The Effect of Earnings Volatility, Income Smoothing, Corporate Governance, and Firm Size on Earnings Quality Conventional Banks in Indonesia

Abstract

Although there are many other factors that influence a country's economic development, banks are one of the most important factors in the economy. Considering that if the banking system is unstable and does not function efficiently, the allocation of funds will not work well, which can hamper economic growth. Therefore, the stability and financial system in the banking sector should be maintained and even enhanced for the sake of creating sustainable economic growth. The purpose of this research is to determine the effect of earning volatility, income smoothing, good corporate governance, and firm size on earnings quality. The object of the research was to use conventional banks listed on the Indonesian Stock Exchange in 2016-2019 period such as 30 companies which was determined through purposive sampling. The result of this research indicates that earning volatility and good corporate governance have no significant effect on earning quality but income smoothing and firm size have a significant effect on earning quality. Total assets and credit quality of the company can be seen from the level of maturity of the company which is considered to have prospects in generating better profits in the future and producing better returns. The information obtained from this research is expected to be used as consideration in making decisions regarding the importance of maintaining the quality of earnings in order to attract investors to invest in the company.