JIA (Jurnal Ilmiah Akuntansi) • 8 (2), 399-417 • 2023

What Factors Affect Conservatism? The Role of

Board Gender, CEO Retirement and Financial
Distress

Agus Triyani 1*, Sri Retnoningsih1, Suhita Whini Setyahuni2,

Muhammad Fajar Khoiruddin1
1Department of Accounting, Faculty of Economics and Business, Universitas
Wahid Hasyim, Jl. Menoreh Tengah X/22 Sampangan, Semarang, Central Java,
Indonesia
2Department of Management, Faculty of Economics and Business, Universitas

Dian Nuswantoro, Jl. Imam Bonjol 207, Semarang, Central Java, Indonesia
*agustriyani@unwahas.ac.id

CITATION:
Triyani, Agus, Retnoningsih,
Sri, Setyahuni, Suhita Whini &
Khoiruddin, Muhammad Fajar.
(2023). What Factors Affect
Conservatism? The Role of
Board Gender, CEO Retirement
and Financial Distress. JIA
(Jurnal Ilmiah Akuntansi), 8 (2),
399-417.
ARTICLE HISTORY:
Received:
May 28th, 2023
Revised:
December 10th, 2023
Accepted:
December 28th, 2023
DOI: 10.23887/jia.v8i2.62217
Abstract
This research aims to comprehensively analyze the
intricate relationships between board gender, CEO
retirement, financial distress, and accounting
conservatism within the energy sector. Leveraging 164
firm-year observations spanning 2019-2021, our sample
selection relied on a purposive sampling technique, with
data availability serving as a primary criterion. Through
multiple regression analysis, we rigorously tested
hypotheses to unveil the nuanced dynamics at
play. Contrary to expectations, our findings suggest that
board gender does not exert a significant impact on
accounting conservatism within energy firms. However,
CEO retirement emerges as a pivotal factor positively
influencing accounting conservatism. This illuminates
the importance of leadership transitions in shaping
conservative financial reporting practices. Notably,
financial distress demonstrates a contrary effect,
negatively impacting accounting conservatism. This
novel perspective positions financial distress as a
determinant factor, expanding the traditional
boundaries of conservatism research within the agency
theory framework. Our research significantly
contributes to the literature by providing fresh insights
into the contextual factors influencing accounting
conservatism in the energy sector. The nuanced
interplay of CEO retirement and financial distress
unveils complex decision-making processes, offering
practical implications for corporate governance and
financial reporting practices in this industry. This study
serves as a valuable resource for both practitioners and
scholars seeking a deeper understanding of
conservatism determinants in the specific context of
energy companies.
Keywords: accounting; conservatism; board gender;
CEO retirement; financial distress.

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INTRODUCTION (Savitri, 2016). The concept of

In recent years, the need of conservatism arises because of the
conservative accounting information accrual basis in presenting the
arises within the unpredictable company's financial statements. The
business era. Since many firms have an accrual basis is the recording of the
obligation to provide maintain value of incoming and outgoing cash
shareholder value in an ethical way, the transactions in the future both from
conservative reporting become more past and current transactions from real
interesting to capital providers (Biduri transactions that occurred
et al., 2023). The commitment of (Anagnostopoulou et al., 2021). The
providing conservative accounting concept of conservatism is used to
information indicates the efficient avoid unpredictable cash flows in the
control of management to firms future. The concept of conservatism is
operation (Chang et al., 2013), mitigate understood to apply the concept of
the managerial issues on asset’s prudence to the uncertainty of cash
misuse (Anagnostopoulou et al., 2021), flows in the future, but this concept is
and avoid the overcompensation to also understood as a pessimistic
managers (Duong et al., 2021). The accounting concept (Ashraf et al.,
conservative financial reporting reduces 2023). Conservatism is also defined
the agency conflict through the effective that accountants who will report
corporate governance mechanism. Our accounting information will have
new insight on accounting alternative possible values for assets
conservatism offers the benefit to the and income that are the lowest and the
investors, especially how to consider highest possible values for liabilities
the investment decision during and expenses (Garanina & Kim, 2023).
economic deterioration. The conservatism function becomes
Financial report information can more significant, because more reliable
provide a review of a company's accounting information allows investors
performance and as a form of to accurately assess company
accountability for interested parties performance in the past and in the
(stakeholders). Disclosure of financial future (Al-Qudah et al., 2022).
reports is expected to be presented Top management (Chief Executive
accurately and thoroughly both Officer) has a role to control and
qualitatively and quantitatively. The evaluate the company's performance. In
presentation concept is called the carrying out their duties the CEO must
concept of accounting conservatism be able to take steps to overcome

