DOES RISK DISCLOSURE AFFECT INVESTMENT EFFICIENCY? STUDY OF INDONESIAN LISTED FIRMS IN KOMPAS100 INDEX
Risk in corporate investment is inevitable, and risk perception influences manager’s investing behaviour (Slovic, 1981). However, during investment decision-making process, managers might not disclose risks that are being faced in the company, thus creating information asymmetry that leads to agency...
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| Format: | Final Project |
| Language: | Indonesia |
| Online Access: | https://digilib.itb.ac.id/gdl/view/47574 |
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| Institution: | Institut Teknologi Bandung |
| Language: | Indonesia |
| Summary: | Risk in corporate investment is inevitable, and risk perception influences manager’s investing behaviour (Slovic, 1981). However, during investment decision-making process, managers might not disclose risks that are being faced in the company, thus creating information asymmetry that leads to agency problems. This leads to inefficient investment, that could take form in overinvestment or underinvestment, where managers chooses project that is not based on the best interest of the shareholders and thus, does not add any value to the shareholder. In Indonesia, investment mistake is also still happening, where companies would invest in projects that actually does not generate value for the firm, and they would face loss in the end. If a company wants to reduce agency costs by reducing information asymmetry, it is suspected to be achieved by disclosing information, risk specifically. This study aims to identify the risk disclosure level in Indonesia, and the relationship between risk disclosure and investment efficiency, while dividing investment inefficiency into underinvestment and overinvestment. Through this paper, a total of 53 companies that are based on the companies consistently included in the Kompas100 index during 2017 – 2019 are thoroughly researched. It is believed that risk disclosure negatively affects investment inefficiency, thus positively to investment efficiency. Our findings showed that the average of risk disclosure in Indonesia is at 1.12%, and the trend in disclosing risk disclosure in Indonesia is relatively stable. There is a significant negative relationship with overall investment inefficiency, and both underinvestment and overinvestment. Finally, this study provides a guide to corporates on disclosing risk disclosure in annual reports as it helps to make a more efficient investment for the company. |
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