External commodity uncertainty and accounting conservatism: Evidence from Indonesian Mining Firms

Abstract

Commodity-market instability changes several aspects in extractive firms: future cash flows, asset recoverability, impairment risk, and the credibility demands. This study examines whether commodity price volatility is associated with accounting conservatism and whether that association increase significantly under political-cost exposure and environmental scrutiny. The analysis includes 198 firm-year observations from Indonesian mining firms listed on the Indonesia Stock Exchange during 2014–2024. Accounting conservatism is measured through negative accruals scaled by total assets, while commodity price volatility is calculated as the annual standard deviation of monthly log returns for the benchmark commodity matched to each firm’s dominant activity. Two-way fixed-effects regressions with heteroscedasticity-robust standard errors show that commodity price volatility, political-cost exposure, and environmental scrutiny are positively associated with conservatism. Both interaction terms are also positive and significant. Economically, a one-standard-deviation increase in volatility corresponds to a 0.0066 increase in CONACC, approximately 13.5 percent of its sample mean. The marginal effect of volatility is larger at higher levels of political-cost exposure and environmental scrutiny. The findings support a conditional reporting-response explanation: external uncertainty, particularly in commodity, is associated with greater prudence, particularly when firms face stronger political visibility and environmental accountability. The study extends positive accounting, stakeholder, and legitimacy perspectives to an emerging-market extractive industry setting while recognizing that the observational design does not establish experimental causality.