Article Sidebar

Download
Full text PDF
Statistic
Read Counter : 186 Download : 85

Downloads

Download data is not yet available.

Main Article Content

Abstract

This study investigates the impact of audit committees with political connections on environmental, social, and governance (ESG) reporting. Drawing from reputational cost theory, it hypothesizes that personal political affiliations of audit committee members positively influence ESG reporting quality. Analyzing data from companies listed on the Indonesia Stock Exchange between 2018 and 2022, the findings reveal that companies with politically connected audit committees exhibit higher levels of ESG reporting compared to their counterparts without such connections. The study highlights that audit committees with political ties are subject to increased litigation risks and reputational costs.

Keywords

audit committee litigation risk reputation cost political connection

Article Details

License

Copyright (c) 2024 Jurnal Akuntansi dan Auditing Indonesia

Creative Commons License

This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Authors who publish with this journal agree to the following terms:

  1. Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution License that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this journal.
  2. Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgment of its initial publication in this journal.
  3. Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work (See The Effect of Open Access).

References

  1. Ahmed Haji, A. (2015). The role of audit committee attributes in intellectual capital disclosures: evidence from Malaysia. Managerial Auditing Journal, 30(8/9), 756–784. https://doi.org/10.1108/MAJ-07-2015-1221
  2. Almaqoushi, W., & Powell, R. (2021). Audit committee quality indices, reporting quality and firm value. Journal of Business Finance & Accounting, 48(1–2), 185–229. https://doi.org/10.1111/jbfa.12478
  3. Appuhami, R., & Tashakor, S. (2017). The impact of audit committee characteristics on csr disclosure: an analysis of Australian firms. Australian Accounting Review, 27(4), 400–420. https://doi.org/10.1111/auar.12170
  4. Arif, M., Sajjad, A., Farooq, S., Abrar, M., & Joyo, A. S. (2021). The impact of audit committee attributes on the quality and quantity of environmental, social and governance (ESG) disclosures. Corporate Governance (Bradford), 21(3), 497–514. https://doi.org/10.1108/CG-06-2020-0243
  5. Badolato, P. G., Donelson, D. C., & Ege, M. (2014). Audit committee financial expertise and earnings management: The role of status. Journal of Accounting & Economics, 58(2–3), 208–230. https://doi.org/10.1016/j.jacceco.2014.08.006
  6. Beasley, M. S., Carcello, J. V, Hermanson, D. R., & Neal, T. L. (2009). The audit committee oversight process. Contemporary Accounting Research, 26(1), 65–122. https://doi.org/10.1506/car.26.1.3
  7. Becker, C. L., DeFond, M. L., Jiambalvo, J., & Subramanyam, K. R. (1998). The effect of audit quality on earnings management. Contemporary Accounting Research, 15(1), 1–24. https://doi.org/10.1111/j.1911-3846.1998.tb00547.x
  8. BRIN. (2023, April 29). Dukung komponen pelaporan ESG BRIN buka peluang penelitian ESG di Indonesia. Retrived from https://ppid.brin.go.id/posts/dukung-komponen-pelaporan-esg-brin-buka-peluang-penelitian-esg-di-indonesia
  9. Bruynseels, L., & Cardinaels, E. (2014). The audit committee: management watchdog or personal friend of the CEO? The Accounting Review, 89(1), 113–145. https://doi.org/10.2308/accr-50601
  10. Budiharta, P., & Kacaribu, H. E. P. B. (2020). The influence of board of directors, managerial ownership, and audit committee on carbon emission disclosure: a study of non-financial companies listed on BEI. Review of Integrative Business and Economics Research, 9, 75–87. Retrieved from https://buscompress.com/uploads/3/4/9/8/34980536/riber_9-s3_06_h19-121_75-87.pdf
  11. Cho, H., & Song, B. (2017). Politically connected audit committees, earnings quality and external financing: evidence from Korea. Asia‐Pacific Journal of Financial Studies, 46(4), 609–634. https://doi.org/10.1111/ajfs.12182
  12. De Almeida, M. G., & De Sousa Paiva, I. C. (2022). Audit committees and its effect on environmental, social, and governance disclosure. 2022 17th Iberian Conference on Information Systems and Technologies (CISTI), 1–6. https://doi.org/10.23919/CISTI54924.2022.9820167
  13. Edirisinghe, I. C. J., & Abeygunasekera, A. (2022). Impact of audit committee attributes on esg disclosures: evidence from firms listed in the colombo stock exchange. University of Jaffna. Retrieved from http://repo.lib.jfn.ac.lk/ujrr/handle/123456789/5758
  14. Erol, D., & Çankaya, S. (2023). The impacts of firm-level and country-level variables on environmental, social, and corporate governance greenwashing. Istanbul Ticaret Üniversitesi Sosyal Bilimler Dergisi, 22(46), 683–704. https://doi.org/10.46928/iticusbe.1200111
