1 | Page DECONSTRUCTION VALUE ADDED STATEMENT WITH

Comments

Transcription

1 | Page DECONSTRUCTION VALUE ADDED STATEMENT WITH
DECONSTRUCTION VALUE ADDED STATEMENT WITH WISDOM JAVA
"MEMAYU HAYUNING BAWANA": A PERSPECTIVE
Riesanti Edie Wijaya
Novrida Qudsi Lutfillah
Yenni Mangoting
Abstract
Java Spiritualism is a local wisdom that colouring the javanese society lives. One of the
Javenese local wisdom is the proverb called “Memayu Hayuning Bawono”.
The
sacred meaning of those proverb is the balancing universe to achieve the happiness and
safety of mankind and the living things. In seeking balance, the javanese people should
maintain the high moral standards. That is why using the “Memayu hayuning bawana” is
needed to shift western cultural effects into the Eastern Culture, especially java.
Pendahuluan
Pembelajaran nilai-nilai lokal merupakan suatu hal yang menarik untuk dipelajari, khususnya
bagi pengembangan akuntansi yang berbasis budaya lokal. Arti penting spiritualitas bagi
akuntan dibidik oleh Sukoharsono (2008,h.5), dengan pernyataannya tentang kemampuan
spiritual dalam memberi kekuatan bagi para akuntan dengan pengetahuan dan kesadaran
dalam cara holistik, sehingga membantu mereka mencapai tujuan personal dan memperbaiki
kehidupannya sendiri dan dengan pengetahuan akuntansi mereka.
Pemahaman tentang akunsi konvensional merupakan suatu langkah awal bagi kita
untuk mempelajari suatu konsep akuntansi. Namun, suatu yang pertama kali kita pelajari
bukan berarti suatu yang selalu benar adanya. Ada suatu yang perlu ditelisik lebih lanjut
tentang praktik akuntansi dengan kearifan lokal yang telah kita miliki dari sejak dahulu.
Untuk itu, artikel ini berupaya memberikan paparan
tentang ketidaksesuaian VAS
konvensional dengan kearifan Jawa “Memayu Hayuning Bawana”, serta berupaya untuk
membangun VAS berdasar “Memayu Hayuning Bawana”,
karena masyarakat jawa
mempresepsikan dunia berasal dari berbagai elemen yang saling berseberangan, yaitu panas
dan dingin, gelap dan terang, sehingga keselarasan sangat dijunjung tinggi oleh masyarakat
jawa (Kato, 2012)
KAJIAN PUSTAKA
diunduh dari:
1|Page
www.multiparadigma.lecture.ub.ac.id
Akuntansi, Seni dan Kapitalisme
Sebelum kita melangkah lebih jauh, tidak bijak rasanya apabila kita tidak memperhatikan
definisi dari akuntansi yang setiap hari kita berkutat di dalamnya. Menurut AICPA (1941),
accounting
accounting is the art of recording, classifying, and summarising in a significant manner and in the term
of money, transactions and events which are, in the part at least, of financial character and interpreting
the result thereof.
Apabila kita menilik awal dari definisi tersebut di atas. Ada hal yang menarik yang
mangatakan bahwa akuntansi adalah sebuah seni. Sebenarnya, apakah yang kita pahami
tentang seni dan bagaimanakah peran seni dalam mempengaruhi manusia terutama
pembacanya dan berbagai pihak yang merasakan damapak dari keberadaan seni tersebut. Seni
adalah aktivitas manusia yang di dalamnya mengandung kenyataan tersebut, bahwa
sesepribadi dengan sadar lewat pertolongan symbol-simbol eksternal tertentu, dengan
menyatakan perasaan yang pernah dialaminya depada pribadi lain dan bahwa pribadi lain
tersebut lalu timbul oleh perasaan tersebut dan juga mengalaminya (Kartika, 2007 h.49).
Sekarang coba kita perhatikan, apakah akuntansi yang didengungkan sebagai seni memiliki
simbol-simbol eksternal tertentu.
Davison dan Waren ( 2009) mengungkapkan bahwa akuntansi adalah segala tentang
angka yang dikomunikasikan dalam tiga bahasa, yaitu: angka, kata dan tampilan visual.
