The objective of this research is to investigate whether controlling
shareholder manages earnings. The issue is most important to be revealed
because ownership of public companies is concentrated and low protections
for noncontrolling shareholders in Indonesia. Therefore, controlling
shareholder is motivated to manage earnings. This research also investigates
whether control rights of controlling shareholder positively influence earnings
management. The issue relates to entrenchment effect. This research also
investigates whether cash flow rights reduce earnings management. The issue
relates to alignment effect. This research used data of ultimate ownership and
financial statement. The data are collected from Indonesia Stock Exchange
during 2001 to 2007. There are 786 year companies during seven years. This
study documents that the control rights motivate the controlling shareholder
to manage earnings. Control rights entrench controlling shareholder to
manage earnings. It implicates the entrenchment effect. Cash flow rights
negatively influence earnings management. It implicates the alignment effect.