The Role of Corporate Governance on the Effect of State Ownership on Audit Findings at State-Owned Enterprises

Abstract

This study aims to analyze the extent to which the mediating role of corporate governance on the influence of state ownership on audit findings issued by Audit Board of the Republic of Indonesia on State-Owned Enterprises in Indonesia. The study used a sample of 98 observations (firm-year) during the period of 2010-2014. The results indicate that directly in line with predictions, there is a positive influence of the degree of state ownership on audit findings, and it is found that the level of state ownership has an indirect and negative effect on the governance of state enterprises, resulting in a negative impact of corporate governance on the audit. The results of this study imply that in order to reduce the potential for audit findings, the steps that need to be taken by the government gradually are to reduce the state ownership portion of SOEs, especially by privatization through stock offerings on the capital market and encouraging the implementation good governance in SOEs.

Effects of privatization and corporate governance on accounting conservatism in state‐owned enterprises

“…Whereas in the context of SOES in Indonesia, the results of the study Furqan et al (2018) in 51 SOEs in Indonesia found that the level of government ownership in SOEs had a positive effect on BPK audit findings on the ineffectiveness of internal control systems and noncompliance with laws and regulations, so that privatized state‐owned companies had lower audit findings than those that had not been privatized.…”

“…Second, this study provides additional empirical evidence related to the role of state ownership and the effectiveness of efforts to privatize or transfer state ownership to the public in order to improve the quality of financial reporting or accounting conservatism in SOEs, where previous research still shows mixed results (Ben‐Nasr et al, 2015; Chen et al, 2010; Cullinan et al, 2012; Furqan et al, 2018; Xia & Zhu, 2009; Zhu & Li, 2008). The results of this study are in line with the results of the study Cullinan et al (2012) who found that although in general, the percentage of ownership of the largest shareholders (especially exceeding 30%) had a negative effect on the accounting conservatism of companies in China, but when the largest shareholder was the government, there was no significant influence on the largest shareholder ownership of conservatism.…”

“…However, the two studies have not considered how the differences in conservatism in state‐owned enterprises (SOEs) either privatized (go public) or not/not privatized, while even though many have shown benefits by privatizing SOES (Furqan et al, 2018; Omran, 2009; Tsamenyi et al, 2010; Wahyuni, 2011), but the impact of privatization on the performance of SOEs is still being debated by several parties (Aivazian et al, 2005; Ng et al, 2009; Trihatmoko, 2019; Tsamenyi et al, 2010). Aivazian et al (2005) asserted that without even privatizing, reforms to governance in SOEs have been effective in improving the performance of SOEs.…”

“…Corporate governance has become a major concern lately, not only for shareholders, but also other interested parties, such as the business world, policy makers (government), standard builders, and researchers (Claessens & Yurtoglu, 2013). Considering the strategic role of SOEs as agents of development, governance in SOEs is very important to ensure the positive contribution of SOEs in order to realize a country's economic efficiency and improve the nation's competitiveness (OECD, 2005) and reduce audit findings due to the ineffectiveness of the control system and noncompliance with laws and regulations (Furqan et al, 2018) and to improve performance (Aivazian et al, 2005), especially in improving the quality of financial reporting of the SOES itself (Habib & Jiang, 2015). Therefore, the second focus of this research is to analyze the extent of the influence of corporate governance on the level of accounting conservatism in SOEs.…”

The role of transparency and professional assistance in regional financial management in the Indonesian regional governments

“…The application of good governance can play a role in reducing BPK's audit findings (Furqan et al, 2018). As one of the mechanisms of good governance, in his research in Taiwan, Lee et al (2018) also shows that transparency has an important role in creating healthy regulations, so that in designing regulatory instruments to mitigate/reduce corruption in a country, in addition to law enforcement and press freedom, it also needs to pay attention to aspects of transparency (Seim & Søreide, 2009).…”