THE IMPACT OF BOARD INDEPENDENCE, PROFITABILITY, LEVERAGE, AND FIRM SIZE ON INCOME SMOOTHING IN CONTROL OF AGENCY CONFLICT

DOI:10.31933/DIJEMSS Abstract: This research is aimed to earn empirical results about the effect of board independence, profitability, leverage and firm size on income smoothing. The study used purposive sampling as its sampling method on manufacture companies that’s listed on BEI for years 2015-2017. Information for this research was acquired from multiple online sources that store financial reports of companies. This research used Eckel Index to determine if a corporation did an income smoothing on its financial report or not. The results were significant relationships between board independence and income smoothing and between profitability and income smoothing while insignificant relationships were found in between leverage and income smoothing and between firm size and income smoothing. To improve this study there are mulitple ways that has been written in conclusion part.


INTRODUCTION
Companies that conduct business operations will produce financial reports regularly. The financial statements will be used by companies to provide financial information consisting of changes in the elements of the profit report to interested parties in providing an assessment of the financial performance of the company and the company's management (Fahmi, 2011).
Management's efforts to intervene in earnings information in financial statements aimed at increasing the expectations of corporate stakeholders who have a desire to know the financial condition and performance of the company are referred to as earnings management. It is realized by the company management, how important the earnings information is when Based on the research results above, it is necessary to have further research to determine the effect of Board Independence, Profitability, Leverage and Firm Size variables on Income Smoothing.

LITERATURE REVIEW
Agency Theory according to the concept, is used to explain the relationship that exists between shareholders (Principal) and managers (Agents). Agency Theory (Agency Theory) is a theory that occurs due to differences in interests that lead to conflicts between the Principal and the Agent which causes the Agent to prioritize his interests before the Principal's interests. (Natalie and Astika, 2016). There is a difference in position between Agent and Principal, in accordance with applicable economic law, the relevant parties are given the assumption that the interests of each party are first so that the effort made is to maximize the interests of the parties themselves within the agency structure space. applicable.
In an effort to reduce conflicts that occur between the two parties so that the practice of earnings management does not spread within the company, the implementation of Corporate Governance can be done by the company. Good Corporate Governance (GCG) arises because there are management controls aimed at the behavior of managers, by way of monitoring to determine whether management actions will be beneficial or not for the company.
In good corporate governance, there are five principles that are considered positive for the management of a company, namely openness, accountability, responsibility, independence, and fairness (Terzaghi, 2012: 36). With the implementation of Corporate Governance in the organization, the company is considered able to strengthen the trust of users of the company's financial statements and the quality of the company's financial statements can be guaranteed (Oktaviani, Nur, & Ratnawati, 2015). The implementation of good corporate governance measures is directed towards reducing agency problems at the lowest point.
Research by Houqe, et al. (2010: 2-4) is done by dividing corporate governance mechanisms into management shareholding, institutional shareholding, government shareholding, board size, board independence, audit quality, and family control. The independent board of commissioners is the highest level of the company's internal management system. The role of the independent board of commissioners is also expected to improve earnings quality by limiting the level of earnings management through the monitoring function of financial reports (Rupilu, 2011: 110) Financial Reporting or financial reporting includes recording financial information which according to the applicable accounting standards. According to Vargriya (2015), Financial Reporting is written within a predetermined period of time and includes financial information relating to the company to stakeholder parties.
In Financial Reporting reliable quality information is a very vital subject. The term "reliable quality" is very important and affects directly whether information relating to finance is useful for the wearer. Reliable quality information is information that guarantees the management of things recorded directly capturing the real conditions (Osho and Ayorinde, 2018).
Income Smoothing according to Acharya and Lambrecht (2011)  has no affiliation with members of the board of directors, major shareholders and/or other members of the Board of Commissioners and is appointed based on the resolution of the GMS, numbering one or more people and regulated in the company's articles of association. Independent commissioners can contribute significantly to the decision making of the Board of Commissioners. They can bring an objective view that can provide an evaluation of the performance of the board and the management. Profitability (Profitability) is the ability to generate profits by a company. If the level of profitability of the company is high, it means that the management has the ability to manage the company so as to generate profits. Companies that have good performance in generating net profits from sales and own capital will be reflected in the company's higher profitability (Widana and Yasa, 2013).
Leverage is the result of using borrowed capital when investing that capital to develop the company and generate returns on risk capital. According to Kasmir (2011), Leverage will provide information to users how much the company uses debt to finance the company's assets. Creditors will pay attention to how high leverage the company has to identify risks that must be borne when providing loans to the company.
Herni and Susanto explained that company size is a value that shows how big the company is related. The size of the company has a variety of proxies that can be used, namely total assets, number of employees, stock market value, log size, and others. The determination of the size of the company is based on the natural logarithm proxy for assets. (Butar and Sudarsi, 2012).
Here is a research model that shows the relationship of independent variables with the dependent variable:

RESEARCH METHODS
This study has a subject in the form of companies listed in the manufacturing sector on the Indonesia Stock Exchange (IDX) in 2015-2017. The population chosen to be the subject of the research is manufacturing companies reselected using predetermined criteria. The criteria used in this study for the samples to be taken are The Board Independence variable is proxied by dividing the number of independent board members by the total number of board members in the company. The proxy is stated in the formula as follows:

