Accounting Conservatism: Antecedents and Consequence in Indonesia Manufacturing Companies

Abstract

The purpose of this study is to examine and evaluate accounting conservatism’s effects on the price of equity capital. All of the manufacturing businesses listed on the Indonesia Stock Exchange (IDX) between 2018 and 2020 comprise the study’s population. Purposive sampling was used to choose the sample, and 241 observations were made. The findings of this study, which were obtained using the linear regression analysis method, show that institutional ownership and profitability have a considerable impact on accounting conservatism. Accounting conservatism is unaffected by three more criteria, including managerial ownership, investment opportunity set, and leverage. In advance, accounting conservatism significantly negatively affects the cost of equity capital. Thus, the higher the institutional ownership and profitability, the higher the accounting conservatism and the lower the cost of equity capital. The findings of this study suggest that management will be encouraged to use conservative accounting rules by institutional ownership as a form of corporate governance. The market will react favorably to businesses with higher levels of conservatism, which will cause investors to need less equity capital.