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problems, one of which is by using the from men. The attitude of female
principle of accounting conservatism in leaders is considered to be more
financial reporting (Duong et al., 2021). mindful by using feelings so they are
Financial statements are used as a more careful. The decision making of a
guide in determining whether a CEO is a way of determining success by
company is healthy or not. According to looking at the principles of accounting
Triyani et al. (2020) CEOs are conservatism that are used to deal with
important members of the company's unexpected events in the future (J. Liao
leadership team, and they have the et al., 2019).
power to direct and make company Another factor that affects
choices. The CEO is very instrumental accounting conservatism is the
in increasing the success of the occurrence of the end of the CEO's
company. Several aspects are thought term. According to (Pereira et al., 2021)
to influence accounting conservatism, explains that the transition of the CEO
one of which is the characteristics of is a routine agenda that has been
the CEO. In particular, this study uses scheduled, and the old CEO already
a proxy measurement of characteristics knows the end of his tenure. Research
seen from Gender and CEO's End of conducted by (Gestanti, 2017) explains
Term of Office. that the issue of CEO incentives is in
A CEO has two categories based the spotlight for CEOs who are about to
on gender, male and female (Varadina retire tend to be less conservative in
& Diatmika, 2018). According to her preparing accounting reports. The
research, it explains that female results of his research stated that the
directors or leaders are more careful in CEO at the end of his tenure tends to
taking steps to overcome problems of increase revenue and will reduce costs
future economic uncertainty, one of in order to generate high profits. CEOs
which is by implementing the think that if they can generate high
precautionary principle in preparing profits, they will be valued well by the
financial reports (Cyprian Onyekwere et company and the bonuses they get will
al., 2019). In the context of business, be high. This indicates that the decline
the role of women CEOs are important in company performance is a pressure
in ehancing firm performance, because for CEOs to increase profits. According
they tend to be more ethical and more to (Wijaya et al., 2022) positive
conservative than men CEOs (Biduri et accounting theory can predict
al., 2023). The personality traits of a accounting practice which explains the
woman are considered to be different influence of the CEO on the choice of

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reporting method used in accounting involvement in CEOs actually

conservatism. strengthens company oversight and
The preparation of financial transparency. Gender personality in the
reports must pay attention to the form of assertiveness, integrity and
principle of conservatism to provide conscientiousness forms a stronger
quality information for users. The professional attitude (Abdi et al., 2019)
company's financial condition is a stated that gender which uses its
principle determining factor of feminine attitude can in fact bring up
accounting conservatism (Couwenberg, an attitude of responsibility with
2015). Problems related to the decline sympathy and empathy even though it
in the company's financial condition is sometimes prone to pressure in its
and inability to fulfill obligations must duties (Ud Din et al., 2021).
be immediately addressed by the Companies that experience
Manager. Companies that are in a state financial distress managers will be
of financial difficulty tend to lower the more conservative in positive
level of accounting conservatism discretionary accruals in indicating
(Tazkiya & Sulastiningsih, 2020). their financial condition. Other studies
According to (D’Augusta & Grossetti, (Noviantari and Ratnadi 2015) also
2023) that conservatism has beneficial have the same results, the more
information effects because it can limit difficult the financial conditions, the
managers' ability to manipulate and less conservative the financial
reduce information asymmetry statements. While the results of the
problems. study (Tazkiya & Sulastiningsih, 2020)
Research studies on conservatism if a company experiences financial
have found mixed results. The results difficulties it will increase accounting
of research by (Ho et al., 2015) explain conservatism.
that there is an influence between Gender will use her feminine
female CEOs and accounting attitude in her duties and profession as
conservatism. According to research if to protect her children in the family
conducted by (Varadina & Diatmika, so that they are more conservative. This
2018) explains that female CEOs are research provides empirical evidence
considered weak in decision making that gender, which has been positioned
because they tend to use feelings and as the weak side, is actually a new
lack confidence. On the other hand, force in corporate governance. the
research conducted by (Garcia-Blandon development of research that gender
et al., 2019) found that gender roles should be considered in the

