The effect of accounting conservatism on the cost of equity capital: evidence from Indonesia

Abstract

Our study aims to investigate the effect of accounting conservatism on the cost of equity capital. We also extended our tests to see to what extent information asymmetry influencing these two variables. To test our proposed hypothesis, we used a sample of 200 companies listed on the Indonesia Stock Exchange for the 2016-2018 period and 600 firm year observations. With the moderate regression analysis (MRA) method and panel data regression, we provide evidence that information asymmetry is related to accounting conservatism and cost of equity capital, as well as having a role in influencing accounting conservatism and cost of equity capital. We also found that accounting conservatism could reduce the cost of equity capital. Our study is expected to make a contribution to academics, investors, managers, and regulators. Furthermore, this study is expected to fill the debate of financial accounting practices in developing countries.