DOI: https://doi.org/10.9744/jak.22.1.28-39

The effects of Corporate Governance, Audit Quality, and Conservatism on Loan Collateral Requirements

Sansaloni Butar Butar

Abstract


In competitive credit markets, borrowers and lenders have equal information on default risks. Under these circumstances, loan collateral are less important in credit decision-making. But in emerging credit market,  like Indonesia, borrowers and lenders do not possess equal information on firms’ future prospect, making use of collateral in mitigating default risk have become common practice. Despite strong theoretical support for the use of collateral to protect lenders from default risk, excessive protection may have a negative effect on the debt markets. However,  some Indonesian firms are not required to provide collateral for bank debts. This study examines the effect of Board of Commissioners independence, governance committees, audit quality, and conservatism on the likelihood of using loan collateral. Using slovin formula, as much as 785 firm listed in Indonesia Stock Exchange were collected during sample period of 2012-2015.  Logistic regression analysis suggest that firms with higher Board of Commissioners independence, having separate governance committee, hire Big 4 auditors, apply conservative accounting policies are less likely to provide loan collateral.

Keywords


Collateral; conservatism; board of Commissioners independence; audit quality; governance committees

Full Text:

PDF

References


Allen, F., Qian, J., and Qian, M. (2005). Finance, law, and economic growth in China. Journal of Financial Economics, 77, 57 – 116.

An, C., Pan, X., and Tian, G. (2016). How does corporate governance affect loan collateral? Evidence from Chinese SOEs and Non-SOEs. International Review of Finance, 16(3), 1-32.

Ball, R., and Shivakumar, L. (2005). Earnings quality in UK private firms: comparative loss recognition timeliness. Journal of Accounting and Economics, 39, 83 – 128.

Ball, R., Bushman, R. M., and Vasvari, F. P. (2008). The debt-contracting value of account¬ing information and loan syndicate structure. Journal of Accounting Research, 46, 247 – 87.

Ball, R., Robin, A., and Sadka, G. (2008). Is financial reporting shaped by equity markets or by debt markets? An international study of timeliness and conservatism. Review of Account¬ing Studies 13(3), 168 – 205.

Basu, S. (1997). The conservatism principle and the asymmetric timeliness of earnings. Journal of Accounting and Economics, 24(1), 3–37.

Beatty, A., Weber, J., and Yu, J.J. (2008). Conservatism and debt. Journal of Accounting and Economics, 45(2-3), 154 – 74.

Berger, A.N., Espinosa-Vega, M.A., Frame, W.S., and Miller, N.H. (2011). Why do borro¬wers pledge collateral? New empirical evidence on the role of asymmetric information. Journal of Financial Intermediation, 20, 55 – 70.

Butar Butar, S. 2012. Peluang riset akuntansi berbasis akrual di Indonesia. Jurnal Ilmiah Akuntansi dan Bisnis, 7(1), 1–12.

Chen, H., Chen, J.Z., Lobo, G.J., and Wang, Y. (2010). Association between borrower and lender state ownership and accounting conser¬vatism. Journal of Accounting Research, 48(5), 973 – 1014.

Chen, L. H., Folsom, D., Paek, W., and Sami, H. (2014). Accounting conservatism, earnings persistence, and pricing multiples on earnings. Accounting Horizons, 28(2), 233 – 260.

Chen, J. Z., Lobo, G.J., Wang, Y., and Yu, L. (2013). Loan Collateral and Financial Report¬ing Conservatism: Chinese Evidence. Journal of Banking and Finance, 37(12), 4989 – 5006.

DeFond, M., and Zhang, J. (2014). A review of archival auditing research. Journal of Accounting and Economics, 58(2), 275 – 326.

Feltham, G.A., and Ohlson, J.A. (1995). Valua¬tion and clean surplus accounting for operating and financial activities. Contemporary Account¬ing Research, 11(2), 689 – 731.

Foo, Y. B., and Zain, M. M. (2010). Board independence, board diligence, and liquidity in Malaysia: A Research Note. Journal of Con-temporary Accounting & Economics, 6, 92– 100.

Fowowe, B. (2017). Access to finance and firm performance: Evidence from African countries. Review of Development Finance, 7(1), 6 – 17.

Francis, B., Hasan, I., and Song, L. (2012). Are Firm- and Country-specific Governance Sub-stitutes? Evidence from Financial Contracts in Emerging Markets. Journal of Financial Rese-arch, 35, 343 – 74.

Ge, W., Kim, J., and Song, B. Y. (2012). Inter¬nal Governance, Legal Institutions and Bank Loan Contracting Around the World. Journal of Corporate Finance, 18, 413 – 32.