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development of accounting knowledge accounting conservatism. Belkoui

and accounting profession, as (2007) explains that Positive
evidenced by the involvement of gender Accounting Theory occurs because of
in the board of directors and in the argument of managers,
overcoming conditions of financial stakeholders state that they are trying
difficulties. Women are considered to be to optimally do work that affects their
more careful than men in dealing with compensation. Problems that often
financial difficulties. A high level of occur Positive Accounting Theory can
leverage has the potential to make explain the accounting procedures that
companies more vulnerable to financial will be chosen to influence cash flow
distress (Nawang, 2020). If a company (Dinda ,2020).
experiences financial difficulties it will This theory also explains how
increase accounting conservatism. companies can predict the level of
Previous studies have investigated financial distress which has an impact
widely the role of CEO in providing on accounting conservatism practices.
conservative financial information Companies that experience financial
(Çolak & Korkeamäki, 2021; Faulkner difficulties usually managers violate
et al., 2020; Hu et al., 2017; S. Liao et conservatism because of poor manager
al., 2023). Many studies also performance. Such circumstances can
investigated the relationship between encourage shareholders to change
conservatism and financial managers and can reduce the market
performance. However, most studies do value of the company. Managers who
not pay attention on the specific respond to pressure to continue to
characteristics of CEO in affecting maintain company performance can
conservative information. This research have an impact on decreasing the level
offers a new insight on CEO of accounting conservatism. But for
characteristics such as gender and companies that don't have financial
CEO tenure. Moreover, we investigated problems, managers will be more
the new determinant factor of financial conservatism because they don't have
distress. pressure from stakeholders. A high
level of financial difficulty can reduce
LITERATURE REVIEW AND low conservatism and vice (Farooq et
HYPOTHESES DEVELOPMENT al., 2021).
Positive Economic Theory
Positive Accounting Theory is
one theory that explains the concept of

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Agency Theory Accounting Conservatism

Agency theory is used to explain The principle of accounting
the relationship between principals and conservatism explains how the
agents with the separation of application of the principle to modify
ownership. This will cause information the Boundaries for the presentation of
asymmetry, where management will relevant and reliable accounting data.
have a lot of important information The principle of conservatism will apply
compared to the principles regarding measures to choose accounting
financial conditions. The level of recording techniques that are generally
corporate conservatism can affect acceptable, and choose techniques that
information asymmetry between have the lowest impact on profits and
managers and company owners. The are not profitable for shareholder
relationship that can occur between equity. The principle of conservatism
agency costs and accounting will value assets and income at the
conservatism is that companies can lowest value, and conversely assess
reduce agency costs by increasing the liabilities and expenses at the highest
quality of information in financial value. An attitude of doubt will be
reports. applied to choosing accounting
According to D’Augusta & techniques in preparing financial
Grossetti (2023), conservatism has reports in order to be able to
beneficial information effects because it understand actual profits and assets
can limit managers in manipulating (Al-Qudah et al., 2022). In this study
information and reduce information the principle of conservatism uses
asymmetry problems. According to accrual-based measurements which
(Tazkiya & Sulastiningsih, 2020) means the actual financial condition
agency costs are costs related to (Kieso et al., 2019). Conservatism is an
management observations to ensure attitude in dealing with market
consistent management actions related reactions to ensure that uncertainty
to responsibility to stakeholders. Non- occurs in the company (Chipeta et al.,
conservative behavior is often found in 2021a). Duong (2021) also explained
agency theories by reporting overstated that doubts in applying the
earnings. This action is taken by the conservatism concept of managers
manager to measure the manager's must minimize the risk of getting high
incentives which are measured by the income on assets and profits. This
size of the profit generated. principle tends to result in potentially
low profits and high levels of costs.