  15. Faisal, F., Ridhasyah, R., & Haryanto, H. (2021). Political connections and firm performance in an emerging market context: the mediating effect of sustainability disclosure. International Journal of Emerging Markets. doi.10.1108/IJOEM-07-2020-0753
  16. Freeman, R. E., Harrison, J. S., Wicks, A. C., Parmar, B. L., & De Colle, S. (2010). Stakeholder theory: the state of the art. Cambridge university press. Retrieved from https://core.ac.uk/download/pdf/346447581.pdf
  17. Fuadah, L. L., Mukhtaruddin, M., Andriana, I., & Arisman, A. (2022). The ownership structure, and the environmental, social, and governance (esg) disclosure, firm value and firm performance: The audit committee as moderating variable. Economies, 10(12), 314. https://doi.org/https://doi.org/10.3390/economies10120314
  18. Global Reporting Initiative. (2016). The global standards for sustainability reporting. global reporting initiative. Retrieved from https://www.globalreporting.org/standards/
  19. Goss, A., & Roberts, G. S. (2011). The impact of corporate social responsibility on the cost of bank loans. Journal of Banking & Finance, 35(7), 1794–1810. https://doi.org/10.1016/j.jbankfin.2010.12.002
  20. Harjan, S. A., Teng, M., Shah, S. S. H., & Mohammed, J. H. (2019). Political connections and cost of debt financing: empirical evidence from China. International Journal of Economics and Financial Issues, 9(1), 212–216. Retrieved from https://www.econjournals.com/index.php/ijefi/article/view/7561
  21. Harymawan, I., Agustia, D., & Prasetyo, K. (2017). The quality of accounting earnings and change in political power map: evidence from Indonesia. SHS Web of Conferences, 34, 04001. https://doi.org/10.1051/shsconf/20173404001
  22. Harymawan, I., Nasih, M., Salsabilla, A., & Putra, F. K. G. (2020). External assurance on sustainability report disclosure and firm value: evidence from Indonesia and Malaysia. Entrepreneurship and Sustainability Issues, 7(3), 1500–1512. https://doi.org/10.9770/jesi.2020.7.3(5)
  23. Harymawan, I., & Nowland, J. (2016). Political connections and earnings quality: how do connected firms respond to changes in political stability and government effectiveness?. International Journal of Accounting and Information Management, 24(4), 339–356. https://doi.org/10.1108/IJAIM-05-2016-0056
  24. Harymawan, I., Putra, F. K. G., Agni, T. D. K., & Kamarudin, K. A. (2020). Sustainability report practices in Indonesia: context, policy, and readability. International Journal of Energy Economics and Policy, 10(3), 438–443. Retrieved from https://www.econjournals.com/index.php/ijeep/article/view/8979
  25. Hayat, U. (2021, December 8). ESG disclosure: how external assurance can help build trust. The Business Times. https://www.proquest.com/newspapers/esg-disclosure-how-external-assurance-can-help/docview/2607559861/se-2?accountid=13771
  26. Hazaea, S. A., Zhu, J., Khatib, S. F. A., Bazhair, A. H., & Elamer, A. A. (2022). Sustainability assurance practices: a systematic review and future research agenda. Environmental Science and Pollution Research International, 29(4), 4843–4864. https://doi.org/10.1007/s11356-021-17359-9
  27. Jamil, N. N. (2018). The effects of politically connected audit committees on audit fees: evidence in Malaysia. International Finance and Banking. doi: 10.5296/ifb.v5i1.12815
  28. Joni, J., Natalia, M., & Leliana, L. (2023). The investment behavior of politically connected firms in Indonesia. Asian Journal of Accounting Research, 8(4), 348–355. https://doi.org/10.1108/AJAR-12-2022-0416
  29. Khoo, E. S., Lim, Y., & Monroe, G. S. (2020). Audit committee members’ reputation incentives and their effectiveness in monitoring the financial reporting process. Abacus, 56(3), 348–406. https://doi.org/https://doi.org/10.1111/abac.12201
  30. Liu, Y., Li, X., Zeng, H., & An, Y. (2017). Political connections, auditor choice and corporate accounting transparency: evidence from private sector firms in China. Accounting & Finance, 57(4), 1071–1099. https://doi.org/10.1111/acfi.12207
  31. Lokuwaduge, C. S. D. S., & Heenetigala, K. (2017). Integrating environmental, social and governance (ESG) disclosure for a sustainable development: an Australian study. Business Strategy and the Environment, 26(4), 438–450. https://doi.org/10.1002/bse.1927
  32. Maroun, W., & Atkins, J. (2018). The emancipatory potential of extinction accounting: exploring current practice in integrated reports. Accounting Forum, 42(1), 102–118. https://doi.org/10.1016/j.accfor.2017.12.001
  33. Nassani, A. A., Javed, A., Radulescu, M., Yousaf, Z., Secara, C. G., & Tolea, C. (2022). Achieving green innovation in energy industry through social networks, green dynamic capabilities, and green organizational culture. Energies, 15(16), 5925. https://doi.org/10.3390/en15165925
