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Finance, Accounting and Business Analysis 
Volume 5 Issue 1, 2023 

http://faba.bg/       
ISSN  2603-5324 

 

Financial aspects, corporate governance and disclosure of financial risk: 

Case of Indonesia 

 

Irine Herdjiono1* , Mira Yanti2 

  
Department of Accounting, Faculty of Business and Economics, Musamus University, Indonesia1 

Department of Accounting, Faculty of Business and Economics, Musamus University, Indonesia2 

* Corresponding author 

 

Info Articles   Abstract 

 
 

History Article: 

Submitted 20 April 2023 

Revised 8 June 2023 

Accepted 12 June 2023 
 

 Purpose: This study aims to determine the effect of profitability, 

liquidity, and good corporate governance (CGC) on financial risk 

disclosure. Disclosure of financial risk refers to IFRS 7 (International 

Financial Reporting Standard No.7). 

Design/Methodology/Approach: The population used in this study 

includes all mining companies listed on the IDX, a total of 49 companies 

during the period 2017 to 2019. The samples used were 24 companies for 

3 years of financial statements which were selected using the purposive 

sampling method, so that the data analyzed were 72. Data analysis used 

the regression method. The test results show that, partially, the 

profitability and audit committee size variables affect the disclosure of 

financial risk. Meanwhile, the liquidity variable and the size of the board 

of commissioners variable have no effect on financial risk disclosure. 

Findings: The test results simultaneously show that profitability, 

liquidity, board size, and audit committee size have an effect on financial 

risk disclosure. 

Practical Implications: The implication of this research for companies is 

that the results show that the average level of financial risk disclosure by 

companies is 0.299. According to the data obtained, the average 

company has fulfilled the required disclosures such as presenting 

information about risk exposure, how risks arise, objectives, policies, and 

risk management processes along with ways to measure them. 

Originality/Value: This study comprehensively examines financial and 

non-financial factors, namely in terms of corporate governance that affect 

risk disclosure 

Paper Type:  Research Paper 

 

Keywords:  

profitability, liquidity, size 

of the board of 

commissioners, size of the 

audit committee, 

disclosure of financial risks  
 

 

JEL: G32, G34  

   

 
 
 
 
* Address Correspondence:   

E-mail : herdjiono@unmus.ac.id1 

tiropadangmy@gmail.com2 

 

 

  

https://orcid.org/0000-0003-4591-4212


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INTRODUCTION 

 

As the largest foreign exchange earner in Indonesia, mining is an industrial sector that has a 

significant impact on economic development and its contribution to Gross Domestic Product is 6 %. The 

mining sector is faced with many challenges and risks, both operationally and managerially. These various 

risks include complying with government regulations which are always changing and being made stricter, 

and managing operational activities are very dependent on technology, dealing with the inconsistent 

amount of raw materials that are available, and the fluctuating selling prices of commodities. 

Risk is a component that is always present and it is an inherent part of the business world. Risk 

according to the Institute of Chartered Accountants in England and Wales (ICAEW) is an uncertain event, 

both in terms of profit and loss, which, if it occurs, can affect the goals to be achieved by a company. To 

anticipate the occurrence of risks, companies must always be alert and ready to face them. Companies 

must find solutions quickly and precisely to overcome and minimize the risks that will occur. Therefore, so 

that risks can be managed properly, a company can carry out risk management through risk disclosure.  

Issues related to corporate risk disclosure began to become a focus of concern in the business world 

after the publication of a discussion paper by the ICAEW in 1998 which suggested that, in an annual 

report, a company discloses information about risk so that it can be used by stakeholders to make 

investment decisions. 

Risk disclosure is an effort that is made to explain or show report users what risks have been 

successfully managed and strategies implemented to control risks that are likely to occur in the future. It is 

important to disclose risk because doing so conveys information about how management manages the risk 

and what kind of impact it will have on the sustainability of the company's operations. Management need 

to create a good strategy is a coherent set of analysis, concepts, policies, arguments, and actions that give 

responses to a high-risk challenge (Rumelt 2012). A company's ability to manage risk can minimize the 

impact that can arise from these risks. 

With the availability of risk information, a company is expected to be able to provide appropriate 

information to stakeholders to take essential decision in handling any adverse economic event (Sultana et 

al. 2022), assist companies in managing changes that occur, and serve as guidelines in running a business. 