Namun dari ketiganya, tampilan visual merupakan suatu bahasa yang dominan dalam
akuntansi. Lebih lanjut, mereka juga menegaskan bahwa artefak visual yang ditampilkan
dalam akuntansi tersebut berpola seperti yang dipolakan oleh Pacioli
yang merupakan
sesuatu yang misterius, ambigu, dan subyektif, konsekuensiya sense of disorientation
seringkali dialami sebelum artefak visual diumumkan sebagai "Tidak berjudul". Jadi dari situ,
memang akuntansi tepat dikatakan sebagai suatu seni.
Selanjutnya, mengapa seni itu hadir? Apa tujuan dari seni tersebut? Kartika (2007: h.
14) memaparkan bahwa menurut Teori Serba intelektual, tujuan seni adalah mengungkapkan
kebenaran. Dimana teori ini mendasarkan pada filsafat Aristoteles, yaitu:keindahan adalah
kebenaran, keindahan yang benar atau kejujuran. Kebenaran disini adalah bukanlah
kebenaran alami atau social, tetapi “kebenaran seni” yaitu: suatu perwujudan dan bentuk
diunduh dari:
2|Page
www.multiparadigma.lecture.ub.ac.id
khayalan (sensitive dan imaginative form). Menyitir dari paparan Kartika (2009), berarti
apabila akuntansi adalah suatu seni, maka akuntansi juga bertujuan mengungkapkan
kebenaran. Namun, yang harus tetap diingat, bahwa kebenaran yang ada di sini bukanlah
kebenaran alami atau social, namun suatu perwujudan dan bentuk khayalan, seperti saat
Caravaggio diminta melukis Santo Mateus, yang dia lukiskan seperti pekerja tua dan miskin,
yang kenyataannya memang demikian, namun gereja tidak menerimanya karena tidak sesuai
dengan konsep Gereja tentang sepribadi Santo, sehingga ia terpaksa melukis gambar sesuai
dengan keinginan dari pihak gereja (Calne, 1991).
Lebih lanjut, apakah akuntansi juga akan menganut suatu “kebenaran seni” seperti
yang diungkapkan oleh Kartika (2009). Sebetulnya, kita bisa meminjam pernyataan yang
dicetuskan oleh Calne (1991: h.290), dimana seni bisa dibuktikan salah (misalnya jika
bertentangan dengan diri sendiri, self contradictory), namun juga tidak bisa dipastikan benar.
Hal tersebut terjadi, karena setiap pribadi memiliki pandangan yang berbeda-beda, sehingga
meninmbulkan bias pribadi. Hal tersebut mungkin pula terjadi pada akuntansi, dimana
bentukan akuntansi konvensional saat ini mungkin benar adanya bagi pihak yang satu namun
tidak untuk lain.
Selanjutnya,
seni
(termasuk
akuntansi)
mempunyai
mekanisme
untuk
bisa
mempengaruhi para penikmatnya. Pertanyaan tentang bagaimana suatu seni tersebut bekerja
mungkin dapat dijelaskan melalui Teori Pemancaran diri (Emphati). Menurut Viscer dalam
Kartika (2009), Empati merupakan suatu pengalaman yang timbul akibat suatu peleburan
antara perasaan (emosi) pengamat terhadap benda seni. Selanjutnya, peleburan perasaan
yang mendalam menyebabkan jiwa (secara
psikis) larut dalam kualita instrinsik dan
ekstrinsik. Dengan demikian, seni berkemampuan memancarkan secara langsung dan jelas,
dan dampak rasa tersebut bisa mendekati tingkat kesadaran yang tinggi seperti yang terjadi
dengan ekstasi religious (Calne 1991). Lebih lanjut, Machlis
dalam Calne (1991)
menyatakan bahwa seni sangat terkait dengan medium kenikmatan-warna, bunyi, perunggu,
pualam, kata, yang selanjutnya diolah menjadi suatu karya yang mampu merangsang akal
budi dan emosi, menggetarkan daya khayal, dan mempertajam indera. Dengan demikian, kita
bisa mengatakan bahwa seni bisa mendatangkan suatu sensasi yang luar biasa, yang mungkin
diunduh dari:
3|Page
www.multiparadigma.lecture.ub.ac.id
keberadaannya menuntun kita melakukan sesuatu tanpa kita sendiri menyadarinya yang biasa
disebut subliminal seduction dalam buku yang dituliskan Wilson Bryan Key (1973).