Board Independence = Number of independent commissioners Total number of company commissioners
Profitability is proxied by Return on Assets. Return on Assets can be formulated as follows:

Return on Assets = Net Profit : Total Assets
The Leverage variable is proxied by Debt to Assets Ratio. Debt to Assets Ratio can be formulated as follows:

Debt to Assets Ratio = Total Debts: Total Assets
Firm Size variable is proxy by natural asset logarithm. The proxy is stated in the formula as follows:

Statistical Test Results
Descriptive statistical tests provide an overview or description of research data as seen from the minimum value, maximum value, mean (mean), standard deviation. The results of the Eckel Index analysis found 87 samples that did not make income smoothing and 84 samples that did income smoothing.
-2 Log Likelihood Test is used to determine whether the logistic regression model used is fit or not by comparing the value of -2 log-likelihood before the regression analysis includes the independent variables in the model and after the inclusion of the independent variables. The results obtained from the test are the initial log-likelihood value of 237.04 and final loglikelihood value of 218,265; A decrease in the value of -2 log-likelihood means the regression model is declared fit.
The Hosmer and Lemeshow Goodness of Fit Test is one of the tests used to test the feasibility of a regression model. The results which state that the regression model used is fit is if the sig value of the Hosmer and Lemeshow Test is greater than 0.05. The results obtained from the test are the significance value obtained at 0.917. This value is greater than the value of 0.05 and means the regression model is declared fit.
Omnibus Test The test is used to test simultaneously the independent variables on the dependent variable. Obtained from the test results that the significance value of the Omnibus Test for this study was 0.01. This value is smaller than the value of 0.05 and means that simultaneously the independent variable influences the dependent variable and the regression model can be declared fit.
The Classification Table test is used to show the predictive power of the model. Obtained from the classification table of 87 samples that did not do income smoothing, predicted 52 exact data and 35 wrong data and from 84 samples that did income smoothing predicted 55 true data and 29 false data with a total percentage of true of 62.6%.
Determination Coefficient Test is used to test how much influence the independent variable can affect the dependent variable. Nagelkerke R Square value for this study is 0.140 which means that the independent variable can explain 14% of the dependent variable.
Multivariate Test Enter method is used to find out partially whether the independent variable has a significant effect on the dependent variable. The independent variables of the study, namely the Board Independence (X1), Profitability (X2), Leverage (X3) and Firm Size (X4) variables are used together. The confidence level used in this test is 5%. Here are the results of the test The logistic regression equation of this study means that the Board Independence and Profitability variables have a negative influence on the Income Smoothing variable. If the Board Independence variable increases by one unit and the other variables do not experience any changes, the possibility of the company doing income smoothing will decrease by 5,826. The same can be applied to the Profitability variable which will result in a reduction in Income smoothing of 3,138.
The next two variables namely the Leverage variable and the Firm Size variable actually have a positive influence on Income Smoothing. If the Leverage variable increases by one unit, and there is no change in the other variables, then the possibility of the company doing income smoothing increases by 0.49. The same applies to the Firm Size variable which will result in an increase in income smoothing by 0.135 if the Firm Size variable increases by one unit and the other variables remain constant.
The Multivariate Test Stepwise Method is a multiple logistic regression test with the aim to find out the independent variable that has the most influence on the dependent variable. Here are the final results of testing To see the ability of the independent variable in influencing the dependent variable, the data can be obtained by taking into account the value of Exp (B) of the related independent variable. The Independence Board variable has an Exp (B) value of 0.004. The Profitability variable has an Exp (B) value of 0.063. From these data, it can be concluded that the ability of the Profitability variable to influence the Income Smoothing variable is greater than the Board Independence variable.

FINDINGS AND DISCUSSION
The results of the analysis that provides information that the Board Independence variable  (2008).

CONCLUSION AND SUGESTION
The results of research conducted on the influence of Board Independence, Profitability, Leverage and Firm Size on Income Smoothing in manufacturing companies on the Indonesia Stock Exchange (BEI) for the 2015-2017 period show that Board Independence has a significant effect on income smoothing, Profitability has a significant effect on income smoothing, leverage does not significantly influence income smoothing and the last variable Firm Size has no significant effect on income smoothing. This study has several limitations, including Samples collected by researchers for this study, were quite limited, 171 samples from 57 companies operating in manufacturing and listed on the Indonesia Stock Exchange (BEI) 2015-2017; In taking a sample the researchers only took data within a period of three years namely 2015-2017, which was quite short. This will cause research on the variables that have not shown the actual reality; The influence variables chosen by the researcher are limited. There are still many other factors that can influence the dependent variable. These facts cause researchers to not be able to give the whole picture the effect of the dependent variable ..
Suggestions for further research are as follows: For subsequent studies, research can be carried out that digs deeper into the dependent variable traced in this study. Samples taken are expected not to be limited to manufacturing companies; The time period can be extended to provide more precise and realistic results; The variables that influence the dependent variable can be selected even more so that they can provide a clearer picture of influence.