1 The Effect of Managerial Ability on Financial Reporting Quality: An Empirical Analysis of the Banking Industry Sinta Juliani 1 and Sylvia Veronica Siregar 2 1,2 Accounting Department, Faculty of Economy and Business University Indonesia, Indonesia 1 sinta.juliani30@gmail.com, 2 sylvia.veronica@ui.ac.id Abstract. This study aims to examine the effect of managerial ability on financial reporting quality. The samples of this study are listed banks in the Indonesia Stock Exchange during the period of 2010 to 2016. with total observations are 210 firm- years. Managerial ability is measured using Data Envelopment Analysis (DEA). Earnings persistence and earnings predictability are used to measure financial reporting quality. By using panel data regression, the results show that managerial ability has a negative effect on financial reporting quality, for both measures. This may be due to when the manager has higher ability, he/she tends to be opportunistic and take actions (such as opportunistic earnings management) and thus earnings become less persistent as well as less predictable (low financial reporting quality). Keywords: Banking, Financial Reporting Quality, Managerial Ability. 1. Introduction Financial statements issued by companies are the results of accounting process and contains many useful financial information about firm performance. especially to external parties. Management is the party with the responsibility for the managing company operations. They also responsible for the preparation of financial statements, so that their ability or skill will affect the quality of the report. Financial statements should be able to provide information about management performance in running the business. Management as insider always have information advantage over external parties. The presence of this information asymmetry provides opportunity for management to take opportunistic actions to conceal its bad performance by doing earnings management. Managers are the main actors in the companies, and so with better managerial ability it is expected the companies’ performance will also be better. Managerial ability should also play an important role in determining financial reporting quality because managers with high managerial ability would have better knowledge of their business and be able to make effective judgments and take appropriate actions, so that it could utilize company resources effectively and ultimately could achieve better company performance (Wang et al., 2017). Managers’ ability could also influence financial reporting quality with their attitudes toward internal control and through their role as information channels to directors. other managers. and auditors [1] In other words, managerial ability can affect financial reporting quality. Garcia-Meca & Garcia-Sanchez [2] examine the effect of managerial ability on financial reporting quality. They find that higher managerial ability able to produce higher bank earnings SU-AFBE 2018, December 06, Jakarta, Indonesia Copyright © 2019 EAI DOI 10.4108/eai.6-12-2018.2286275