Firm Size Leverage Hypothesis Development

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2.3 Hypothesis Development

Based on problem statement, the hypotheses in this study are explained below.

2.3.1 Firm Size

Based on agency theory, larger firm size is more likely to have greater agency problem than smaller firm size. To reduce those agency problem, manager as agent discloses more information to shareholders as principal. According to Widowati 2009, Agency costs increase when external capital increased which is likely to be higher in larger companies, thus agency theory can explain the positive relationship between firm size and level of disclosure Prior work that detected significantly positive relations between firm size and intangible asset disclosure are Gerpott et al 2008 in Europe region, and Widowati 2009 in Indonesia, with the exception of Kang 2006 who observed insignificant associations. Based on agency theory above, the hypothesis developed to examine association between firm size and intangible asset disclosure is following: H1 : There is a positive association between firm size and intangible asset voluntary disclosure index.

2.3.2 Leverage

According to Agency Theory, a corporation with high leverage has an incentive to disclose more information. Since creditors can price protect themselves via restrictive debt covenants, managers have incentives to increase disclosures to reduce agency costs Kang, 2006. 35 Signalling theory suggests that a firm with a relatively low leverage has incentive to send signals to the market about its financial structure – implying higher voluntary disclosures Oliveira et al, 2006. The empirical evidence of the effect of leverage on intangible asset disclosure is mixed. Gerpott et al 2008 find a significantly positive relationship, in the other hand Kang 2006 find a significantly negative relationship, and Widowati 2009 find no such significant association. - Based on the rationale that a higher leverage and a resulting higher financial risk lead to increased monitoring interests of the capital market in a corporation, it can be expected that highly leveraged companies are motivated to disclose more intangible asset information as one means to reduce their cost of capital Gerpott et al., 2008. The following hypothesis is thus developed: H2 : There is a positive association between leverage and intangible asset voluntary disclosure index.

2.3.3 Ownership Concentration