THE EFFECT OF PROFITABILITY, MANAGERIAL ENTRENCHMENT, AND INVESTMENT OPPORTUNITY SET (IOS) ON EARNINGS QUALITY, WITH FIRM SIZE AS A CONTROL VARIABLE

Ade Widiyanti; Meyrisca Dwi Hartia

Ade Widiyanti
Meyrisca Dwi Hartia Accounting Department, Faculty of Economics dan Business, University of Lampung

Keywords: Earnings Quality, Investment Opportunity Set (IOS), Managerial Entrenchment, Profitability

Abstract

The study examines the effect of profitability, managerial entrenchment, and Investment Opportunity Set (IOS) on earnings quality in technology sector companies listed on the Indonesia Stock Exchange for the 2022-2024 period. The research gap stems from the lack of prior studies that simultaneously examine these three variables, despite contradictory empirical findings particularly the changing effect of profitability when managerial entrenchment is considered. A sample of 31 technology firms (93 observations) was selected using purposive sampling and analysed through multiple linear regression with SPSS. The results demonstrate that profitability positively and significantly affects earnings. In contrast, managerial entrenchment and Investment Opportunity Set (IOS) show no significant effect, likely due to low managerial entrenchment levels and weak market signals reflected in modest closing stock prices. Together, these variables account for only 8,4% of earnings quality variation suggesting that many other factors remain unexplored. Theoretically, this study clarifies previous inconsistencies and strengthens agency and signalling theory applications. Practically, it serves as a useful reference for investors in assessing financial reports and for regulators in enhancing disclosure standards.

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