In addition, risk disclosure can also help users of financial statements to predict risks that will occur in 

order to be able to maximize income (Tirado-Beltrán and Cabedo-Semper 2020). According to the results 

of research by Syabani and Siregar (2014) average total risk disclosure is 1,999 words, with mandatory risk 

disclosure amounting 1,444 words, far higher than voluntary risk disclosures with the average of 555 

words on the financial statements of companies in Indonesia in 2010.    

The rules regarding risk disclosure are contained in IFRS 7 which pertains to disclosure as a 

financial instrument: it states that companies are required to disclose financial information so that 

shareholders can assess the type and level of risk of a financial instrument. Disclosed financial information 

includes qualitative and quantitative disclosures. In qualitative disclosure, companies are required to 

disclose risk exposure, how risks arise, objectives, risk management policies and processes, and ways to 

measure them. Meanwhile, quantitative disclosure requires companies to disclose a minimum of credit 

risk, liquidity risk, and market risk, including conducting a sensitivity analysis of each type of risk. IFRS 7 

seeks to increase transparency in the banking system (Bischof 2009), arguing that increased disclosure of 

financial risks tends to reduce uncertainty level (Campbell et al. 2014) and will benefit investors, enabling 

the firms to better allocate their resource (Elshandidy and Zeng 2022). 

Disclosure of risk is one form of implementation of a Good Corporate Government (GCG) system 

(Singhania et al. 2022). GCG is a series of relationships between management, directors, commissioners, 

investors, and stakeholders that regulate and direct company activities (Wahyudin and Solikhah 2017). 

Risk disclosure speeds up the achievement of GCG which is needed to maintain the continuity of the 

company's operations. In general, the principles of implementing GCG are based on five principles, 

namely openness, accountability, responsibility, independence, and fairness (Burak at al. 2016). The GCG 

items that may influence risk disclosure used in this study are the size of the board of commissioners and 

the size of the audit committee. 

Research on risk disclosure has been conducted in various countries, in the Spain (Madrigal et al. 

2015), in Indonesia (Syabani and Siregar 2014), in Bangladesh (Dey at al. 2018). The results of these 

studies exhibit several inconsistencies regarding risk disclosure such as the findings of Madrigal et al. 

(2015) which found that profitability had no impact on the level of risk information disclosed  while Elfeky 

(2017) found evidence on the positive significant correlation  between profitability and voluntary 

disclosure. A company with high liquidity is likely to disclose more information regarding the 

management of liquidity including the management of liquidity risk (Elzahar and Hussainey 2012), 

meanwhile, the results of research by Rahmawati and Prasetyo (2020) found that liquidity had no effect on 

risk disclosure. 



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The results of research by Alves et al. (2012) found that the size of the board of commissioners had 

an effect on voluntary disclosure. Meanwhile, the results of research by Khandelwal et al. (2020) found 

that the size of the board of commissioners has no effect on risk disclosure, Elfeky (2017) found no 

significant correlation between board size and the overall corporate governance voluntary disclosure 

extent. The results of research by Samaha and Dahawy (2011) found that audit committee has effect on 

voluntary disclosure, while Adznan and Puat Nelson (2015) found audit committee independence was 

positive and significantly associated with financial instruments disclosure practices. 

 

LITERATURE REVIEW AND HYPOTHESIS DEVELOPMENT 

 

Agency Theory 

Agency theory describes the contractual relationship between the principal and the agent (Panda 

and Leepsa 2017). The contract explains the rights and obligations that must be fulfilled by the principal 

and agent. The principal acts as an employer by giving power to the agent to make the best decisions for 

the agent and company management  (Jensen 1993). 

The relationship between the principal and the agent can result in a conflict called agency conflict. 

Agency conflict can occur when there are different interests and information asymmetry between the 

principal and the agent (Akerlof 1970; Nwajei at al. 2022). Conflicts of interest can occur when 

management, which has been given the authority to carry out company management tasks, does not work 

in accordance with the interests of the principal. The principal has an interest in maximizing profits and 

the agent has an interest in maximizing the fulfillment of his economic and psychological needs (Mahrani 

and Soewarno 2018). Another agency conflict is that management knows more about the company than 

the shareholders do (Bergh et al. 2019). This results in the emergence of information asymmetry due to 

differences between the information obtained by management (information providers) and that obtained 

by shareholders (information users). 

