The influence of accounting conservatism, investment opportunity set (IOS), profitability, and company size on earnings quality

Abstract

Purpose: This study aims to examine the effect of Accounting Conservatism, Investment Opportunity Set (IOS), Profitability, and Company Size on Earnings Quality in manufacturing companies in the consumer goods industry sector listed on the Indonesia Stock Exchange (IDX) from 2017 to 2019. Methods: This research applies an associative quantitative approach with multiple linear regression analyzed using SPSS 23. The focus is on consumer goods manufacturing companies listed on the Indonesia Stock Exchange (IDX) between 2017 - 2019. The sample was taken by purposive sampling, resulting in 23 companies and 69 observations. Secondary data was obtained from the official IDX website and Yahoo Finance, and hypotheses were tested using the t-test. Findings: The study reveals that accounting conservatism enhances earnings quality by reducing agency conflicts and earnings exaggeration. It finds that Investment Opportunity Set and profitability have minimal influence on earnings quality, while firm size does not impact it. This indicates that large companies must focus on effective asset management to improve earnings. Practical Implications: The study highlights accounting conservatism as essential for reducing conflicts between management and shareholders while preventing earnings overstatement. It emphasizes the need for transparency and consistency, as neither the Investment Opportunity Set (IOS) nor profitability significantly affects earnings quality. Additionally, it stresses that effective asset management is more critical than firm size for strong earnings performance.