Key (1973) melaporkan hasil studi yang dilakukannya terhadap para partisipan yang
melihat dengan seksama iklan Gilbey’s Gin yang ditengarahi mempunyai pesan seksual
tersembunyi yang melekat dari iklan mereka.
Pesan tersembunyi tersbut dengan jelas
kentara, namun akan kentara apabila partisipan membaca ice cube dalam gelas disamping
botol gin. Lebih lanjut, Key juga menemukan bahwa para partisipan merasakan rangsangan
seksual setelah melihat iklan tersebut. Apabila kita cermati, iklan sebenarnya juga dalam
posisi yang sama dengan akuntansi yaitu sebuah seni. Berarti, akuntansi juga berpotensi
sebagai media untuk terjadinya subliminal seduction.
Seperti kita pahami, bahwa akuntansi konvensional yang biasa kita pelajari berasal dari
Negara barat. Akuntansi mereka, yang merupakan seni, tentu bersifat unik dan dibuat untuk
kebudayaan mereka sendiri (Calne, 1991). Selanjutnya, apakah kita pernah berfikir bahwa
kita mempunyai kebudayaan yang sama dengan mereka, pahal kita seudah terkungkung
mengikuti kehendak mereka dari saat kita belajar akuntasi
sekarang?
untuk pertama kali sampai
Pastilah ada perbedaan di antara keduanya. Kebudayaan barat selalu
mengedepankan dan mengidentifikasikan Aku (ego) manusia dengan ciptaan-Nya (rasio dan
akal), sementara filsafat timur beranggapan bahwa dalam diri manusia terdapat sifat-sifat
Illahi (Kartika, 2009).
Adanya suatu prasangkan bahwa westernisasi memang merupakan suatu yang
disengaja. Dimana menurut Huntington (1996), suatu modernisasi dibutuhkan, sehingga
kebudayaan pribumi yang tidak dapat disandingkan harus ditanggalkan, dan masyarakat
nantimya akan
sebetulnya
sepenuhnya terbaratkan
agar mengikuti arus modernisasi.
Dimana,
secara tidak sadar kita telah terbujuk oleh suatu pesan tersembunyi yang
mengatakan bahwa hanya dengan mengikuti mereka kita bisa berhasil. Kenapa kita mau saja
melakukan itu? Kita terperdaya untuk melakukan apa yang mereka mau disebabkan oleh
adanya kekuasaan. Lebih lanjut, Lebih lanjut, peneliti Foucouldian juga menunjukkan
kemampuan akuntansi untuk dieratkan oleh perilaku berkuasa untuk mendisiplinkan dan
mengendaliakan
perilaku dalam cara yang halus dan tidak disadari (Funnell, 2007).
Kekuasaan adalah kemampuan sesepribadi atau kelompok pribadi untuk mengubah perilaku
pribadi lain atau kelompok lain, yang bisa dilakukan secara persuasive, koersif, atau dengan
diunduh dari:
4|Page
www.multiparadigma.lecture.ub.ac.id
teguran, dengan menuntut adanya penngunaan kekuatan secara ekonomi, militer,
institusional, demografis, politis, teknologis, social, atau melalui kekuatan lainnya
(Huntington: 1998, h.128).
Lebih dalam, mengapa mereka menggunakan akuntansi sebagai media untuk
menancapkan kekuasaan mereka atas kita? Funnell (2007: h.23) menjelaskan bahwa
akuntansi menginstitusionalkan hak beberapa pribadi untuk mengendalikan yang lainnya
untuk menjelaskan tindakan mereka dengan serangkaian nilai, idealitas, perilaku yang
diharapkan, seta apa yang disepakati dan tidak disepakati. Lebih lanjut, ia mengungkapkan
bahwa akuntansi digunakan dalam masyarakat kapitalis sebagai suatu implementasi kekuatan
dan dominasi untuk mempertahankan ketidaksamaan dan membuat hak istimewa yang
dikritik oleh kaum anarkis, untuk menghindari kesempatan untuk pelunasan, untuk
memperlemah eksistensi dan mempermalukan pesaing
pada kapitalismen,Lebih lanjut,
kemampuan akuntansi digunkan para kapialis untuk melegitimasi struktur kekuasaan yang
ada untuk menekan buruh, untuk melanjutkan ketidakseimbangan antara kapital dan buruh.