The concept of agency theory can be used as a basis for understanding risk disclosure practices in 

terms of how management provides information to users by making reliable information available. The 

main purpose of risk disclosure is to avoid information asymmetry between the principal and the agent 

(Khaledi 2014). Management, as the party that knows more about the state of the company, should 

practice risk disclosure by providing relevant information indicating that the agent's actions are in the 

interests of the principal. The information provided by the company's management will be used as the 

main consideration in making investment decisions. 

 

Signal Theory 
According to Amaya et al. (2021), signal theory explains how a company can influence 

stakeholders’ perceptions, create a competitive advantage and positively impact their corporate image. 

Signal theory is used by companies to explain how financial reports are used to send positive and negative 

signals to interested parties. In the practice of risk disclosure, signal theory can explain how management 

discloses information to stakeholders regarding the risks faced by the company in order to signal its 

underlying risk management quality to other parties and to signal that the firms are able to protect and 

create value for the investors (Abdullah et al. 2015).  

 

Risk 
Disclosure can be interpreted as an action that does not cover or hide something. If the disclosure is 

related to financial statements, the report presented must contain sufficient information and explanation 

and be able to explain every event that affects operating results. Disclosure of risk is an effort made to 

show firms’ major risks and their expected economic impact on their current and future performance (Dey 

at al. 2018). 

There are three general concepts of disclosure in financial statements according to Susanto and 

Meiryani (2019), namely: adequate disclosure, fair disclosure, and complete disclosure. Adequate 

disclosure means that the information provided by the company includes minimal disclosure so as not to 

mislead users of financial statements. Fair disclosure means that the information provided by the company 

demonstrates its goal of treating all users equally. Full disclosure means that the disclosures made provide 

all relevant information. 

Risk disclosure is useful for companies and stakeholders in order that they can make predictions 

about the future state of the company, as well as provide complete information about the reality of running 

operations in the face of all threats and obstacles. Furthermore, risk disclosure is useful for the users of 

reports when making investment-related decisions. Disclosure of risk can reduce information asymmetry 

between management and investors and reduce the company's cost of equity (Setiany and Suhardjanto 

2021). 



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According to IFRS 7, Financial Instruments, Disclosure: financial risk is grouped into three, namely 

(1) credit risk is caused the failure of one party to pay its obligations which results in the other party 

experiencing financial instrument losses, (2) liquidity risk is caused by the company being unable to pay off 

its obligations, and (3) market risk is caused by fluctuations in the fair value of a financial instrument. 

 

Profitability 
Profitability is one of the focuses of attention of potential investors and shareholders because it 

relates to the share price and dividends that they will receive. The greater the profitability achieved, the 

wider the company will carry out risk disclosure because it wants to prove to stakeholders that the 

company is capable of managing the use of its capital. Profitability can be seen as a sign of good 

management (Madrigal at al. 2015). Companies that are in a profitable condition will be more willing to 

disclose more information to legitimize their performance and attract the interest of investors, creditors 

and other stakeholders. Disclosures by companies include risk disclosure, namely companies 

implementing effective risk management will obtain higher benefits and demonstrate management 

competency (Linsley and Shrives 2006). To assess the level of profitability in this study, the formula used 

by the researchers is Net Profit Margin (NPM). 

 

Liquidity 
Many investors, creditors, and government agencies pay attention to whether the performance of 

the company can guarantee its survival by seeing liquidity as a key factor for assessing bankruptcy (Owusu-

Ansah and Yeoh 2005). This is what encourages companies to continue to make broader disclosures so 

that they can convince their stakeholders. The disclosure of this risk information can provide benefits for 

the company; namely, they will get additional new potential investors.  

 

Corporate Governance 

Corporate governance is a set of agreements or institutional rules governing efficient decision-

making. In addition, corporate governance is used as a tool to convince shareholders that they will get a 

return on their invested capital (Love 2011).  

The board of commissioners is the part of the company that has joint and/or specific duties and 

responsibilities to supervise and provide advice to the directors and ensure that the company implements 

GCG. According to Law No. 40 of 2007, the board of commissioners is a legal entity that represents the 

principal in carrying out a supervisory role in the implementation of company policies and strategies 

carried out by the directors in good faith and by providing advice to the directors in managing the 

company.  

