The Effect of Good Corporate Governance on Information Financial Reporting (IFR)
Siska Willy
Accounting Diploma, School of Economic (STIE) Ekuitas, Bandung, Indonesia
*Corresponding Author: siska_msws@yahoo.com
Accepted: 15 September 2020 | Published: 30 September 2020
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Abstract: The aim of this research to examine the effect of good corporate governance mechanisms on information financial reporting. The sample for this research of banking sector companies listed on the Indonesian Stock Exchange (IDX) during the 2017-2018 period. This research was conducted using archival data with sample determination through purposive sampling with 30 samples. Data analysis is using logistic regression. The output of this research provides evidence that the good corporate governance mechanism with the variable board independence, board diligence, auditor independence, auditor diligence, and external auditor reputation has no effect on information financial reporting.
Keywords: good corporate governance, board independence, board diligence, auditor independence, auditor diligence, auditor external reputation, information financial reporting _________________________________________________________________________
1. Introduction
The goal of establishing a company is to seek maximum profit. However, the practices carried out are based on the applicable laws and regulations. Good corporate governance is an important foundation and an integral part of running a public company. Public companies are overseen by many parties including the Financial Services Authority (OJK) and BAPEPAM.
Good corporate governance within the company can be seen from many financial matters by submitting report information on the company's official website. Among them is how the Management, Audit Committee and external auditors can give the company confidence to display its information about financial reporting on the official website company.
Information technology is developing very fast nowadays, making the internet an important factor in providing information. The Internet (interconnection networking) is a collection of the largest computer networks in the world and has millions of connections to each other.
Information technology, especially the internet, has an impact on the way companies do business. The ease is felt in terms of conveying and conveying information related to investors, creditors, and other parties. Therefore, the internet provides information through websites as a fast and effective medium.
The implementation of IFR has attracted the attention of the Capital Market Supervisory Agency (BAPEPAM) by issuing a BAPEPAM decree Number: KEP-431 / BL / 201 which states that the public companies that already have a website have to post an annual report on the website since the enactment of the regulation. For public companies that do not have a website within 1 (one) year since the enactment of this regulation, the public company is
required to have a website that contains an annual report and website must be accessible at all times.
The use of the internet is increasing both in the world and in Indonesia. This can be seen from the results of statistics which state that Indonesia is the third internet user country in Asia and the most in Southeast Asia (Internet World Statistics, 2019). Internet users in Indonesia are 53.2% of the total population. So that the potential for disclosing company financial statements in Indonesia is greater.
Research conducted by the author on IFR provides new knowledge about other ways of disclosing other determinants in the company. For example, Ashbaugh et al. (1999) documenting financial statements as IFR practices that provide information on the disclosure of initial company financial reports. The results explain that companies are using IFR are profitable than those who don’t use it.
IFR has been implemented by PT TirtaAmarta Bottling Company (TAB), which is the owner of a bottled water company that was founded in 2004 with more than 1500 employees. PT TAB has an internet site with the website address is tirta-amarta.com. However, the site was no longer accessible at the time this article was rolled out (7 December 2018), so a more complete and comprehensive profile and information regarding the company became difficult to obtain. (ridhoputraperdana, n.d.)
Companies that have adopted Internet Financial Reporting (IFR) have several reasons or motives for why brands adopt IFR practices. The use of IFR makes it easier for decision- makers to get various information needed about the condition of the company to make decision.
2. Literature Review
A. Good Corporate Governance
"Good Corporate Governance is a system that regulates and controls companies that create value-added for all stakeholders" (Monks: 2003).
IICG (Indonesian Institute of Corporate Governance) defined corporate governance as a process and structure that is implemented in a company, with the objective to increase shareholder value in the long term while still paying attention to the interests of other stakeholders. According to the FCGI (2001), the definition of GCG is a set of regulations between shareholder, management, employee, government, internal and external user relating their right and obligation.
After the definitions and important aspects of Good Corporate Governance are described above, the following is discussed about the principles contained in GCG. According to Daniri (2005: 9), these principles can be described as follows disclosure of Information, Accountability, Responsibility, Independence, Equality and Fairness.
B. Internet Financial Reporting (IFR)
(IFR) is one of the ways that companies give some information about financial report through websites (Ashbaugh et al., 1999). Companies that implement IFR practices come from companies, namely:
(1) financial report’s as a whole including footnotes, (2) financial reports per semester, as well as / or
(3) other information about financial report that is considered important, such as the conclusions of financial statements in company's website (Oyelere et al., 2003).
The advantages by companies implementing IFR (Ashbaugh et al., 1999). First, the company can make savings by announcing financial reports on the website, because they don’t have to print financial report. Second, users can view financial reports directly on the website, thus saving time in distributing financial reports. Third, investors can access financial reports directly without having to wait long because they can be seen on website. Fourth, the description provided can be two-way between management and users of financial statements.
3. Methodology
This research was conducted at banking sector companies in 2017-2018. Objects to be examined in this study are GCG and Information Financial Reporting, also uses quantitative methods, and based on its objectives, this research is included in the descriptive and causal categories.