Givoly, D., and Hayn, C. (2000). The changing time-series properties of earnings, cash flows and accruals: Has financial reporting become more conservative? Journal of Accounting and Economics, 29(3), 287 – 320.

Goncharov, I., and Zimmermann, J. (2007). Do Accounting Standards Influence the Level of Earnings Management? Evidence from Ger¬man. Die Unternehmung, 61(5), 371–388.

Https://finance.detik.com/moneter/d-4264238/ Kredit bank naik 12,7%, ini faktor pendorong¬nya. Accessed on 20/05/2019.

International Monetary Fund. (2016). Corpo¬rate governance, investor protection, and finan-cial stability in emerging markets. Global Financial Stability report. (October).

Jimenez, G., Salas, V., and Saurina, J. (2006). Determinants of collateral. J. Finance. Econ. 81, 255–281.

Khan, U., and Lo, A. (2017). Bank Lending Stan-dard and Borrower Accounting Conserva¬tism. Working Paper. Columbia University and Boston College.

Kislat, C., Lukas, M., and Doris, M. (2013). The use of collateral in formal and informal lend¬ing. Working paper. Kiel Institute for the World Economy.

Larcker, D. F., Richardson, S. A., and Tuna, I. (2007). Corporate Governance, Accounting Outcomes, and Organizational Performance. Accounting Review, 82, 963–1008.

Lu, Z.F., Sun, B.X., and Zhu, J.G. (2008). Earn¬ing management, accounting information and bank loans contracts. Manage. World, 3(1), 1–2.

Manove, M., Padilla, A.J., and Pagano, M. (2001). Collateral versus project screening: a model of lazy banks. J. Econ, 32, 726–744.

Menkhoff, L., D. Neuberger, and C. Suwana¬porn. (2012). Collateral-based lending in emer¬ging markets: Evidence from Thailand. Jour¬nal of Banking and Finance, 30, 1 – 21.

Mora, A., and Walker, M. (2015). The implica¬tions of research on accounting conservatism for accounting standard-setting. Accounting and Business Research, 45(5), 620 – 650.

Niinimaki, J. P. 2018. Collateral in credit ratio¬n¬ing in markets with asymmetric information. The Quarterly Review of Economics and Finance, 68(C), 97–102.

OECD. 2015. G20/OECD Principles of Cor¬porate Governance, OECD Publishing, Paris. Retrieved From http://dx.doi.org/10.1787/9789 264236882-en

Osma, B. C., Herrera, C. G., and Vazquez, A. B. (2017). The role of independent directors on earnings management: Evidence from indivi¬dual incentives. Working paper. Universidad Carlos III de Madrid, Madrid (Spain).

Papadimitri, P., Pasiouras, F., and Tasiou, M. (2019). Culture and collateral requirements: Evidence from developing countries. Working Paper. Portsmouth Business School, UK and Montpelier Business School, France.

Rajpal, H. (2012). Independent directors and earnings management: evidence from India. International Journal of Accounting and Finan¬cial Management Research, 2, 9–24.

Rezaee, Z. (2009). Corporate Governance and Ethics. John Wiley & Sons, Inc, USA.

Salleh, A. M., and Othman, R. (2016). Board of directors’ attributes as deterrence to corporate fraud. 7th. International Economics & Busi¬ness Management Conference, 5th and 6th October. Elsevier B. V.

The Financial Services Authority Regulation of Indonesia. Regulation Number 42/POJK/02/ 2017. Retrieved 20/11/2018.

Wang, R.Z., Hogartaigh, C.O., and Zijl, T.V. (2009). Measures of accounting conservatism: a construct validity perspective. Journal of Accounting Literature, 28, 165–203.

Yang, Y. (2014). Does high-quality auditing decrease the use of collateral? Analysis from the perspective of lenders’ self-protection. China Journal of Accounting Research, 7, 203-221.

Ye, K. (2014). Independent director, cash compensation, and earnings management. Journal of Accounting and Public Policy, 33(4), 391–400.

Zhang, J. (2008). The contracting benefits of accounting conservatism to lenders and borro-wers. Journal of Accounting and Economics, 45, 27–54.

Zhang Y., Sun, F., and Xian, C. (2017). Does auditor industry expertise affect bank loan costs? Managerial Auditing Journal, 32(3), 295–324.




DOI: https://doi.org/10.9744/jak.22.1.28-39




Template for Preparing Article for JAK

The Journal is published by The Institute of Research & Community Outreach - Petra Christian University. It available online supported by Directorate General of Higher Education - Ministry of National Education - Republic of Indonesia.

©All right reserved 2018. Jurnal Akuntansi dan Keuangan, ISSN: 1411-0288, e-ISSN: 2338-8137

click tracking
View My Stats