A small number of commissioners on a board can lead to a lack of expertise which can affect the 

quality of decision making and policies and cause high agency costs, thereby affecting the performance of 

the board to fulfill its corporate governance responsibilities. Meanwhile, a large number of commissioners 

is expected to have a lot of impetus in carrying out supervision, especially in terms of the oversight of risk 

disclosure practices so that no information is hidden. Agency theory predicts that a larger board 

encompassing a wider range of expertise leads to greater effectiveness in monitoring, communication, and 

decision-making roles (Jensen 1993; Elzahar and Hussainey 2012; Gaur at al. 2015). The duty to protect 

the interests of investors is related to the board's role in ensuring the transparent disclosure of financial risk 

information (Elzahar and Hussainey 2012; Lopes and Rodrigues 2007). Therefore, the board of directors is 

responsible for the risk management process (Ntim at al. 2013). Many studies document the positive 

impact of boards of directors on risk reporting practices (Mokhtar and Mellett 2013; Ntim at al. 2013; 

Elshandidy at al. 2013). 

The audit committee is a committee formed by the board of commissioners to carry out audits of 

company management. The establishment and implementation guidelines of the audit committee are 

contained in the Financial Services Authorization No. 55/PJOK.04/2015. The duties of the audit 

committee are to encourage the implementation of GCG, to encourage the establishment of an adequate 

internal control structure, to improve the quality of financial disclosure and reporting, and to supervise the 

implementation of audits by both internal and external auditors. 

The audit committee is seen as a means of preventing fraud in financial reports and monitoring 

management performance including disclosure (Razali and Arshad 2014). The existence of an audit 

committee will make the company more accountable and transparent in carrying out financial reporting 

and avoid manipulation of disclosures because the audit committee will oversee all company activities 

(Setiany 2018). 

Companies with a number of members that meet the requirements for establishing an audit 

committee will be supervised more effectively because they will have the expertise and insights needed to 

carry out supervision. The size of the audit committee is the number of members who play a role on that 



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committee. This number is used to measure the size of the audit committee which can explain the 

implications for risk disclosure (Alshirah at al. 2020). 

 

The effect of profitability on the disclosure of financial risk 
The higher the level of profitability, the better a company's financial performance. A high level of 

profitability can generate high return for investors (Novy-Marx 2013).The results of research by Elfeky 

(2017) found that profitability affects risk disclosure 

According to agency theory, when there are high levels of profitability, company managers tend to 

disclose risk information and risk management more broadly in annual reports. Disclosure of risk is carried 

out in order to minimize the occurrence of information asymmetry between management and 

stakeholders, and explaining management performance to shareholders AL-Shammari Bader (2014) shows 

how companies can manage risk well in order to increase stakeholder confidence in the survival of the 

company; therefore, management will get increased compensation for their performance (Aljifri and 

Hussainey 2007). 

H1: Profitability affects disclosure of financial risk 

 

The effect of liquidity on disclosure of financial risk 

Liquidity is one of the measuring tools used by investors and government agencies to find out 

whether a company can maintain its viability as well as being a key factor in evaluating bankruptcy risk 

(Owusu-Ansah and Yeoh 2005). This condition prompts management to disclose risk information more 

broadly in order to convince stakeholders.  

According to signal theory, the level of liquidity can be a good signal for stakeholders, especially 

investors, as a consideration when investing in a company. The level of liquidity is a good signal for 

stakeholders because it shows that the company is able to manage corporate debt compared to companies 

that have low liquidity. Management will disclose more risk information if their liquidity ratio is high. This 

is done because they want to demonstrate their ability to manage liquidity risk compared to companies 

with low liquidity ratios, and want to provide an explanation to stakeholders about the condition of these 

companies  

H2: Liquidity has an effect on financial risk disclosure 

 

The effect of the size of the board of commissioners on the disclosure of financial risk 

The board of commissioners is one of the components of corporate governance that can influence 

financial risk disclosure. The task of the board of commissioners is to ensure that the company's strategy is 

carried out, supervise management in managing the company, and require accountability (FCGI, 2010). 

Maharani and Soewarno (2018) state that a large number of commissioners can increase accuracy in 

supervising and controlling company management. Hussainey and Al-Najjar (2011) found that the size of 

the board of commissioners has an effect on risk disclosure. 

