COSTS: Journal of Economics, Commerce and Accounting

Volume 7 Number 2, January-February 2024

e-ISSN: 2597-5234

THE INFLUENCE OF ACCOUNTING CONSERVATISM,

CAPITAL STRUCTURE AND INVESTMENT OPPORTUNITY
SET (IOS) ON EARNINGS QUALITY
Mashita Suryani1*, Suwarno2
Gresik Muhammadiyah University, Gresik, Indonesia1,2
mashitasuryani@gmail.com1 , suwarno@umg.ac.id2

ABSTRACT
Organizations definitely need great advantageous qualities to attract sponsors and financial partners.
Quality benefits can provide quality data and reduce the perception of disruptive influences, so they can
provide an accurate assessment of organizational performance. Some variables can influence earnings
quality, including accounting traditionalism, capital building, and speculation opportunities. Next, this
exploration involves testing whether these variables affect earnings quality. This exploration technique
uses a quantitative methodology that includes 4 insurance agencies, 15 non-banking monetary
organizations, and 35 financial organizations. Of the 35 financial organizations, 25 reported positive
profits for four consecutive years. 25 companies was the total number of samples observed over the
course of a year. In this way the total information on perception collected for more than four years is
equal to 100. The information obtained was broken down with some tests using SPSS. The exploration
results show that accounting traditionalism variables can strengthen earnings quality. Capital building
factors play a role in risk and return adjustment. The quality of earnings data can be improved by using
the investment opportunity setting factor. In light of the results, accounting traditionalism, capital
structure and the variety of doors open to risk are assumed to influence earnings quality.
Keywords: earnings quality, accounting conservatism, capital structure, investment opportunity set

ABSTRACT
Without a doubt, organizations need high-quality benefits to attract followers and financial partners.
Quality benefits can provide quality data and reduce perceptions of disruptive influences so that
appropriate assessments of organizational implementation can be provided. Several variables can
influence earnings quality, including accounting conservatism, capital building, and the variety of
speculative opportunities. Furthermore, this exploration aims to test whether these variables have an
impact on earnings quality. This exploratory technique uses a quantitative methodology involving 4
insurance institutions, 15 non-bank monetary institutions and 35 financial institutions. Of the 35 financial
institutions, 25 recorded positive profits for four consecutive years. 25 companies is the total number of
samples observed during the year. In this way, all the perception information collected in four years is
100. The information obtained is broken down through various tests using SPSS. The exploration results
show that the accounting conservatism variable can strengthen earnings quality. Capital building factors
play a role in the combination of risks and rewards. The quality of income data can be improved by using
factors from the investment opportunity set. Considering the results, accounting conservatism, capital
design and variety of business ports are estimated to influence the quality of profits.
Keywords: earnings quality, accounting conservatism, capital structure, investment opportunity
set.

