CORPORATE GOVERNANCE, GROWTH, AND EARNINGS QUALITY: THE MODERATING ROLE OF CAPITAL STRUCTURE IN INDONESIAN CYCLICAL AND NON-CYCLICAL FIRMS

Ridwan Saleh, Titik Titik Aryati, Hazianti Abdul Halim

Abstract


This study examines how far corporate governance and firm growth help raise earnings quality, and whether the strength and direction of those linkages shift once capital structure is taken into account. Drawing on a single-period dataset of 202 firms in the consumer cyclicals and consumer non-cyclicals segments of the Indonesia Stock Exchange for 2023, the sample was assembled through purposive selection: firms had to publish annual and audited reports, supply complete figures for every variable, record a profit, and present accounts in Rupiah. The dependent construct, earnings quality, is measured by rescaling the absolute discretionary accruals obtained from the Modified Jones Model in an inverse fashion. Governance is proxied by the ASEAN Corporate Governance Scorecard, growth by the market-to-book ratio, and capital structure by the debt-to-equity ratio. Estimating a moderated regression, the analysis shows that governance and growth each carry a positive and significant effect on earnings quality. Because capital structure also displays a significant standalone effect, its function is more accurately labelled a quasi-moderator than a pure moderator. Its interaction with governance is negative and significant, signalling that heavier reliance on borrowed funds erodes the favourable governance-quality link, whereas its interaction with growth is positive yet only marginally significant at the 10% level. Read together, the evidence suggests that debt operates simultaneously as a monitoring device and as a source of reporting pressure, with its net influence conditioned by a firm’s governance standing and growth outlook.

Keywords


Corporate Governance; Growth; Capital Structure; Earnings Quality; Moderated Regression Analysis

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DOI: https://doi.org/10.32509/jakpi.v6i1.7478

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