Abstract
Good corporate reputation is important for companies because of their potential for value creation and also as intangible asset which makes it difficult for competitors to replicate it. This research is aimed to investigate the effect of corporate reputation and cost of equity through earning quality as a mediating variable. Corporate reputation is measured by Corporate Image Index. Cost of Equity is measured by Ohlson Method. The earning quality as an intervening variable is measured by Modified Jones. The sample used in this study were non-financial companies listed on the Indonesia Stock Exchange and Corporate Image Index from 2016 to 2018. The sample was selected using purposive sampling method. The number of sample resulted from this method are 189 companies. This study used path analysis method and supported by SPSS version 23. The theory used in this study is agency theory. Based on statistical results this study indicate that there is no significant relationship between corporate reputation and earning quality but has negative and significant relationship to cost of equity. This study also shows that earning quality has a negative and significant effect on the cost of equity. In addition, Sobel’s test results show that earning quality does not mediate the effect of corporate reputation and cost of equity
Highlights
Companies need capital to carry out their operational activities
The influence of the company's reputation (X1) on earnings quality (Y1) is 0.177 and the regression coefficient value is in a negative direction, which means that the company's reputation has a negative but not significant effect on earnings quality
The effect of earnings quality (Y1) on the cost of equity (Y2) has a significance value of 0.027 and the regression coefficient value is in a positive direction, which means that earnings quality has a positive and significant effect on the cost of equity
Summary
As a party that needs funds, the company must issue a cost of equity by paying a return on the provision of funds that investors have provided through the issuance of shares and bonds. Investors need to consider the company's level of profit and risk where they invest their capital. The level of profit and risk that may occur can be seen through the company's financial statements. Financial statements provide information to investors and creditors in making decisions related to their fund investments (Halim, et al, 2005). Information about earnings is one of the vital information in financial statements This information is commonly used to measure various analytical ratios in determining the company's current and future ability to increase shareholder wealth and is used by investors to invest their funds
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