in the form of tax avoidance and earnings management. Rather than using cash to pay taxes, it is better to allocate it to pay interest expense obligations. The better the implementation of corporate governance, the lower the management’s behavior in carrying out tax avoidance and earnings management. (Originality) The originality of the study is 1) comprehensive corporate governance measurement with governance-score, 2) creative accounting measured by two proxies, namely tax avoidance and earnings management, and 3) broader data, namely the market in five Southeast Asian countries.