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Board Gender study, to see whether CEOs will end

Feminism of CEOs or female their term of office or not by using an
CEOs is one of the CEO's self-identities. age limit (Tazkiya & Sulastiningsih,
Female CEOs are interesting to study 2020). Based on Article 349 paragraph
because they are one of the managerial 2 Government Regulation of the
attributes in the company. Previous Republic of Indonesia Number 17 of
research has shown that gender 2020, the government has set a
differences affect one's career at work. retirement age limit of 58 years. This
Research conducted by (Khan & Vieito, study was measured using dummy
2013; Kılıç & Kuzey, 2016; Rahman et variables, namely 1 and 0. Code 1 is
al., 2017) proves that CEO gender has given to CEOs who are more than 55
a positive impact on company years old, and code 0 is given to CEOs
performance. This is due to the factor who are less than 55 years old.
that female CEOs are usually more
conservative and risk averse. Financial Distress
The condition of financial
CEO Retirement difficulties is a condition of companies
CEO occupies the highest that experience liquidity problems in
position in the company who is the long term (Balasubramanian et al.,
responsible for all company activities. 2019). The condition of financial
In this study, CEO measurements were difficulties is a threat for managers to
taken from the final tenure of the VEO act opportunistically (F. Li et al.,
in influencing accounting conservatism. 2016a). Pressure to save the company
According to research conducted by can encourage managers to improve
(Chen 2016) found that CEOs became accounting report information (Tazkiya
less conservative in financial reporting & Sulastiningsih, 2020). Thus, financial
at the end of their tenure. CEOs often distress can cause less attention to the
manipulate profits to improve their application of the principle of
performance so that the company sees conservatism.
good performance before their tenure Companies facing bankruptcy
ends. problems can avoid by looking at what
Law No. 40 of 2007 concerning is actually the cause of financial
Limited Liability Companies regulates difficulties. This situation is marked by
the appointment of directors within a the emergence of early symptoms of
certain period of time. Age criteria are bankruptcy which suffer losses and the
set to see the CEO's final tenure. In this amount of debt that is not able to be

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paid by companies that are marked company policies and risks (Kazemi
with too high leverage. High leverage Olum et al., 2019). In the last period,
causes the company to experience gender related issues have received a
difficulties in paying its obligations, lot of attention in the business sector.
which is caused because the total Research conducted by (Olowookere et
assets are smaller than the total al., 2021) explains that feminist
liabilities (Widhiastuti & Rahayu, attitudes are in fact carried over into
2022). Companies in a condition of the formation of character that is
financial distress will be less disciplined, integrity and firm in
conservative because they choose management so that female CEOs are
accounting procedures that reduce considered to apply more conservative
leverage, this makes the company not practices (Duong et al., 2021). The
do conservatives, so that it is good for practice of conservatism can make
investors to see that the company is in information useful because it can limit
good condition (Sukandani et al., managers in manipulating information
2021). and reduce information asymmetry
problems (D’Augusta & Grossetti,
The Effect of Board Gender on 2023). The results of the study (Ud Din
Accounting Conservatism et al., 2021) found that gender diversity
The role of the CEO (Chief has a positive effect on the quality of
Executive Officer) is very important in financial reports. Female directors are
the company so that not everyone can seen as having more good accounting
be in this position. The considerations skills than male directors. Female
in choosing a CEO also form the basis directors are considered to be more
of which company has the right to lead conservatism (Varadina & Diatmika,
the company. The existence of a CEO 2018) in improving corporate
can represent to convey information to governance mechanisms, internal
shareholders (Simionescu et al., 2021). controls and information and
Research conducted by (Abdi et al., communication so as to increase
2019) explains that the board of shareholder value and investor
directors is a professional and confidence. Based on the explanation,
independent party in supervising the first research hypothesis is
company operations (Agyemang Osei et proposed as follows:
al., 2019). The role of gender diversity H1: Gender diversity has a positive
in the CEO is a characteristic that impact in accounting
needs to be considered in carrying out conservatism.

