The Role of Accounting Conservatism as Moderator of The Effect of Financial Ratios on Bond Ratings
Abstract
This study is meant to provide useful information for decision makers and investors looking to better understand the risks associated with bond investing. It aims to examine the effect of various key financial ratios with bond rating and the role of accounting conservatism as moderator of these effects. Data sourced from Indonesia Stock Exchange and Indonesia Bond Pricing Agency, contains 16 issuances from 16 banking firms within period of 2018-2021, and analyzed using Partial Least Square Structural Equation Model (PLS-SEM). The findings are leverage ratios partially influenced bond ratings, while coverage, liquidity, profitability, and cash flow-to-debt ratio show no relationship with bond ratings. Accounting conservatism are able to moderate coverage, leverage, liquidity, and profitability ratios on bond ratings, but failed to moderate cash flow-to-debt ratio. This study demonstrates that disparities in bank risk-taking behavior are impacted by variances in accounting-based risk measures and extends prior research that examines the implication of bank risk taking behavior to investment risk.
Keywords: Bond Rating; Accounting Conservatism; Financial Ratios
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