Abstract: This research is aimed to investigate the influence of transformational leadership, audit committee’s role, and internal control toward the financial reporting quality, and its implication on the investment efficiency in Indonesia. The new issue discussed in this research is the relationship between financial reporting quality and transformational leadership as such relationship has never been investigated. The primary data are based on questionnaires which are randomly distributed to 70 state-owned enterprises (SOEs) of non-financial and non-public service and the secondary data are in reference to audited financial statements. Data collected are of 56% response rate, and analyzed using the statistical software SEM-PLS. The research results provide empirical evidence that the financial reporting quality significantly influences on the investment efficiency.
Meanwhile, financial reporting quality are influenced by transformational leadership and the roles of the audit committees. Unexpectedly, for this research data context, the internal control does not influence on the quality of financial reporting. These findings suggest that investment inefficiency in Indonesia will be solved if top management uses the information from a high financial reporting quality, and the financial reporting quality will be enhanced if top management implements the transformational leadership approach and strengthens the audit committees’ role.
Keywords: Transformational leadership, audit committee’s role, internal control, financial reporting quality, investment efficiency