Akhirnya, akuntansi merupakan alat yang sangat persuasif yang mana hak properti diakui
dan diproteksi. Dengan kaita lain, menurut Oehr dalam Zimmermann (2012), akuntansi
menjalankan perannya sebagai enabling, apabila akuntansi ditekankan untuk meningkatkan
efisiensi pasar dan menyediakan informasi untuk membuat kontrak yang efisien, sementara
fungsi preserving bekerja apabila akuntansi berperan membagi income untuk para corporate
constituencies dan balances interests
Salah satu media yang dipergunakan para kapitalis adalah keberadaan double entry.
Hubungan antara akuntansi dan kapitalisme seringkali dikenal dengan Sombart thesis, karena
keberadaan akuntansi dalam hal ini double entry bookeeping
memungkinkan para
enterpreneur untuk merencanakan, mengerjakan, dan mengukur dampak aktivitas mereka
dengan adanya pemisahaan antara pemilik dan bisnis sehingga bisnis bisa berkembang
(Belkaoui, 1992). Lebih lanjut, kemampuan double entry ternyata tidak berhenti sampai di
situ. Namun, double entry juga berkemampuan menentukan kekayaan bersih usaha mereka
pada satu titik waktu, serta merupakan pintu pembuka bagi kapitalisme industri modern,
karena dipersenjatai oleh kemampuannya dalam menghitung nilai bisnis dengan tepat, para
merchant mengembangkan suatu badan hukum komersial untuk menyediakan daya prediksi
dalam dunia tirani (Hood :2005, h.26).
diunduh dari:
5|Page
www.multiparadigma.lecture.ub.ac.id
Sekilas kita bertanya apa yang salah dengan kapitalisme, sehingga membuat banyak
pihak luka hati olehnya. Kapitalisme adalah kekuatan dinamis yang konstan menyerang
hubungan-hubungan social yang sepenuhnya konvesional, enggan menggantikan privelis
yang diwarisi dengan berbagai stratifikasi baru berdasarkan ketrampilan dan pendidikan
(Fukuyama: 1992, h. 445).
Bila kita telusur lebih lanjut, ada tiga aspek yang dapat dikaitkan dengan kapitalisme
(Chiapello, 2007, h. 278), antara lain:
1. Semangat kapitalisme didominasi oleh tiga ide, antara lain: acquisition, competition dan
rationality. Tujuan dari semua aktivitas ekonomi tidak lagi merujuk pada “the living
person”.
2. Sistem kapitalis dilandasi oleh inisiatif dan perubahan pribadi.
3. Teknologi kapitalis harus meyakinkan tingkat produktivitas tinggi. Leboh lanjut, sombart
mengikuti pemikiran Marx yaitu non-paid labour sebagai sumber dari profit.
Untuk itu, akuntansi yang ada dewasa ini tentu sarat dengan pesan-pesan kapitalisme.
Harga yang harus dibayar atas pengadopsian pikiran kapitalis tentu tidak murah. Lebih lanjut,
adanya semangat kapitalisme juga medorong pribadi untuk menimbun kekayaan mereka
bahkan sampai mereka mati (Zhou, 1995). Adanya semangat kapitalisme ini semakin
memperbesar kesenjangan sosial antara si happy minority ( karena kredit itu berlimpah-ruah
dan barang-barang terbilang murah bagi mereka) dan para mayoritas yang memandang masa
depan kelabu (Iyer, 2004). Dengan adanya semangat adanya semangat menimbun kekayaan,
the living person akan semakin kikir dengan menempatkan diri mereka akan hidup lama di
bumi, akibatnya mereka akan berupaya untuk terus menurus berupaya keras meningkatkan
kekayaannya, tanpa mengindahkan adanya kepentingan pribadi kebanyakan.
Untuk itu,
tepatlah apa yang dituliskan Buchman (1975) dalam Funnel (2007) yaitu anarkisme
menciptakan moralitas pasar seperti "moral anarchy" dimana egoisme menentukan semua
hubungan, sehingga tidak tersedia ruang untuk menghormati satu dengan lainnya lainnya.
