The Impact of Corporate Reputation on the Cost of Equity as Mediated by Earnings Quality

Abstract

Good corporate reputation is important for companies because of their potential for value creation and also as intangible asset which makes it difficult for competitors to replicate it. This research is aimed to investigate the effect of corporate reputation and cost of equity through earning quality as a mediating variable. Corporate reputation is measured by Corporate Image Index. Cost of Equity is measured by Ohlson Method. The earning quality as an intervening variable is measured by Modified Jones. The sample used in this study were non-financial companies listed on the Indonesia Stock Exchange and Corporate Image Index from 2016 to 2018. The sample was selected using purposive sampling method. The number of sample resulted from this method are 189 companies. This study used path analysis method and supported by SPSS version 23. The theory used in this study is agency theory. Based on statistical results this study indicate that there is no significant relationship between corporate reputation and earning quality but has negative and significant relationship to cost of equity. This study also shows that earning quality has a negative and significant effect on the cost of equity. In addition, Sobel’s test results show that earning quality does not mediate the effect of corporate reputation and cost of equity