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 2024. COSTS: Journal of Economics, Commerce and Accounting7(2):2827-2844
INTRODUCTION
Profit is a very important aspect
because financial reports can give
investors an idea of a company's
business potential. Funders will decide
to allocate resources to organizations
that have high profits and high monetary
execution. Quality benefits provide data
to potential partners and financial
sponsors to determine the ideal option
(Murniati and Sastri, 2018). According
to Azizah (2020), revenue quality is an
advantage that can be used to make a
proper assessment of the organization's
ongoing performance, which is used as a
reason to predict future implementation.
Organizational benefits should be
quality if they contain quality data and
contain almost no additional wisdom. .
Quality benefits can also reflect the
actual presentation of the organization
(Tutut Murniati, 2018). This
examination includes internal variables
that influence earnings quality,
including; Accounting conservatism
Accounting, capital planning and
speculative opportunity sets. Accounting
conservatism adheres to the principle of
accelerating the recognition of revenues
and accelerating the recognition of costs
that may occur. In the act of accounting
conservatism, the tendency of
accountants to seek confirmation at a
higher level of profits than losses is
reinforced through sensible practices to
try to ensure that the climate and its
inherent dangers have been adequately
considered (Manik, 2017). Previous
Accounting Reviews Accounting
conservatism regarding income quality
shows contradictory results. According
to Aristawati and Rasmini (2018),
accounting conservatism has an
empirical impact on the income response
coefficient (ERC). This means that the
higher the value of the income response
coefficient (ERC), the more accounting
conservatism a company applies.
Quality Profit Records Entered
According to Accounting Accounting
conservatism records can represent
differences in functional asset returns
and stock returns from the current year
2
to the next. Accounting conservatism is
also useful for avoiding irreconcilable
situations between lenders and lenders.
However, the Accounting Conservatism
variable has a somewhat negative
influence on earnings quality; the higher
the Accounting Conservatism, the lower
the level of the Earnings Reaction
Coefficient (ERC).
As Riyanto (2010) states, capital
design is an idea or estimate between the
size of long-term liabilities and equity
capital. As Sartono (2011) points out,
the capital structure is a balance between
long-term liabilities, long-term
liabilities, preferential offers and public
offers. Financial leverage, a measure of
capital structure, is one of the factors
that determines how much of a
company's assets are financed with debt
(Irawati, 2012). The greater the
organizational obligations, the more
unique the organization. The expansion
of the business now represents a
productive effort. Capital, long-term
financing and short-term financing
constitute the term capital structure.
Companies can obtain short-term and
long-term debt from external sources.
Capital design refers to the amount of
liability and equity used to finance the
organization's activities. However,
Nadia Al-Vionita and Asyik (2020)
conducted research stating that capital
structure has a negative effect on
earnings quality and earnings quality
(Al-Vionita and Asyik, 2020). Hasna
and Aris (2022) conducted research
which produced the final result that
capital structure has a significant effect
on earnings quality. Speculation is a
guarantee against various assets created
today. IOS presents itself as a broad
opportunity for an organization to
contingently contribute to the
organization's spending decisions for the
benefit of the future. A company's
earnings growth is said to be positive if
its growth continues to increase. The
greater the development opportunity to
increase profits, the greater the
opportunity for the organization to
 2024. COSTS: Journal of Economics, Commerce and Accounting7(2):2827-2844
increase the profits earned from now on,
so that the nature of the profits produced
will be further developed and can be
used to advance profits futures. There
are several studies on valuable business
opportunities that are not fully
established by considering earnings
quality as a reliable variable, but they do
not show stable results. Opportunity set
speculation clearly influences earnings
quality, and high IOS influences the
likelihood that managers will introduce
quality earnings.
This review refers to research
conducted by Chakul Amalia entitled
The Impact of Capital Design, Earnings
Development and Opportunity Set (IOS)
on Earnings Quality, conducted by a
review team. What makes this
exploration different is that the specialist
added independent factors, particularly
accounting conservatism, and did not
use the audit advisory group driving
variable. Considering the above picture
and the irregularity of some exploration
results, the rationale behind the main
examination of earnings quality is based
on the fact that the earnings data entered
by the organization's managers in the
reports is very important so that users of
monetary ratios make decisions,
especially financial statements. .
supporters and banks. As a result,
researchers are studying conservatism.
Accounting, capital structure and open
business potential are not determined
based on the nature of earnings for the
assembly organization registered with
Indonesian Securities Trading for the
period 2019-2022.
LITERATURE REVIEW
Signal theory (signal theory)
The signals sent by companies
(managers) to investors are the most
general definition of signaling theory.
The types of signals are different and