Dengan melihat berbagai paparan di atas semakin memberikan suatu pencerahan pada kita
subliminal seduction yang telah dilakukan akuntansi pada penikmatnya. Untuk lepas dari
subliminal seduction tersebut, kita harus mengubah permainan yang berarti mengubah kaidah
dasar yang menjadi landasan akuntansi konvensional ( Capra, 2003). Untuk itu, akuntansi
dalam hal ini laporan keuangan yang sebenarnya disusun berdasarkan konsep stewardship
diunduh dari:
6|Page
www.multiparadigma.lecture.ub.ac.id
(McCall, and
Klay, 2009), seharusnya mampu mengakomodasi berbagai kepentingan
informasi dari berbagai pihak yang bergantung pada informasi tersebut.
Pernyataan di atas sebenarnya tidak terlalu asing bagi bangsa Indonesia khususnya
suku Jawa dengan konsep “Memayu Hayuning Bawana” (selanjutnya disebut MHB). MHB
sebenarnya suatu konsep yang mencerminkan spiritualitas Jawa yang sangat menarik untuk
dikaji. Konsep tersebut mencerminkan bagaimana menjadi Pribadi Jawa yang sempurna
menurut Konsep tersebut. Untuk itu, Akuntansi sebagai bentuk pertanggung-jawaban dari
suatu kepengurusan seharusnya juga mengusung konsep tersebut. Namun sayang, Akuntansi
sekarang merupakan akuntansi yang berbasis budaya Barat yang sarat dengan semangat
kapitalisme. Untuk itu, artikel ini mencoba untuk melakukan perubahan dengan membawa
angin segar MHB dalam Laporan Keuangan.
Enterprise Theory dan Value Added Statement
Laporan laba rugi merupakan suatu laporan yang sangat diperhatikan oleh para pemilik,
walaupun Kam (1986) menuturkan bahwa laporan laba rugi bukan merupakan magnet yang
bagi para pemilik dibandingkan dengan Neraca. Selanjutnya, ada baiknya kita melangkah
untuk memperhatikan filosopy dibalik income statement, sebelum kita melihat kelemahan
yang
ditanggungnya. Bailey (1986: h. 3.) menuliskan beberapa filosofi dari income
startement, antara lain:
1. penyajian corporate income harus dikembangkan untuk mendapatkan kemanfaatan
maksimum untuk "non-insider"
2. Penekanan tersebut meletakkan tanggung-jawab bagi manajemen dan para akuntgan
untuk melakukan analisis yang layak pada laporan untuk menunjukkan secara jelas laba
bersih untuk tahun tersebut
3. laba bersih untuk tahun tertentu harus ditunjukkan setajam mungkin untuk membuat
laporan bermanfaat untuk membentuk opini seperti efisiensi perusahaan, dan
memungkinkan pembuatan keputusan yang mempengaruhi masa depan
4. Laporan laba rugi harus dipandang dalam lingkup kondisi ekonomi dalam tahun ia
disajikan dan bookkeeping items yang merupakan bantalan dampak dari kondisi ekonomi
seharusnya tidak dicantumkan dalam penentuan laba.
diunduh dari:
7|Page
www.multiparadigma.lecture.ub.ac.id
5. Varietas praktik harus dikurangi, seperangkat prinsip akuntansi dikembangkan dan
kriteria ditetapkan terhadap accounting judgment yang memungkinkan untuk diuji,
akhirnya laporan keuangan pada perusahaan berbeda dapat dibandingkan dengan
memuaskan
Apabila kita menegok kembali filosofi pertama di
atas. Laporan laba rugi
diperuntukkan penyajian corporate income harus dikembangkan untuk mendapatkan
kemanfaatan maksimum untuk "non-insider". Siapakah “non-insider” yang dimaksudkan di
sana. Apakah Insider mencakup berbagai pihak berkepentingan selain para shareholder dan
kreditor. Jawabannya adalah tentu tidak. Laporan laba rugi memang sengaja dibuat untuk
kepentingan mereka (pemilik modal dan si empunya piutang). Perusahaan dianggap hidup
sendiri. Namun, seiring berkembangnya waktu, timbullah suatu pemikiran yang
mengganggap perusahaan bukan lagi dari kacamata mikro, namun lebih pada suatu
enterprise, sehingga muncullah apa yang disebut dengan Enterprise theory yang merupakan
suatu landasan bagi kemunculan sosial accounting.
