Prudence Measurement Is Moderating Earning Opacity, Information Asymmetry, And Earning Informativeness On Cost Of Capital Three Factors Model

Malau, Melinda and Murwaningsari, Etty and Mayangsari, Sekar (2020) Prudence Measurement Is Moderating Earning Opacity, Information Asymmetry, And Earning Informativeness On Cost Of Capital Three Factors Model. International Journal of Business, Economics and Law, 21 (5). pp. 37-46. ISSN 2289-1552

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Abstract

This study aims to examine and analyze whether earning opacity affects the cost of capital, information asymmetry affects the cost of capital, earning informativeness affects the cost of capital, prudence can moderate the effect of earning opacity on the cost of capital, prudence can moderate the effect of information asymmetry on the cost of capital, and prudence can moderate the effect of earning informativeness on the cost of capital. The method used in this study is a panel regression analysis. The sample used in the study was 900 observations using data from manufacturing companies for the period 2014-2018. This research model uses a new calculation formula for prudence. New measurement refers to the bias formula. This study consisted of five models. The results of the first model until the fifth model show that earning opacity (which is proxied by earning aggressiveness) and information asymmetry have a significant positive effect on the cost of capital. Earning informativeness has a significant negative effect on the cost of capital. Prudence weakens the effect of earnings opacity on the cost of capital. The results of the second model until the fourth model show that prudence weakens the effect of information asymmetry on the cost of capital and prudence strengthens the effect of earnings informativeness on the cost of capital. The implications of this research are the high risk will increases the cost of capital and the information asymmetry increases the risk of the company. Earning informativeness will reduce the level of risk of the company. Low risk will reduce the cost of capital. Earning quality and care funding decisions will reduce risk, so that the company's cost of capital becomes optimal. Keywords: Cost of Capital, Earning Opacity, Information Asymmetry, Earning Informativeness, Prudence

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