can be displayed directly and to inform
third parties about the organisation's
assets. Whatever the structure or content
of the signals sent, organizations
generally satisfy certain needs by
making market assumptions to support
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the organization's position and efforts.
Therefore, the marking must contain
attractive data to adjust the exile's point
of view and evaluation (Gumanti, 2019).
As a result, it is believed that speculative
demand will become more important,
bringing greater business costs and
benefits. (Wahyuliantini and Suarjaya,
2021).
Capital structure
Capital building is an important
issue for organizations because the
design of positive or negative capital
will clearly influence the monetary
position of the organization. The capital
structure that is estimated to produce the
lowest weighted average cost of capital
and the highest stock price is the optimal
capital structure. However, the sources
of resources that an organization will use
are influenced by several variables
including: resource structure, benefits,
profit shares, size of the organization,
organizational growth rate, salary
stability, attitude of the board of
directors, cost of debt, expansion and
economics of capital. situation, market
development, strength of transactions,
influence of work, level of development,
costs, control, banking mentality and
evaluation of the viability of the
company, economic situation, internal
organizational conditions and monetary
curse. Capital design is a consequence of
decisions in determining whether to use
liabilities or value to perform the
functional functions of the organization.
(Farida, et al., 2019). How quickly a
company combines the composition of
the permanent funds it uses is a question
of capital structure. Look for a fund mix
that minimizes the company's cost of
capital and maximizes the share price.
The best combination of financing
sources is the ultimate goal of the capital
structure (Rodoni and Ali, 2020). Capital
development is estimated based on
financial leverage. Influence is a variable
to determine how many organizational
resources are financed through
organizational obligations (Dira and
Astika 2018). Influence is estimated by
calculating the share of liabilities using
 2024. COSTS: Journal of Economics, Commerce and Accounting7(2):2827-2844
the formula:
Leverage =
Source: Marisatusholekha and Eddy Budinono
2015
Accounting conservatism
Organizational execution that
reduces investor interest is so poor that it
disappoints investors and leads to
manager replacement. Leaders who
believe biological systems are weakened
urge them to address the monetary
details by establishing a level of
accounting conservatism. This training
allows organizations to choose a strategy
from a collection of techniques that
experience the same thing.
Administrators can change the savings
amount based on the accounting method
used with this method. (Hendrianto,
2020). According to Wibowo, 2002 in
Nugroho and Indriana, 2020,
conservatism is a principle in financial
reporting that aims to recognize and
measure the activities and profits made
with great care by economic and
commercial activities covered by
intimidation. The consequence of
accounting conservative thinking
according to Soewardjono (2021)
regarding accounting standards is to
perceive expenses or disasters that may
occur, but not be quick to perceive future
salaries or benefits even if the possibility
of their occurrence is very large. A
decrease in earnings and asset reporting
or an increase in debt reporting shows
this impact (Calvin Oktomegah 2021).
Accounting conservatism is
generally characterized as a reasonable
response to communication, aimed at
safeguarding the freedom and interests
of investors and bondholders, which
determines a higher standard of control
when accepting encouraging news over
bad news (Lara, et al. , 2017).
Companies can choose from a variety of
approaches that can be used in the same
circumstances or transactions due to the
applicable accounting standards. The
opportunity to choose accounting
4
principles can result in varying numbers
on account statements which will
ultimately result in profits that are often
moderate in nature and profits that are
often hopeful/liberal in nature.
Accounting conservatism is estimated
based on the Givoly and Hayn (2000)
model used by Putu Tuwetina (2014).
Use the recipe for accounting
conservatism as follows:
CON_ACC= Degree of accounting
conservatism
NIit= Profit before extraordinary
components + depreciation of
company i in year t
CFOit= Cash flow resulting from the
operating activities of company
i in year t
TA= Total assets of the company
Investment Opportunity Set (IOS)
According to Murniati et al.,
(2018) the Speculation Opportunity Set
(IOS) is the opportunity an organization
has to develop or be creative. The
guarantees of organizational
development agreements depend on the
set of speculative opportunities.
Organizations with a number of high-
value speculative opportunities will be
considered to have the development and
potential to increase organizational
value. This influences the evaluation of
executives, financial sponsors, loan
officers and entrepreneurs. According to
Nurhanifah et al (2014), IOS,
represented using the business sector for
the book value of assets, illustrates that
the advantages of the organization are
very strong and the potential for
speculation opens doors that offer
possibilities in the future, therefore that
the IOS price required by the
organization is high will demonstrate
that the detailed benefits match the
original circumstances that the
organization expects to have at a future
development level that will reflect the
organization's cost share. As shown by
