Free Cash Flow, Financial Distress and Debt Policy Toward Earnings Management in Indonesian Banking Sector Dendi Purnama 1 , Amir Hamzah 2 , Oktaviani Rita Puspasari 3 , Siti Nuke Nurfatimah 4 , Enung Nurhayati 5 12345 Fakultas Ekonomi, Universitas Kuningan, Indonesia {dendi.purnama@uniku.ac.id 1 , amir.hamzah@uniku.ac.id 2 , oktaviani.rita.puspasari@uniku.ac.id 3 , siti.nuke.nurfatimah@uniku.ac.id4, enung.nurhayati@uniku.ac.id5} Abstract. This study aims at analyzing the effect of free cash flow, financial distress and debt policy toward earnings management in Indonesian Banking Sector. The method used in this research is verification method. The sampling technique used is purposive sampling which obtained 43 banking companies of 45 banking population in Indonesia, and the total 215 of data observation. The data analysis technique used is panel data regression analysis. The results of the study are free cash flow and financial distress has positive significant effect toward earnings management, while debt policy has a negative effect toward earnings management Keywords: Earnings management; free cash flow; financial distress; and debt policy. 1 Introduction Analysis of earnings information is needed by external parties in assessing company performance. This information is presented in the financial statements which are then used by stakeholders in making decisions related to the company. This is what makes earnings information often the target of opportunistic actions by management in fulfilling their interests. Various efforts are made in managing company profits according to their goals, it is not uncommon for accounting policies to be exploited to disguise the moral hazard activities that are carried out. There are several hypotheses related to the manager's motives for taking earnings management actions or what is more commonly known as earnings management. In accordance with the positive accounting theory developed by [1], the motives for managers in conducting earnings management can be in the form of bonus plan hypotheses, debt covenant hypotheses and political cost hypotheses where all of these motives are adjusted to the goals the manager wants to achieve. Managers in this case as representatives of management have more information than external stakeholders. This condition of information asymmetry causes agency conflicts to emerge, namely from the principal as the owner of the company and management as the manager of the business. According to [2], earnings management is an attempt by company managers to intervene or influence information in financial reports with the aim of tricking stakeholders who want to know the company's performance and condition. The fundamental reason for the emergence of earnings management is that the market price of a company's shares is significantly influenced by earnings, risk and expectations. Therefore, companies whose profits always increase steadily from time to time will result in increased corporate risk, therefore many companies UNISET 2020, December 12, Kuningan, Indonesia Copyright © 2021 EAI DOI 10.4108/eai.12-12-2020.2305112