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The tenure of directors and value relevance of accounting information

Author

Listed:
  • Yuni Pristiwati Noer Widianingsih

    (STIE Swasta Mandiri Surakarta
    Universitas Sebelas Maret)

  • Doddy Setiawan

    (Universitas Sebelas Maret)

Abstract

This study aims to determine the effect of director tenure on the relevance of accounting information by considering that share ownership is generally concentrated in Indonesia. Concentrated share ownership has the potential to cause agency conflicts between controlling and minority shareholders; therefore, corporate governance mechanisms must be controlled. The corporate governance structure in Indonesia is based on a two-tier system, where the highest power lies with the General Meeting of Shareholders (GMS). The holdings of the GMS are expected to be used as an entrenchment mechanism to determine the tenure of directors and commissioners. A longer tenure will accumulate the experience and expertise of the board of directors in controlling and considering who will be taken. Therefore, this study was conducted to determine whether director tenure can increase the value relevance of accounting information. This study was conducted using three value relevance measurements: earnings and book value information, earnings, and cash flow. The test results show that tenure can increase the relevance of the value of information. Testing was also carried out by classifying the tenure of directors as less than five years or more than five years. The test results consistently show that a longer tenure of directors has a greater effect on increasing the relevance of information value.

Suggested Citation

  • Yuni Pristiwati Noer Widianingsih & Doddy Setiawan, 2023. "The tenure of directors and value relevance of accounting information," SN Business & Economics, Springer, vol. 3(6), pages 1-18, June.
    • Handle: RePEc:spr:snbeco:v:3:y:2023:i:6:d:10.1007_s43546-023-00476-7
    DOI: 10.1007/s43546-023-00476-7
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    References listed on IDEAS

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