The Effects of Ligitation Risk and Investment Opportunity Set Affected by Good Corporate Governance on the Company's Earning Quality

Adelina Suryati ,Etty Murwaningsari

doi:10.7176/rjfa/10-22-07

Abstract

Ligitation Risk and Investment Opportunity Set (IOS) are management activities in a company that can affect the earnings quality. Therefore, the two activities must be regulated properly. This study will analyze litigation risk and IOS that are intervened by well-organized corporate governance with a moderation method on the earnings quality. The data used in this study is a report of company in manufacturing in 2013 to 2016 which are included in the Indonesia Stock Exchange list using purposive sampling. The variables used consisted of earnings quality (KL), litigation risk (RL), investment opportunity set (IOS) and company growth (COGH). The data was tested using multiple regression and moderation methods. The results showed that earnings quality was significantly influenced by investment opportunity set and control company growth variables, while the magnitude of earnings quality was not affected by litigation risk, litigation risk and investment opportunity set moderated by good corporate governance. The board of commissioners, corporate governance factors that moderate the risk of litigation and investment opportunity set in this study can change the value of earnings quality but are not able to have a significant influence. Keywords: Corporate Governance, Earning Quality, Litigation Risk, Invesment Opportunity Set DOI : 10.7176/RJFA/10-22-07 Publication date: November 30 th 2019

Highlights

In this era of globalization, a company must show exceptional performance that shows the ability to compete and survive in its business to stakeholders
Many management activities that affect earnings quality are related to the number of audit committees (Bilal, Chen, & Komal, 2018), he role of the efficiency of the stock exchange (Hassan, 2017), setting the price of earnings to economic conditions (Zhang, 2018), the bank's financial structure (Jin, Kanagaretnam, & Liu, 2018), global financial crisis
This affects the earnings quality reported (Wati & Putra, 2017) where management parties who have certain interests will tend to make earnings reports that are in accordance with their interests and may conflict with principal interests in order to cover existing profits (Awalia et al, 2014). his has caused earnings quality to decline as happened in several manufacturing companies in Indonesia in 2010 - 2012 which were listed on the stock exchange (Awalia et al, 2014) where litigation risk caused a decline in earnings quality

Summary

Introduction

In this era of globalization, a company must show exceptional performance that shows the ability to compete and survive (going concern) in its business to stakeholders. Good corporate governance has been implemented in 100 publicly listed companies in Malaysia where company size, professionalism and the establishment of a board of commissioners have a significant impact on corporate sustainability (Janggu et al, 2014), chemical, pharmaceutical, and consumer goods companies where capital, ownership structure, and information asymmetry which are factors of corporate governance are proven to significantly affect earnings management (Sofia & Murwaningsari, 2019), manufacturing companies in Nigeria have shown that increasing ownership of chief executives significantly increases organizational performance while increasing director's share ownership significantly causes a decrease organizational performance (Omokhudu et al, 2013), manufacturing companies in Nigeria show heterogeneity effects in all existing Nigerian manufacturing companies especially board size and gender inequality on the board negatively impacting the financial performance of companies with significant spirit of earnings quality (Emmanuel & Toyin, 2019), 19 companies in Banja Luka of the Republic of Srpska show that companies with lower implementation rates and not complying with corporate governance principles result in lower net profit margins compared to companies from Austria (Todorovic, 2013).

Sampel Description

Variabel Desciption

Assumption test

Findings

Discussion

Conclusion