HOW CORPORATE GOVERNANCE AND CASH HOLDINGS AFFECT EARNINGS QUALITY AND FIRM VALUE

doi:10.23969/trikonomika.v19i1.1440

Abstract

This study analyzes the impact of corporate governance (CG) and cash holdings (CH) on earnings quality and the implication on firm value. We hypothesize that earnings quality mediate the impact of CG and CH on firm value. Banking sector was chosen as the object of research because this sector is quite vulnerable to the global financial crisis. The population consists of banking companies listed on the Indonesia Stock Exchange (IDX) in the period of 2013-2017. Data were analyzed by multiple regression models using SPSS software. The results show that CG and CH have a significant effect on earnings quality. But this influence shows the opposite direction of expectations. Banks with good CG have lower earnings quality, and banks with high CH show better earnings quality. Only CG that has a significant effect on firm value with negative direction. This study did not find the mediating effect from both variables.

Highlights

Investors concern to Firm’s value because it reflects the company’s performance
Governance) score had a significant and positive effect on earnings quality. These results indicate that the better the implementation of CG shows the better corporate governance, so that the expected quality of earnings will be well assessed by investors
It can be concluded that hypothesis 1 is supported, good corporate governance has a significant effect on earnings quality

Summary

Introduction

Investors concern to Firm’s value because it reflects the company’s performance. Investor valuation of the firm can be observed through stock price movements that are being transacted on the exchange. Factors that influence stock prices include internal factors such as information on increases in net income and expansion plans and external factors (systemic risk) such as government policies, interest rates, rupiah exchange rates, stock price indices, and influences from foreign exchanges (Isti‘adah, 2015). Earnings is very important information in financial reporting because earnings is a measure of company performance. Earnings information can help estimate the ability of representative earnings in the long run, forecast earnings, assess risks in investing or credit, predict future cash flows and have a large influence on users in making decisions (Tohir and Yuyetta, 2013)

Methods

Discussion

Conclusion