An empirical study: characteristics of business entities and corporate governance on risk disclosure practices

Arfan Amrin

doi:10.3846/btp.2019.04

Abstract

This paper investigates the association between the characteristics of business entities, corporate governance, and practices of risk disclosure. Notably, the objective of this paper is to examine the impact of the characteristics of business entities and corporate governance on risk disclosure in non-financial companies. The samples used in this study included 312 non-financial companies registered on the Indonesia Stock Exchange. The hypothesis testing in this paper using regression analysis. The results of this paper indicate that the size of the audit committee (SAC), the availability of risk monitoring or risk management committees (RMC) and the quality of external auditors (AUD) are significantly associated with corporate risk disclosure practices (CRD). These empirical results show that the presence of risk monitoring committee, the quality of external auditors, and the size of the audit committee are the main factors determining the extent of risk disclosure, especially for non-financial companies listed on the Indonesia Stock Exchange. This paper also shows that the age of business entities has a negative impact on corporate risk disclosure practices.

Highlights

Every company cannot be separated from the existence of a risk which becomes the attention of stakeholders to avoid accounting fraud
This paper investigates the association between firm characteristics, corporate governance, and practices of corporate risk disclosure on non-financial companies
The test results indicate that the educational background/qualification of president directors, the frequency of audit committee meetings, a status of the business entity and leverage are not significantly associated with corporate risk disclosure practices

Summary

Introduction

Every company cannot be separated from the existence of a risk which becomes the attention of stakeholders to avoid accounting fraud. The occurrence of accounting frauds has caused investors as interested parties lose confidence in the credibility of the information issued by the companies. A company faced to maintain the growth and developing transparency to disclose information. Risk disclosure within the company is one of the essential parts for companies that conduct risk control or management. Required the implementation of good corporate governance by doing the process include identification, evaluation, and control of the risks being faced and conducts oversight of the risk management process so that uncertainties can be suppressed at the lowest level that can be accepted by the company. The topic of risk disclosure in Indonesia has developed since the promulgation of the Bank Indonesia

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Conclusion