According to agency theory, the board of commissioners represents the main internal mechanism 

for overseeing management's opportunistic behavior in order to help balance the interests of shareholders 

and management. A large board of commissioners can perform more effectively in supervising and the 

pressure exerted on company management is getting stronger, thus encouraging management to be more 

extensive in making risk disclosures including disclosure of financial risks. 

H3: The size of the board of commissioners has an effect on financial risk disclosure 

 

The effect of audit committee size on financial risk disclosure 

The audit committee is a body formed with the aim of assisting the board of commissioners in 

maximizing the oversight function within the company. The existence of an audit committee monitoring 

the decision taken by the manager for further voluntary information (Samaha and Dahawy 2011). 

According to agency theory, the audit committee, audit committee effect disclosure practices 

(Alshirah et al. 2020). This is because such a committee is tasked with maximizing the supervisory 

function within the company. Furthermore, the task of the audit committee is to liaise between 

shareholders, the board of commissioners, and management in terms of internal control. Therefore, the 

larger the size of the audit committee, the more effective the oversight of the company meaning that 

agency conflicts that occur due to management's desire to improve their own welfare by disclosing risks 

that benefit themselves can be minimized. A large number of members on an audit committee will make 

its performance in assisting the board of commissioners more effective because it will involve a lot of 

expertise and points of view needed in conducting supervision, so management will carry out risk 

disclosure more broadly. 

H4: The size of the audit committee has an effect on financial risk disclosure 

 



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METHOD 

 

This research was conducted on mining companies listed on the Indonesian Stock Exchange. Below 

is an explanation of the variables used in the study: 

 

Table 1. Definitions of Operational Variables 

Variable Definition Measurements 

Profitability 

the company's ability to 

make a profit in terms of 

sales or investment 
NPM =  

Profit After Tax

Sales
 

Liquidity 

the company's ability to pay 

its short-term obligations by 

utilizing its current assets 
CR =  

Current Assets

Current Liabilities
 

Board of 

commissioners 

size 

the total number of members 

of the company’s board of 

commissioners 
 ∑ Board of Commissioners 

Audit committee 

the total number of members 

of the company’s audit 

committee  

 ∑ Audit Committee 

Financial risk 

disclosure 

measured using the financial 

risk disclosure index (FRDI) 

In this study, FRDI 

consisted of 43 disclosure 

items referring to IFRS 

No.7. FRDI items are 

divided into three main 

types, namely credit risk, 

liquidity risk and market 

risk. Based on IFRS No. 7 

market risk is divided into 

three, namely foreign 

currency risk, interest rate 

risk and price risk. 

The calculation of FRDI items uses a dichotomous 

approach, namely by giving a value of 1 to items 

that are disclosed and 0 if they are not disclosed. 

Each item will be added up to get the total number 

of FRDIs for a company. The following is the 

formula for calculating the FRDI variable used: 

 

FRDI =  
 Number of Disclosure Items

Total Financial Risk Disclosure Items
 

    

According to Amran at al. (2017) there are several provisions that are used in order that the 

information obtained is considered a risk disclosure sentence, namely if the reader is informed about 

opportunities, hazards, losses, and threats that have impacted the company or possibly will do so in the 

future, or about the management of every opportunity, prospect, threat or exposure to such loss. If a 

disclosure regarding risk information is too vague, then the disclosure is not considered a risk disclosure. 

Each repeated disclosure will be written as a disclosure sentence each time it is explained. Disclosure of 

risks presented can be in the form of good risks, bad risks, or uncertainties. 

 

 

DATA ANALYSIS AND DISCUSSION 

 

General description of research object 

The objects in this study used are mining companies listed on the IDX from 2017 to 2019. 

Mining: includes shares in the mining and quarrying business, such as coal, oil and gas mining, metal ore, 

rock excavation, clay excavation, sand, salt mining and quarrying, mineral mining, chemicals, and 

fertilizer materials, as well as gypsum, asphalt and limestone mining. The reason researchers used this 

company as a research object is because it is one of the sectors with high risk (uncertainty), the mining 

sector is in great demand by investors and is a pillar of a country's economic development. The population 

of this study were 49 companies and the sample was 24 companies which were determined based on the 

purposive sampling method, namely determining the sample with certain criteria 

  



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Table 2. Sampling Criteria  

Information Amount 

Mining companies listed on the IDX from 2017 to 2019 49 

Companies that do not publish complete annual reports or consolidated financial reports 

for 2017 to 2019 

(6) 

Companies that experience losses (14) 

Companies that were delisted from 2017 to 2019 (2) 

Companies whose data is incomplete (3) 

Company observation data 24 

Total processed samples (24 companies x 3 years) 72 

 

Descriptive statistics 
Descriptive statistics aim to provide an overview of a data variable used in this research by looking 

at the mean, maximum, minimum, and standard deviation values. The following are the results of the 

descriptive statistical analysis. 

