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Accounting conservatism mediates the relationship between corporate governance and equity capital costs
Department of Economics, southeast university
Research Article
International Journal of Science and Research Archive, 2024, 13(02), 658–672.
Publication history:
Received on 03 October 2024; revised on 09 November 2024; accepted on 11 November 2024
Abstract:
Purpose: This study examines the effect of corporate governance as proxied by institutional and managerial ownership and profitability on the cost of equity capital, both directly and indirectly, through accounting conservatism as a mediating variable.
Design/Methodology/Approach: The population of this study was manufacturing companies listed on the Indonesia Stock Exchange in 2020–2022. The sample selection was carried out using the purposive sampling method, resulting in 230 data points and then tested using multiple linear regression.
Findings: Institutional ownership and profitability were revealed to have a positive influence on accounting conservatism, while managerial ownership had no influence. Profitability and accounting conservatism exerted a negative effect on the cost of equity capital. However, institutional ownership generated a positive effect, but managerial ownership did not affect the cost of equity capital. Further test results uncovered that the impact of institutional ownership and profitability on the cost of equity capital was mediated by accounting conservatism.
Research limitations/Implications: This research has limitations, including the relatively low adjusted R2 value. Proxies for corporate governance from ownership and board structure should be included in future studies
Originality / value: The findings of this research enrich previous research regarding the economic consequences of corporate governance, profitability, and accounting conservatism in equity markets in developing countries, especially Indonesia.
Keywords:
Accounting Conservatism; Cost of Equity Capital; Institutional Ownership; Managerial Ownership; Profitability
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Copyright information:
Copyright © 2024 Author(s) retain the copyright of this article. This article is published under the terms of the Creative Commons Attribution Liscense 4.0
