The impact of leverage on the earning response coefficients

Abstract

<jats:p>This study aims to examine whether there is an influence of leverage on earnings response coefficients with corporate governance as moderation. This study uses 108 data of manufacturing companies listed on the Indonesia Stock Exchange (IDX) during the year of observation 2016 to 2018. The analysis technique used in this study is a moderated regression analysis using SPSS version 24. The results of this study provide empirical evidence that leverage has an effect but not significant on the earnings response coefficient. This study also provides empirical evidence that corporate governance is unable to strengthen or weaken the effect of leverage on the earnings response coefficient.</jats:p>

Determinant of earnings response coefficient on the Indonesian and Singaporean stock exchanges during the COVID-19 pandemic

“…Bad news will reduce market reaction, because creditors will benefit more (Scott, 2015). Dewi and Yadnyana (2019) and Dewi et al (2020) prove that leverage has a negative effect on ERC. Dewi et al (2020) concluded that a better condition of company profits financed with high leverage leads to more negative shareholder response.…”

“…Growing companies tend not to distribute dividend payout ratios, but use these funds for expansion (Soly & Wijaya, 2017). Dewi et al (2020) stated that leverage has a negative effect on ERC. The better the condition of a company financed by leverage, the more profitable the debtholders.…”

“…Kristanti and Almilia (2019) stated that a company's first choice of funding is retained earnings, then liabilities and equity. Dewi et al (2020) stated that the smaller liability indicates the company has been able to use internal equity (retained earnings). The use of internal equity is the company's effort to minimize the cost of capital in reducing dividend payments through the dividend payout ratio.…”

“…Dividend payout ratio still makes ERC in the medium criteria. Dewi et al (2020) stated that smaller liability indicates a company has been able to use internal equity (retained earnings). Internal equity is oriented to a company's efforts to minimize the cost of capital because it will reduce the dividend payout ratio.…”