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The Effect of CEO Retirement on H 2: CEO retirement positively affects

Accounting Conservatism the accounting conservatism.
Besides gender, the other factor
namely retirement CEO can also affect The Effect of Financial Distress on
accounting conservatism. According to Accounting Conservatism
(Pereira et al., 2021) explains that the Financial distress is a signal to
transition of the CEO is a routine detect the probability of bankruptcy as
agenda that has been scheduled, and indicated by a high leverage ratio (Brier
the old CEO already knows the end of & lia dwi jayanti, 2020). Leverage is
his tenure. The CEO's final term is how much the company's operational
often a time when the CEO feels costs are financed by debt (Widhiastuti
pressure from shareholders to deliver & Rahayu, 2022). In positive
good results. Shareholders can monitor accounting theory (Watts &
company performance closely and Zimmerman, 1990) explains the
encourage CEOs to take less risks by application of accounting conservatism.
seeking more conservative accounting. According to (Sukandani et al., 2021)
Another study explains that the issue Companies that have high leverage will
of CEO incentives is in the spotlight for result in financial difficulties. This
CEOs who are about to retire tend to be causes the company to choose an
less conservative in preparing accounting procedure to manage it in
accounting reports (Gestanti, 2017). such a way that future earnings are
The results of this research show that transferred to the current period in the
CEOs with a final term of office will hope that leverage will tend to decrease.
generate high profits by reducing costs Companies that must maintain better
and increasing revenue. According to financial ratios in order to protect
CEOs, this can create a positive shareholders from a bad corporate
impression of their performance during image. From the explanation above it is
their tenure, which can affect their said that if the company experiences
reputation and rewards. According to financial difficulties with a high
(Wijaya et al., 2022) positive accounting leverage ratio it will reduce the
theory can predict accounting practice application of accounting conservatism.
which explains the influence of the Thus, the third hypothesis is proposed
CEO on the choice of reporting method as follow:
used in accounting conservatism. H 3: Financial distress has a negative
Based on the previous research, the impact on accounting
second hypothesis as follows: conservatism.

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METHOD and energy industries because it has a

Public listed companies on the higher level of leverage. compared to
IDX are the population of this study. other industries. A high level of leverage
Samples were taken by purposive has the potential to make a company
sampling technique. This study uses a more vulnerable to financial distress.
sample of energy and mining The research was conducted on
companies because they tend to have a census basis, namely all public
high levels of leverage. The observation companies in Indonesia with a focus on
year is 2019-2021. the mining and energy industries were
The research approach is included in the unit analysis. The type
quantitative positivism namely, to test of research data is secondary and to
empirically the influence of the collect data it uses the documentation
variables Gender Diversity, CEO method with the content analysis
Termination, and financial difficulties procedure in the 2019-2021 annual
on accounting conservatism. The report. There are four research
research object is a listed Indonesian variables, which have operational
stock exchange company in the mining measurement as follows:

Table 1. Variables Measurement

Variable Measurement
Accounting Conservatism
CONACC:
Accounting conservatism firm i CONACCit =
year t (Biduri et al., 2023)
Dep:
Fixed asset depreciation
NIO:
Net income firm i year t +
depreciation firm i year t
CFO:
Operational cashflow firm i year t
TA:
Fixed assets book value firm i
yeart t
Gender Diversity Dummy
1 for female CEO
0 for male CEO
(Simionescu et al., 2021)
CEO Retirement Dummy
1 if CEO’s age > 55 years old
0 if CEO’s age < 55 years old
(Chen et al., 2018)
Financial Distress Leverage
DER (Debt Equity Rato) = 𝑇𝑜𝑡𝑎𝑙𝐷𝑒𝑏𝑡/𝑇𝑜𝑡𝑎𝑙𝐸𝑞𝑢𝑖𝑡𝑦
(Widhiastuti & Rahayu, 2022)
Source: primary data, 2023

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To analyze the data, we use multiple selection. Before we test the

