Purpose: This study examines the effects of institutional ownership, free cash flow, and profitability on accrual-based earnings management in Indonesian food and beverage companies during 2021–2024.
Research Methodology: Financial reports from 53 purposively selected companies yielded 212 firm-year observations. After excluding 19 outliers, 193 observations were analyzed using multiple linear regression in SPSS 26, with 192 remaining after lag transformation. Earnings management was measured using signed discretionary accruals from the Modified Jones Model, while autocorrelation was addressed through the Cochrane–Orcutt transformation.
Results: Institutional ownership showed a positive but insignificant association (B = 0.148; p = 0.201). Free cash flow was negatively associated with discretionary accruals (B = −1.141; p < 0.001), whereas profitability showed a positive association (B = 1.300; p = 0.003). The overall model was significant (adjusted R² = 0.246).
Conclusions: Institutional ownership proportions alone did not indicate effective monitoring. Higher free cash flow was associated with lower signed discretionary accruals, while greater profitability corresponded to increased reporting discretion, requiring consideration of cash flow and governance evidence.
Limitations: The study covers one sector and four years, uses secondary data and signed accrual measures, excludes control variables, and lacks sensitivity testing for outlier removal, limiting causal interpretation.
Contributions: This study extends contemporary agency theory perspectives by showing that institutional ownership does not necessarily ensure effective monitoring, while cash flow and profitability exhibit contrasting relationships with earnings management, emphasizing financial conditions in managerial reporting discretion.