Nurhanifah and Jaya (2014), the set of
business opportunities can be estimated
 2024. COSTS: Journal of Economics, Commerce and Accounting7(2):2827-2844
through the market value to the book
value of the assets; Numerically, the
speculation opportunity set variable is
calculated as follows:
Source: Nurhanifah and Jaya (2014)
The ratio of market value to book
value of assets (MBVA) has the same
examination as the IOS value: the higher
the book value of an organization's
assets, the more it shows a decent IOS
value according to Puteri and Rohman
(2012).
Quality of earnings
One sign of the value of earnings
is the response of fund sponsors to the
release of these data, which can be seen
in the evolution of share prices. (Farida
et al., 20014:47). The benefits of quality
accounting are those that have little
nuance and can reflect the original
presentation of the organization. The
more obvious the aggravation of the
benefits of accounting, the lesser the
nature of the benefits of accounting.
(Marisatusholekha and Boediono
2015:54). According to Yeni Wulansari
(2013:5), high earnings quality indicates
that investors are interested in
performance information. When
organizational benefits increase,
organizational benefits must be of high
quality. According to Djamaluddin
(2008), quality profits are profits that
can reflect the company's real financial
performance and its sustainable profits
in the future. This profit is determined
by the accumulation component and the
cash component. Quality profit is the
quantity that can be consumed in a
period while keeping the company's
capacity equivalent in the underlying
period and in previous periods. Dechows
et al, (2010) characterize earnings
quality as follows:
"HigherQuality earnings provide
more information about the
characteristics of a company's financial
performance that are relevant to a
specific decision made by a specific
decision maker.
5
From the above definition, there
are three things that need to be
highlighted (Dechows et al, 2010). First,
the quality of earnings depends on
information relevant to decision making.
Therefore, the above definition of
earnings quality is provided only in the
context of a particular decision model.
Second, the quality of reported earnings
data is viewed as a function of whether
or not the information describes a
company's financial performance. Third,
the quality of earnings is jointly
determined by the relevance of the
financial performance underlying the
decision. The CAR calculation is as
follows:
CARit = α0 + α1 UEit + ε
CARit: Cumulative anomalous
profitability of company i for the interval
from the previous year to the year t
UEit: accounting profit (profit) after
taxes of company i in period t
α0 : Constant
α1: chronic renal failure
ε: standard error
Research framework
Figure 1. Research framework
RESEARCH METHODS
1. Quantitative research methodology
was used in this research. This
research uses companies in the
banking subsector that will be listed
on the Indonesia Stock Exchange
(EIB) between 2019 and 2022 as the
main source of secondary data. Use
intentional testing by following
several steps, below:
 2024. COSTS: Journal of Economics, Commerce and Accounting7(2):2827-2844
1. Annual reports and monetary
reports are freely accessible.
2. Financial Reports Monetary reports
close on December 31st
3. Submit reports in rupee currency.
4. Basically listed on IDX since
January 1, 2018. 5. Has 4 consecutive
positive job gains. The type of
information selected is additional
information. The information
obtained is presented in the form of
annual financial reports distributed by
the Indonesia Stock Exchange (EIB)
in 2019-2022. The method used in
this research to collect data is as
follows: 1. Documentation strategy,
through the collection and verification
of information through the website
www.idx.co.id through budget
summaries or annual reports of
organizations in the companies
subsector financial company listed on
the Indonesian Stock Exchange.
Stock Exchange (EIB) in 2019-2022.
Studying literature, examining
writing, and researching writing as
background material related to exam
titles, such as diaries and essays.
Remembering that the exam uses
optional information.
RESULTS AND DISCUSSIONS
Example data
Table 1.Summary of research samples
Source: Idx.co.id, 2024
This table summarizes data on the
number of organizations in the different
monetary areas examined in the review.
This includes 4 insurance agencies, 15
non-bank financial organizations and 35
financial organizations. Of the 35
financial organizations, 25 are
organizations that have recorded positive
profits for four consecutive years. This
exploration was carried out over a year
with research tests in 25 organisations.
6
Since this research was conducted over
four years, the total number of
observation data collected was 100,
reflecting the number of long perception
periods doubled by the number of exam
tests each year. Research Results
Expressive and Measurable Research
Tests The tool for verifying the
information applied in this study is a
different direct outcome that uses two
autonomous factors. Accounting
conservatism, capital structure, and
investment opportunities function as
independent variables, with earnings
quality as the dependent variable. Then,
to provide a summary or overview of the
information, tests accompanied by the
results are used:
Table 2.Descriptive analysis test results
S
ource: SPSS data processing, 2024.
Classical hypothesis testing
test of normality
A fundamental necessity for
persuading good information
management is to measure the
prevalence of information. Because
ordinary information will influence
research results well, and vice versa
(Ghozali, 2018: 161). The Kolmogorov-
Smirnov test in SPSS was used to