linear regression, with the following hypotheses, firstly, we employ classical
equation: assumption test to ensure that
CONACCi,t = α + β1GENDi,t + β1R_CEOi,t regression model meet the unbiased
+ β1G_Levi,t + + ε ….(1)
predictor criteria. Table 3 presents the
Where: descriptive statistics and classical
CONACCi,t =Accounting conservatism firm i
year t assumption test’s result.
α = Constanta Table 3 shows the descriptive
β = regression coefficient
GEND = Gender diversity statistics. The mean value for the from
R_CEO = CEO retirement
Lev = Financial Distress classical assumption test’s results, we
ε = other factors otutside the model can infer that the regression model has
met the criteria of unbiased model
RESULTS AND DISCUSSION predictor. As shown in the table 3,
Descriptive Statistics normality tests using Kolmogorov-
Population of this study are public Smirnov test, which resulted 0,20 that
listed companies in mining and energy higher than 0,05. It means that the
sectors in Indonesia. We observe 189 data have been distributed normally.
firms-years observation during 2019- From table 3, the mean value for
2021. We deleted 25 companies financial distress is -3,40 and standard
because of incomplete data of annual deviation is 59,50. It means that the
report. Table 2 describes the sample data broadly distributed.

Table 2. Sample Selection Data

Criteria 2019 2020 2021 Total
Number of companies in 80 80 80 240
Energy Sector Indonesia
Number of Companies which -25 -25 -26 -76
have incomplete data
Total sample selected 55 55 54 164
Source: Primary Data, 2023

Table 3. Desciptive Statistics and Classical Assumption Tests

Std. Kolmogorov- Park Durbin

Variables Min Max Mean Tol VIF
Deviation Smirnov test Watson
Gender Diversity 0 1 0,05 0,23 0,99 1.00 0,19
CEO retirement 0 1 0,49 0,50 0,99 1.01 0,43
Financial
-753,54 24.85 -3.40 59.05 0,20 0,99 1.00 0,74 1,907
Distress
Accounting
-1,90 2.88 -0,19 0,57
Conservatism
Source: Primary data, 2023

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The maximum and minimum score for directors does not guarantee for
accounting conservatism is 2,88 and - companies to minimize the practice of
1,90 respectively. The negative sign on accounting conservatism. According to
the conservatism score means less Biduri et al (2023), the presence of both
conservative and the positive one have women and men on board of director
the aggressive accounting practice member, will deliver an optimal
(Pan, 2017). supervision and become
Hypothesis 1 examines the effect of complementary to each others. Hence,
gender diversity on accounting there is no difference in performance on
consevartism. Based on the statistical both women and men board of
tests, the result is not significant at directors.
0,05 level (p value 0,545>0,05). The Based on the agency theory, the
regression test’s result is presented on problems on agent does not influenced
table 4. Hypothesis 2 investigates the by gender diversity (F. Li et al., 2016b).
effect of retirement CEO on accounting Agency problems can be happened if
conservatism and can be supported by agents have different views to principal.
empirical evidence. The regression Conflict of interest between principal
result’s shows that the p value 0,042 < and agents can raise the probability of
0,05, is significant at 0,05 level. Then, asymmetry information through
hypothesis 3 is accepted at 0,05 level (P accounting practice (Sukandani et al.,
value 0,003< 0,05). 2021). Board of Directors, both of
women and men , have the equal
The Role of Board Gender on qualification and capabilities in
Accounting Conservatism managing risk (Simionescu et al.,
Empirical tests showed that 2021). Therefore, they will equally
hypothesis 1, can not be supported. perform their best performance and
Board gender does not influence the
accounting conservatism practice. The
presence of women as board of

Table 4. Regression Result’s Tests

Variables Coefficients t-tests Sig R square

Constanta -0,255
Gender Diversity 0,073 0,61 0,545
CEO Retirement 0,098 2,05* 0,042 0,64
Financial Distress -0,001 3,07* 0,003
*significant at 0,05 level
Source: Primary Data, 2023