 

Table 3. Descriptive Statistics 

 N Minimum Maximum Mean Std. Deviation 

Profitability 72 0.002 13.978 0.321 1.636 

Liquidity 72 0.214 9.222 1.735 1.335 

Board of Commissioners Size 72 3 9 4.89 1.516 

Audit Committee Size 72 3 4 3.11 0.316 

Financial Risk Disclosure 72 0.209 0.395 0.299 0.045 

Valid N (listwise) 72     

Source: Author’s Work  

 

Hypothesis test 
The purpose of the R² test is to determine the ability of the independent variable to explain the 

dependent variable. R² values range between 0 and 1. The following is a table of the results of the 

coefficient of determination. 

 

Table 4. Determination Coefficient Test Results 

Model R R Square Adjusted R Square 

1 0.411 0,169 0,119 

Source: Author’s Work 

 

From table 4 it can be seen that the Adjusted R Square value is 0.119. This means that the 

independent variables (profitability, liquidity, the size of the board of commissioners and the size of the 

audit committee) are able to explain the dependent variable (disclosure of financial risk) of 11.9 % and 88.1 

% is explained by other variables outside the study. 

The t test was conducted to see the effect of each independent variable on the dependent variable. 

The following is a table of the partial test results of this study. 

 

 

Table 5. Partial Test Results 

Model t Sig. Hypotheses 
1 (Constant) 2.974 0.004  

Profitability -2.064 0.043* H1 is accepted 

Liquidity 0.606 0.546 H2 is rejected 

Board of Commissioners Size 0.377 0.707 H3 is rejected 

Audit Committee Size 2.717 0.008* H4 is accepted 

Source: Author’s Work 

Note: * significance at the 5 % level  

 

The F-test was carried out to see the effect of the independent variables together on the dependent 

variable. The following are the results of the simultaneous tests of this study. 

 

 



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Table 6. Simultaneous Tests Results 

Model Sum of Squares df Mean Square F Sig. 

 Regression 0.025 4 0.006 3.399 0.014a 

Residual 0.121 67 0.002   

Total 0.146 71    

Source: Author’s Work 

 

From Table 6, it can be seen that the significant value is 0.014a < 0.05, so it is concluded that 

simultaneously the variables of profitability, liquidity, board size and audit committee size affect, the 

disclosure of financial risk. 

 

Discussion 

The effect of profitability on the disclosure of financial risk 

According to the results obtained from the first hypothesis test, the t value is -2.064 and, it is 

significant because 0.043 is < 0.05 which means that, at a significant level of 5 %, profitability affects 

disclosure of financial risk. Thus the first hypothesis is accepted. 

The results of this study are supported by Yunifa and Juliarto (2017) who stated that profitability 

affects risk disclosure. However, in this study, profitability has a negative effect on the disclosure of 

financial risk, meaning that the higher the level of profitability achieved by a company, the lower the level 

of the disclosure of financial risk that is made.  

Profitability is a description of the overall performance of management which can be seen from the 

amount of profit received in relation to sales and investment. There is a negative influence between 

profitability and disclosure of financial risk because companies that experience low profitability also tend 

to experience high risk, so this encourages managers to increase risk disclosure in order to explain in detail 

what happened in order to explain to the shareholders how management handled the risks that existed, to 

reduce negative views of investment quality, and to minimize the occurrence of information asymmetry 

between the management and the principals in accordance with agency theory. However, the empirical 

research on this subject did not find evidence of the existence of a positive significant association between 

a company's profitability and its risk disclosure level (Linsley and Shrives 2006). 

 

The effect of liquidity on the disclosure of financial risk 

According to the results of the second hypothesis test, the t value is 0.606 and it is not statistically 

significant because 0.546 > 0.05 which means that, with a significant level of 5 %, liquidity has no effect 

on the disclosure of financial risk. Thus the second hypothesis is rejected. 

