Market Power, Financial Distress, Institutional Ownership, and Modified Real Earnings Management: The Moderating Role of Information Asymmetry in Indonesia

Background: Managers can raise reported earnings through real operating decisions, not accruals alone, and outsiders struggle to detect this when the information environment is opaque. In emerging markets such as Indonesia, market power, financial distress, and institutional ownership may each shape this behavior, yet are rarely examined jointly. Objective: This study examines whether market power, financial distress, and institutional ownership are associated with Modified Real Earnings Management (Modified REM), and whether information asymmetry conditions these relationships. Methods: The analysis uses a balanced panel of 624 firm-year observations from 312 production-oriented non-financial firms listed on the Indonesia Stock Exchange during 2023-2024. The primary dependent variable is Modified REM, which extends the conventional Roychowdhury (2006) composite with abnormal corporate social responsibility (CSR) expenditure. Firm fixed-effects regressions with White robust standard errors include interactions between information asymmetry and each determinant. Results: Market power (coefficient = 4.90; p < 0.001) and financial distress (coefficient = 0.0786; p = 0.0059) are positively associated with Modified REM, whereas institutional ownership is insignificant. Information asymmetry strengthens the market-power association (interaction = 11.19; p < 0.001) but not the financial-distress association, while the institutional-ownership interaction is negative and significant (-4.32; p = 0.0089). Conclusions are unchanged under conventional Roychowdhury REM. Conclusion: The study places Modified REM at the center of the determinant model by adding abnormal CSR expenditure as a distinct real-activity channel, while showing that information asymmetry is a mechanism-specific rather than universal moderator of product-market discretion, financial pressure, and institutional ownership.