THE INFLUENCE OF FIRM DIVERSIFICATION TO EARNINGS MANAGEMENT: EVIDENCE FROM INDONESIA

The objective of this study was to investigate whether firm diversification can effect to earnings management in manufacturing companies listed in Indonesia Stock Exchange. Diversification was measured using number of segments owned by the firm. Earnings management was measured using modified Jones. Samples of this study are 100 manufacturing firms from 2003 to 2007 period. The samples are collected from database Indonesia Stock Exchange. This research uses purposive sampling to collect data. Technique of collecting data in this research is Archival. One of archival technique is secondary data. The results of analysis showed that diversified firms positively influence earnings management. It was seen that the existence of earnings management is high for the company's multi-segment. It provided additional funds in order to allocate funds in its business segments so that segment grew older and survive despite the less profitable segment. In fact, they exploited the weakness of the external parties who do not know the actual financial information to show that the company has good business prospects. The result supports the research hypothesi