The purposive sampling technique used for this which is included in the Non-Probability Sampling category. The criteria for the companies sampled in this study are as follows:
1. Companies banking sector which listed on the Indonesia Stock Exchange during the 2017-2018 period.
2. The content on the company's official website is following that researched by the researcher.
3. The company publishes its annual and financial reports on the official website.
The analysis technique apply in this study is a descriptive statistical test and testing for hypothesis using logistic regression. The regression calculation developed is as follows:
Y = α + β₁ BI + β₂ BD + β₃ AI + β4AD + β5AUDITOR + e Description:
Y = IFR Α = Konstanta
BI = Board Independence BD = Board Diligence
AI = Auditor Independence (didalam komite audit) AD = Auditor Diligence
AUDITOR = Auditor Reputation Result
Data processing in this study uses electronic facilities apply Microsoft Excel and the Statistical Package for the Social Science (SPSS) version 24.0 to facilitate evidence acquisition so that it can explain the variables studied. Based on the results of descriptive statistical tests, there were 30 observational data for banking companies that came from the multiplication between the 2-year research period from 2017 to 2018 with a sample of 30 companies.
In this study, using two scales, namely the ratio scale and nominal scale. The variables using the ratio scale in this study consisted of board independence, board diligence, auditor
independence, and auditor diligence. Meanwhile, those using nominal scale data are auditor reputation and IFR.
Good Corporate Governance affect on Internet Financial Reporting (IFR) in Banking Companies is carried out by looking at several variables that support Good Corporate Governance within the company, namely board independence, board diligence, auditor independence, auditor diligence, and external auditor reputation.
1) Variable board independence
The output of hypothesis testing has a negative regression coefficient of 4.763 with a significance level of 0.992 (99.2%). The significance number is 0.992 which is greater than 0.05 (sign> α), then H₀ is accepted whose shows that the Board Independence variable has no significant effect on IFR. The purpose of this research are consistent with the research by Puspitaningrum (Puspitaningrum & Atmini, 2012). However, this is inconsistency with the research of Kelton, and Yang, Yap et al (Xiao et al., 2004).
The results also inconsistent with the statement of Jensen (1993) who said that board independence is very helpful in disclosing corporate financial statements and will reduce the reputation cost issued by the company and that independence affects the quality of corporate disclosure (Weishbach, 1988).
This illustrates that independent commissioners have not been able to carry out their duties and functions in banking companies in Indonesia. Independent commissioners are only subject to formalities in implementing regulations in force in Indonesia.
2) Variable board diligence
Board diligence is a meeting held by the board of commissioners in a company, to collect information from company management regarding the condition of the company. Board diligence is very important in disclosing good corporate governance because management is more pressured and provides as much information as possible about the condition of the company.
The results of hypothesis testing has a negative regression coefficient of 14,117 with a significance level of 0.982 (98.2%). The significance number is 0.982 which is greater than 0.05 (sign> α), then H₀ is accepted whose shows that the board diligence variable has no significant effect on internet financial reporting.
3) Variable auditor independence
Auditor independence here means an audit committee within the company that will assist the company in improving the quality of information on the company's financial statements.
According to Klein (2002), auditor independence in the company can provide oversight in the company and can help companies to remedy the quality of financial report.
The results of the regression coefficient hypothesis testing have a negative of 0.412 with a significance level of 0.989 (98.9%). The significance value is 0.989 which is greater than 0.05 (sign> α), then H₀ is accepted, whose shows that the auditor independence variable has no significant effect on IFR.
These purposes are suitable with the research by Puspitaningrum (2012) but inconsistent with the study of Kelton and Yang (2008).
4) Variable auditor diligence
The results of hypothesis testing has a negative regression coefficient of 3.656 with a significance level of 0.984 (98.4%). The significance value is 0.984 which is greater than 0.05 (sign> α), then H₀ is accepted which indicates that the auditor diligence variable has no significant effect on IFR.
The results inconsistency with the state that the audit committee meeting frequency variable has a positive impact on the level of application of IFR. (Kelton & Yang, 2008) and (Abbott et al., 2004). However, consistent with the research of Yap. (Yap et al., 2011)
5) Variable auditor external reputation
To maintain its reputation, a well-known KAP strives to report information as transparent as possible and not misleading. This purpose to enhance the enterprise's image and inspire businesses to disseminate financial reviews thru IFR to benefit investor self belief due to the fact the business enterprise's finacial statements can be trusted. Therefore companies that use reputable auditor services tend to apply IFR compared to companies that do not use these services. However, the results obtained from this study are different in that the auditor's reputation does not affect disclosure in IFR.
The results of the regression coefficient hypothesis testing have a positive of 609,524 with a significance level of 0.981 (98.1%). The significance value is 0.981 which is greater than 0.05 (sign> α), then H₀ is accepted, which indicates that the external auditor's reputation variable has no significant effect on IFR.
The result of this research inconsistence with a study by Lestari and Anis (2007), in their research suggesting that auditor reputation has a positive effect on IFR.
4. Conclusion
Based at the output of the studies and discussion that has been said regarding the impact of good corporate governance on IFR in Banking sector companies listed on the Indonesia Stock Exchange in 2017-2018, it can be concluded that:
1) The development of banking sector companies in 2017 and 2018 has increased the implementation of GCG. In determining the number of independent commissioners and audit committees, it is 50% to 65%. Meanwhile, the meetings held by the BOC and the audit committee with management and internal officials increased on average from 62% to 100% of the meetings attended.
2) Good corporate governance with the measured variables are board independence, board diligence, auditor independence, auditor diligence, and the reputation of the external auditor has no affect on IFR. This is because in the banking world the most important thing is the trust of customers and investors which cannot be measured from the variables that have been researched above.
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