Determinants of Accounting Conservatism in Politically Connected Firms
Volume 10, Issue 1 (2020), pp. 189–201
Pub. online: 30 September 2020 Type: Article Open Access
30 September 2020
30 September 2020
This study aims to examine the effect of corporate attributes and corporate governance mechanisms on accounting conservatism in politically connected firms. This study uses 806 company-year observations consisting of large companies registered for 13 years from 2005-2017. Moderation regression analysis panel data is used for the analysis. Using two conservatism measurements, namely accrual and book-market, the results of the study show that the two models are inconsistent in producing tests for the influence of company attributes but are consistent in producing tests of corporate governance mechanisms. Firm size, profitability, audit committee, independent board, and audit litigation are the determinants of accounting conservatism in large companies. Independent Commissioners and audit committees as an internal mechanism of corporate governance negatively affects the application of accounting conservatism. The results of this study are also consistent with testing the interaction of political connections that strengthen the audit committee’s negative influence on the level of corporate conservatism. These results provide empirical evidence that the existence of an independent commissioner or audit committee weakens the influence of corporate governance mechanisms on the application of accounting conservatism in politically connected companies. Looking at the educational background and work experience and free from political elements, so that the existence of the board of commissioners and the audit committee are no longer considered a rubber stamp for the policies that have been made by management. This study is the first to investigate the moderation of political connections on corporate attributes and GCG mechanisms towards comprehensive accounting conservatism.