The Effect of Earnings Opacity, Information Asymmetry, And Leverage On The Cost Of Equity Florentina Putri Surya Dewanti (a*), Lodovicus Lasdi (b), Kesya Agnes Maria (a)
a) Faculty of Business, Widya Mandala Catholic University Surabaya
Jl. Dinoyo No.42-44, Keputran, Kec. Tegalsari, Surabaya
florentinarena2[at]gmail.com*, kesyaagnesmaria2001[at]gmail.com
b) Faculty of Business, SATU University
Jl. BKR No.63, Ancol, Kec. Regol Kota Bandung, Jawa Barat
lodovicus.lasdi[at]univ.satu.ac.id
Abstract
Purpose - The cost of capital is an important aspect because it relates to how a company obtains external financing. External financing can be obtained through debt and equity. The cost of equity is an interesting aspect of research because it can be used by the company to determine investment attractiveness and external acquisition opportunities. Besides that, for investors, it is useful in determining investment decisions. The cost of equity is defined as the rate of return paid to investors. The expected level of return will be in line with the risk that investors must bear. There are factors that influence the cost of equity. This research aims to examine the influence of earnings opacity, information asymmetry, and leverage on the cost of equity.
Design/methodology/approach - This research uses a quantitative design with hypothesis testing. The type of data used is secondary data in the form of annual reports of manufacturing companies listed on the Indonesia Stock Exchange (IDX) for the 2018-2021 period. Sample selection used the purposive sampling method. The data analysis technique used is multiple linear analysis.
Findings - The research results found that earning opacity and leverage did not have a significant effect on the cost of equity. Meanwhile, information asymmetry has a significant negative effect on the cost of equity.
Research limitations/implications - There are differences in residual variances in the variable information asymmetry and the research sample only used manufacturing companies listed on the IDX website in the years 2018-2021.
Practical implications - This research provides two practical benefits. Firstly, for companies, it is hoped that this research can provide material for consideration in deciding the use of earnings opacity, information asymmetry, and leverage to control the cost of equity. Second, for investors, it is hoped that this research can provide material for consideration in analyzing.
Keywords: External financing, cost of equity, earnings opacity, information asymmetry, leverage.
