A Conceptual Paper: A Model of Female Directors Attributes Towards Earnings Quality in Indonesia

  • Yeasy Darmayanti Bung Hatta University
Keywords: female director, legal enforcement, earning quality

Abstract

Purpose: The main objective of this study is to examine the effect of female director attributes towards earnings quality in Indonesia. It also aims to determine the moderation effect of legal enforcement on the relationship between female directors and earnings quality.

Background: A quality financial reporting, one of which is shown by the quality of profit information that essential information for making investment decisions. The profit revealed is considered qualified if the earnings information is accurate and unbiased. However, the accrual basis used may cause earnings management activities carried out by the management. Previous study found that the increase in profit accompanied by high accruals indicate low-quality earnings and is associated with low-returns in the future. Therefore, many countries including Indonesia have emphasized the role of good corporate governance practices, especially related to the function of the board of directors. In this paper, two conceptual models are developed. The first model explains the female director attributes (personal and interpersonal relationship) and earnings quality. The second model explains legal enforcement as moderating variable on the relationship between female board directors and earnings quality.

Design/Methodology/Approach: The study uses secondary data of public listed company in Indonesia. The population includes 600 companies for 2018 listed on the Main Market of Bursa Efek Indonesia. The study period covers five years (from 2014 to 2018).

Results/Findings: This study updates knowledge about the Indonesia earnings quality and offers evidence on the factors that effect earnings quality in Indonesia. Another contribution of this study is to find the function of legal enforcement as external corporate governance in the relationship of internal corporate governance (specifically board of directors) and earnings quality. The result of the study will fill the gap in corporate governance literature and report the importance of the female in board room in ensuring the quality of earnings in an emerging economy such as Indonesia.

Conclusion and Implications:  Regarding practical significance, this study is expected to help several concerned parties to understand the level of earnings management in Indonesia firms. For practical contribution, this study will help the investor and stakeholder to make a decision on investment by looking at the firm that has lower risks with higher profitability.

Published
2020-02-05
How to Cite
Darmayanti, Y. (2020). A Conceptual Paper: A Model of Female Directors Attributes Towards Earnings Quality in Indonesia. Postgraduate Research Symposium - January 2020, 1(1). Retrieved from http://ojs.journals.unisel.edu.my/index.php/prsj20/article/view/104