process the data once obtained, obtaining
the following results:
Table 3.Normality test results
 2024. COSTS: Journal of Economics, Commerce and Accounting7(2):2827-2844
Source: SPSS data processing results, 2024.
Multicollinearity test
This test should determine if there
Table 4.Multicollinearity test results
Source: SPSS data processing, 2024.
This test should determine if there
is a relationship
to this error rate when searching
for information over a certain period of
time because errors can occur within a
certain period of time (Ghozali, 2018:
111). As described, information
managementpresented in the following
table.
Multiple linear regression analysis
After running several preliminary
tests to determine the suitability of the
data, it is time to look at multiple
regression analysis. The purpose of this
analysis is to test the research hypothesis
in order to answer the hypothesis
formulation with the following results:
7
Source: SPSS data processing, 2024.
Simultaneous test
It is expected that this
simultaneous test can jointly determine
the impact of all autonomous factors on
the dependent variable. From the results
of the tests carried out, the information
obtained can be viewed in the following
table:
The results show that the
significant value of the above SPSS
estimate is a calculated F of 28.065.
Meanwhile, the F table is 0.000. From
this correlation it is known that F count
> F table and sig < 0.05. Therefore it is
very predictable that at the same time the
independent variable affects the
dependent variable.
partial test
After completing a series of tests,
the final stage is to test the speculation
based on the problem definition. The
speculation test is completed with an at
test or an incomplete test. Unlike a
simultaneous test, an incomplete test is
used to test the effect of each dependent
variable on the independent factor. The
 2024. COSTS: Journal of Economics, Commerce and Accounting7(2):2827-2844
results of this test are as follows:
Table 8. T-test results
Variable Sign In
ifica di
nt ca
to
r by Broad et al. (2021), building
Accounting ,000 <0.05 Influential
conservatism
Capital
structure
.002 <0.05 Influential
Investment ,000 <0.05 Influential
opportunities
Source: SPSS data processing, 2024.
The research results show that the
significance level (Y) is influenced by
these three variables.
Coefficient of determination test (R2
test)
According to the table above, the
adjusted R-squared value is 0.498. This
shows that the independent variable has
an influence of 49.8% on the dependent
variable Stock Returns (Y), while other
variables not related to this research
influence the remaining 50.2%.
Discussion
The effect of accounting conservatism
on earnings quality
Tuwentina and Wirama (2014:
185) recommend that accounting
traditionalism is the answer to defeating
organizational conflicts, where its
implementation is reflected through the
strategy of maintaining a fiscal
summary. Meanwhile, Penman and
Zhang (1999) found that organizations
implementing traditionalism often have
low earnings quality and fluctuating
speculative development. Accordingly,
Kazemi et al. (2011) argue that
traditionalist guidelines are considered
valuable because they can reduce the
prospect of unnecessary expectations on
the administration in budget summaries.
In a similar situation, Sadidi et al. (2011)
find that lists of earnings quality based
on traditionalist accounts can create a
contrast between labor resource returns
and
The influence of capital structure on
Results
earnings quality
Based on the hypothesis described
organizational capital combines
harmony between current liabilities,
non-current liabilities, and value. This
capital design takes on an important role
in determining the alignment between
risk corporate earnings.
The influence of investment
opportunities on earnings quality
The Business Opportunity Set
(IOS) is an important signal of an
organization's development potential.
Oktarya et al. (2014) recommend that
organizations with high IOS generally
continue to develop their business
systems by requiring more external
resources. This indicates that
organizations with high IOS have a
valuable opportunity to work on their
exposure, which directly influences the
nature of earnings data and the level of
revenue generated. The signal
hypothesis reveals that organizations can
convey a message to the market about
the nature of their profits through
interest in long-term productive tasks,
where the IOS is a current value that
opens the door to speculation that the
organization will hire in the future. date.
Wulansari (2020) added that
organizations with high IOS typically
have a higher earnings reaction
coefficient, indicating better earnings
quality. Consistent with the implications
of the current review showing that the
risk
CONCLUSION
This research shows that
accounting traditionalism, capital
building, and speculation opportunity set
(IOS) are important variables that jointly
influence earnings quality. Accounting
traditionalism, properly implemented,
generally increases the reliability of
monetary data and the quality of
earnings. A reasonable capital allocation
between liabilities and value is essential
to increase risk and return, which
8
 2024. COSTS: Journal of Economics, Commerce and Accounting7(2):2827-2844

directly affects the quality of earnings.

From a temporal perspective, a high IOS
implies a more prominent business
development capability, which
corresponds to a more advanced
earnings quality, since companies with a
high IOS will generally generate larger
and more reliable earnings. These
general findings highlight the
importance of this perspective in
improving the honesty and quality of
corporate financial reporting.

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