Track: Business Management

Abstract

Prudence is a prudent attitude in dealing with future economic uncertainty conditions. This principle is used to prevent overstatement or understatement in financial reporting so that financial statements are presented fairly and free from material misstatement. This study aims to examine the determinants of prudence, consisting of capital intensity, conflict of interest, litigation risk, and growth opportunity. By using purposive sampling criteria, the research sample obtained is 104 observation data or 32 companies in the Consumer Goods industry sector listed on the Indonesia Stock Exchange in 2017-2020. Data analysis techniques used are descriptive statistical analysis and panel data regression. The results show that capital intensity is not a determinant of prudence. Conflict of interest and litigation risk are positive determinants of prudence, while growth opportunity is a negative determinant of prudence. A suggestion for further research is to reexamine this research by using different proxies for the independent variables of capital intensity and growth opportunity. For companies, this research can be used as a consideration for implementing prudence in their financial reporting. For investors and creditors, this research is expected to be useful as additional information in making decisions. Empirically, the novelty of this research is that conflict of interest, litigation risk, and growth opportunity are determinants of prudence in the Consumer Goods industry sector.