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only focus on the companies goal This finding proved that CEO
without considering gender (Varadina & who are close to retirement period tend
Diatmika, 2018). to be more conservative. According to
This finding is not in line with Rezaee et al (2021), retiring CEO
the research from Li et al (2022) and Ho becomes less innovative and tend to be
et al (2015), who found the positive avoid high-risk projects. It is because
effect of female director on accounting they experience the decrease of power
conservatism. The argument on female and capabilities. On the other hand,
directors tends to be more risk-averse the short remaining CEO’s period give
and more conservative can be the the pressure to CEO to raise up the
reason why gender diversity is amount of remuneration they will get
positively affected accounting practice. after their pension period (Chen et al.,
However, the complexity of problems 2018). This condition, of course, create
within companies can not be simply an ethical dilemma to CEOs.
solved by the view of board gender According to agency theory, the
(Abdi et al., 2019). Heterogeneous on agency conflict is higher on young CEO
board gender will bring a better than old CEO (Rezaee, 2021). It
performance and better perspective to because the young CEO have the
mitigate risks on agency problems greater opportunity and creativity to
(Biduri et al., 2023). Therefore, the broaden their capabilities and get the
presence of both female and male board high remuneration than the older
of directors will not lead a more CEOs. The maximum role of corporate
conservative accounting practice, governance help retiring CEOs to be
because of the similar vision and more conservative and pay more
mission regarding companies’ risks. attention on the consequences after
retirement periods. Retiring CEOs avoid
The Role of CEO Retirement on the conflict that might happened after
Accounting Conservatism their pension period, hence, they
Hypothesis 2 examines the effect become less innovative in the time of
of CEO retirement on accounting their last period (Rezaee, 2021).
conservatism practice. This hypothesis This finding supports the
is accepted and supported by empirical research of Rezaee et al (2021), Xu and
evidence. There is a positive effect of Yan (2014), and Faulkner et al (2020),
CEO retirement on accounting who found the positive effect of retiring
conservatism. CEO’s on accounting conservatism
practice.

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The Role of Financial Distress on with the lower one. High level of
Accounting Conservatism leverage indicates that companies are
Hypothesis three investigate the not in a good financial condition. These
influence of financial distress on findings also support the theoretical
accounting conservatism. The empirical framework of conservatism practice
result proved that the hypothesis can based on agency theory.
be accepted. There is a negative effect
of financial distress on accounting CONCLUSION, IMPLICATION AND
conservatism. LIMITATION
Financial distress is a condition The need of relevance
that companies faced difficulties information become the pressure for
financially due to the deteriorated firm business practitioners to report the real
performance. The difficult condition led of accounting information (Chipeta et
CEO to implement various strategies to al., 2021b). The practice of accounting
save companies. Financial distress conservatism ensures the quality of
plays the determinant factors in reporting information that presented to
decreasing conservatism in accounting its stakeholder (Pan, 2017). What
reporting. factors that affect the conservatism
The presence of agency problems practice is still explored massively
can be identified clearly while among academics and business
companies in a high pressure due to practitioners.
financial distress (Younas et al., 2021). This study aims to investigate
In a bad financial condition, CEO as the determinant factors that might
agent will try to maintain the health affect the accounting conservatism
information to all their stakeholder. By practice in energy sector industries in
reducing expenses or increasing net Indonesia. Using 164 firms-years
income, the accounting practices will observation in sector energy
lead to the higher level of financial companies, we examine the role of
condition (Rezaee, 2021). Hence, the board gender, CEO retirement and
financial distress negatively affects the financial distress on accounting
conservatism practice. conservatism. Our findings show that
This finding is in line with the CEO retirement and financial distress
work of Chipeta et al (2021b) and play the role to accounting
Khalifa (2022), who found that conservatism practice, while board
companies with high level leverage are gender does not influence the
tend to be more aggressive than those conservatism practice. CEO retirement

412
 Triyani et al. – What Factors Affect Conservatism?

increase the conservatism practice quite limited. We suggest to compare

within companies, conversely, financial accounting conservatism practice from
distress affects negatively the several industries in the future
accounting conservatism. This research research. Second, we only examine the
contributes the implication of CEO retirement by identify the number
accounting practice in several aspects. of CEO who are closely to their
First, the gender of board of directors retirement period. The real action of
does not affect the firm performance CEO in the time of their retirement
especially in presenting the quality period can not be observed directly. As
information through conservatism suggested by Rezaee et al (2021), the
practice. It means that both female and number of aggressive and incremental
male directors have the equal investment may become the other
capabilities and qualification to improve indicator perspective of CEO
firm performance. retirement, and can be deeply explored
Second, retiring CEO plays the in the future research.
role to decrease the aggressive
accounting practice through the ACKNOWLEDGEMENT
conservative decision in investment and All authors would like to thank
innovation. Hence, they only report the Wahid Hasyim University for its
conservative income than CEO who financial support from Internal
have a longer retirement period. Third, Research Funding while conducting
the financial distress become the this research.
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