According to signal theory, management will disclose more risk information if their company’s 

liquidity ratio is high. This is done because they want to show their ability to manage liquidity risk 

compared to companies with low liquidity ratios, and they want to provide an explanation to stakeholders 

about the condition of these companies (Amran et al. 2009). However, the results of this study do not 

show the effect of liquidity on financial risk disclosure. 

A company’s level of liquidity does not affect the extent of financial risk disclosure given because 

producing liquidity is imperative for every company. Its management considers whether the level of 

liquidity is sufficient to serve as a positive signal for stakeholders to assess the company's prospects without 

having to disclose risks more broadly. 

 

The effect of the size of the board of commissioners on the disclosure of financial risk 
According to the results of the third hypothesis test, the t value is 0.377 and it is not statistically 

significant because 0.707 > 0.05 which means that, at a significant level of 5 %, the size of the board of 

commissioners has no effect on the disclosure of financial risk. Thus the third hypothesis is rejected. 

The results of this study are supported by Elfeky (2017) who found that the size of the board of 

commissioners has no effect on risk disclosure. According to the data obtained, the number of 

commissioners owned by each company has met the requirements, namely at least two people. However, 

in this study, the size of the board of commissioners cannot influence the disclosure of a company’s 

financial risk. Agency theory argues that the board of commissioners represents the main internal 

mechanism for monitoring opportunistic behavior by the management in order to help balance the 

interests of shareholders and management. 

A large board of commissioners is believed to be able to improve accuracy in supervising and 

controlling management due to the combination of skills among the board’s members. However, a board 

of commissioners with too many members can slow down the decision-making process because the 

chances of conflict between members of the board of commissioners are greater if there are differences of 

opinion; this makes it necessary to unite the various views and opinions of all members of the board of 



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commissioners. 

 

The effect of audit committee size on financial risk disclosure 
According to the results of the fourth hypothesis test, the t value is 2.717 and it is significant because 

0.008 < 0.05 means that at, a significant level of 5 %, the size of the audit committee has an effect on 

financial risk disclosure. Thus the fourth hypothesis is accepted. 

The results of this study are supported by Samaha and Dahawy (2011) who found that audit 

committee size has an effect on risk disclosure. OJK regulation No.55/PJOK.04/2015, Article 4, explains 

that the audit committee has at least three members who are independent commissioners and parties from 

outside the company. The duties of the audit committee are to encourage the implementation of CGC, to 

encourage the establishment of an adequate internal control structure, to improve the quality of financial 

disclosure and reporting, to supervise the implementation of auditor examinations, and to review the 

scope, accuracy, independence, and objectivity of public accountants. 

The size of the audit committee has an effect on financial risk disclosure because the existence of an 

audit committee can make companies more accountable and transparent in carrying out financial 

reporting and avoid manipulation of disclosures because the audit committee will oversee all company 

activities. This is in accordance with agency theory which explains that the larger the audit committee, the 

more effective its performance will be in assisting the board of commissioners, namely in carrying out its 

supervisory duties because it involves a lot of the necessary expertise and points of view. With the 

existence of effective oversight from the audit committee, it will be possible to suppress the management's 

desire to take actions that benefit themselves and so the management will make broader risk disclosures. 

 

CONCLUSION 

 

The conclusions that can be drawn from the results of the data analysis conducted and the 

discussion are that profitability and audit committee size have an effect on financial risk disclosure, while 

the independent variables liquidity and board size have no effect on it. At the same time, the variables 

profitability, liquidity, board size, and audit committee size do have an effect on the disclosure of financial 

risk. 

The implication of this research for investors is that they are expected to be more careful in 

choosing a company in which to invest. Only looking at the amount of profit that can be generated and the 

return that will be received is insufficient; they should also pay attention to the corporate governance of 

companies such as the size of the audit committee, because a large numbers of members can minimize the 

occurrence of agency conflicts between management and principals. 

The implication of this research for companies is that the results show that the average level of 

financial risk disclosure by companies is 0.299. According to the data obtained, the average company has 

fulfilled the required disclosures such as presenting information about risk exposure, how risks arise, 

objectives, policies, and risk management processes along with ways to measure them. However, it is 

hoped that the company can disclose more useful information for stakeholders as a tool for their 

consideration when making investment decisions. 

 

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