  34. Oshika, T., & Koike, M. (2023). Environmental greenwashing: The role of corporate governance and assurance. Retrived from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4443828
  35. Pozzoli, M., Pagani, A., & Paolone, F. (2022). The impact of audit committee characteristics on esg performance in the European union member states: empirical evidence before and during the covid-19 pandemic. Journal of Cleaner Production, 371, 133411.
  36. Pratama, K., Lubis, H., Pratama, I., Samsuddin, S. F., & Pratami, A. (2019). Literature review of corporate social responsibility disclosure. Journal of Advanced Research in Dynamical and Control Systems, 11(5), 1397–1403. doi: 10.1016/j.jclepro.2022.133411
  37. Pratiwi, I. S., & Djakman, C. D. (2017). The role of corporate political connections in the relation of csr and tax avoidance: evidence from Indonesia. Review of Integrative Business and Economics Research, 6, 345. Retrieved from https://sibresearch.org/uploads/3/4/0/9/34097180/riber_6-s1_sp_s17-120_345-358.pdf
  38. Qian, W., & Chen, X. (2021). Corporate environmental disclosure and political connection in regulatory and leadership changes: the case of China. The British Accounting Review, 53(1), 100935. https://doi.org/10.1016/j.bar.2020.100935
  39. Raimo, N., Vitolla, F., Marrone, A., & Rubino, M. (2021). Do audit committee attributes influence integrated reporting quality? an agency theory viewpoint. Business Strategy and the Environment, 30(1), 522–534. https://doi.org/10.1002/bse.2635
  40. Rauf, F., Voinea, C. L., Naveed, K., & Fratostiteanu, C. (2021). CSR disclosure: effects of political ties, executive turnover and shareholder equity evidence from China. Sustainability, 13(7), 3623. https://doi.org/10.3390/su13073623
  41. Rifai, M., & Siregar, S. V. (2021). The effect of audit committee characteristics on forward-looking disclosure. Journal of Financial Reporting & Accounting, 19(5), 689–706. https://doi.org/10.1108/JFRA-05-2019-0063
  42. Schöndube-Pirchegger, B., & Schöndube, J. R. (2011). Reputation concerns and herd behavior of audit committees–a corporate governance problem. Journal of Accounting and Public Policy, 30(4), 327–347. https://doi.org/10.1016/j.jaccpubpol.2011.02.003
  43. Selin, M., Joni, J., & Ahmed, K. (2023). Political affiliation types and corporate social responsibility (CSR) commitment: evidence from Indonesia. Journal of Accounting & Organizational Change, 19(1), 24–39. doi: 10.1108/JAOC-08-2021-0109
  44. Simpson, S. N. Y., Aboagye-Otchere, F., & Ahadzie, R. (2022). Assurance of environmental, social and governance disclosures in a developing country: perspectives of regulators and quasi-regulators. Accounting Forum, 46(2), 109–133. https://doi.org/10.1080/01559982.2021.1927481
  45. Song, B. (2021). The joint effects of audit committee financial expertise and auditor industrial expertise on the quality of earnings. Global Business and Finance Review, 26(3), 68–87. https://doi.org/10.17549/gbfr.2021.26.3.68
  46. Srinivasan, S. (2005). Consequences of Financial Reporting Failure for outside Directors: Evidence from Accounting Restatements and Audit Committee Members. Journal of Accounting Research, 43(2), 291–334. Retrived from http://www-jstor-org.ezproxy.ugm.ac.id/stable/3542345
  47. Syaraswati, D., & Setiany, E. (2022). Political connection, family ownership, board commissioners and market orientation on the corporate social responsibility disclosure. Review of Integrative Business and Economics Research, 11, 135–144. Retrieved from https://sibresearch.org/uploads/3/4/0/9/34097180/riber_11-s3_04_s22-072_135-144.pdf
  48. Tee, C. M. (2018). Political connections and the cost of debt: Re-examining the evidence from Malaysia. Journal of Multinational Financial Management, 46, 51–62. https://doi.org/10.1016/j.mulfin.2018.05.003
  49. Turley, S., & Zaman, M. (2007). Audit committee effectiveness: informal processes and behavioural effects. Accounting, Auditing & Accountability Journal, 20(5), 765–788. doi: 10.1108/09513570710779036
  50. Victoria, B. B. U. I., & De Villiers, C. (2017). Management control systems to support sustainability and integrated reporting. Sustainability Accounting and Integrated Reporting. Retrieved from https://www.researchgate.net/publication/321303992_Bui_B_De_Villiers_C_2017_Management_Control_Systems_to_support_Sustainability_and_Integrated_Reporting_In_De_Villiers_C_Maroun_W_Eds_Sustainability_accounting_and_integrated_reporting_Routledge_Abingd#full-text
  51. Wahab, E. A. A., Jamaludin, M. F., Agustia, D., & Harymawan, I. (2020). Director networks, political connections, and earnings quality in Malaysia. Management and Organization Review, 16(3), 687–724. doi: 10.1017/mor.2020.26
  52. Young, S., & Marais, M. (2012). A multi‐level perspective of csr reporting: The implications of national institutions and industry risk characteristics. Corporate Governance: An International Review, 20(5), 432–450.