The seriousness in applying accounting standards and the cost of capital

Reporting incentives are factors that motivate public companies to apply accounting standards seriously, instead of superficial labelling. This study aimed to obtain evidence that investors reacted more positively toward serious accounting standards users. This study analysed the relationship between reporting incentives, which consisted of six proxies, i.e. firm size; debt ratio; ROA; growth opportunities; internationalisation; ownership concentration, and last the cost of capital by using multiple linear regressions. The data collected in this study was taken from the financial statements and daily stock price of companies listed on the Indonesia Stock Exchange, consisting of 214 samples from 2011-2012. The results of the analysis indicated that firm size, growth opportunities, internationalisation, and ownership concentration had a significant effect on the cost of capital. However, reporting incentives were not related to the cost of capital. Thus, it can be concluded that investors in the Indonesian capital market had no concern for the public companies' seriousness of applying accounting standards.