Enterprise theory
masih dalam area aplikasi akuntansi yang menerima konsep dari
large corporation sebagai "an institution in its own right"(Soujanen, 1954: p.393). Namun,
Soujanen memandang bahwa konsep enterprise jauh lebih luas dibandingkan dengan sebuah
entitas, karena enterprise berupaya untuk mencari peran perusahan dalam suatu masyarakat
sementara konsep entitas dalam entity theory telah memisahkan perusahaan dalam
masyarakat sebagai self-contained abstraction yang hadir berpisah dari sebagian
komunitasnya. Dengan adanya enterprise theory mendorong para manajemen untuk tidak
berfikir hanya untuk kepuasan para pemilik modal dan kreditor, namun jauh daripada itu.
Mereka juga dituntut untuk memberikan kepuasan bagi berbagai pihak yang bergantung pada
perusahaan mulai dari mulai shereholder, kreditor, pemerintah, pegawai, pelanggan.
Seperti Entity theory dan Propriety Theory, Enterprise Theory juga memberikan suatu
implikasi praktis berupa pencetusan Value Added Statement yang berupaya mengakomodir
kepentingan berbagai pihak berkepentingan termasuk pegawai dan pemerintah.
Suojanen (1954) mengungkapkan bahwa tujuan dari value added statement adalah
untuk mengukur aliran dan pembagiannya antara para pihak berkepentingan dalam suatau
perusahaan. selanjutnya, beliau menambahkan bahwa rerangka value added sebenarnya
merupakan modifikasi prosedur akuntansi.
Untuk lebih memberikan penjelasan, maka
diunduh dari:
8|Page
www.multiparadigma.lecture.ub.ac.id
Suojanen mengilustrasikan perbandingan value added statement dengan income statement
conventional dalam tabel 1 dan tabel 2. Pada tabel 1 dan tabel 2 memiliki asumsi yang sama
pada awal periode, yaitu sediaan dengan cost value $45,000 dan sales value senilai $500,000
dalam periode 0 (tidak ditunjukkan). Sedangkan pada tahun kedua,tidak ada penurunan atau
peningkatan sediaan. Selanjutnya, dalam tahun ketiga, diasumsikan bahwa produksi tidak
berbeda dengan dua tahun sebelumnya yaitu senilai $450,000 dalam cost, dan $500,000 pada
selling price.
Tabel 1: Value Added Statement
Sumber: Suojanen (1954: p. 396).
Tabel 2: Income Statement
Sumber: Suojanen (1954: p. 397).
METODA
Pemaknaan Memayu Hayuning Bawana
diunduh dari:
9|Page
www.multiparadigma.lecture.ub.ac.id
Kearifan Jawa MHB merupakan suatu pitutur yang luhur, sehingga memerlukan suatu
penafsiran makna mendalam daripada sekadar menilik kata per kata. Untuk itu, banyak
penafsiran yang muncul terkait dengan keberadaan MHB, diantaranya yang dikemukakan
oleh Endraswara (2013), Koentjaraningrat (1984), Soesilo (2003). Pada artikel ini, penulis
memilih untuk menggunakan penafsiran MHB versi Endraswara (2013), karena dirasa lebih
sesuai dengan tema yang dibahas dalam artikel ini. Untuk itu, semua pemaknaan MHB dalam
artikel ini merupakan buah penafsiran Endraswara (2003) yang digunakan oleh peneliti
untuk menelusur dan melandasi suatu bentukan Value added Statement akan ditawarkan.
Apabila ditelisir dari awal
makna
MHB kata per kata. Endraswara (2013)
menuliskan:
Memayu. Memayu bisa memiliki beragam pemaknaan mulai dari membuat hayu (cantik)
sampai dengan payu (menaungi). Dalam konteks kosmos, memayu memiliki makna selalu
menjaga dan memperhatikan keberadaan sedulur papat lima pancer. Saudara empat (papat)
yang ada dalam tubuh kita ada pada Sanjawing wangon dan Slebelting wangon, yang
mempunyai maksdud bahwa di dalam tubuh kita ada saudara gaib yang dapat dimintai tolong
saat manusia mengalami kesulitan.
Perhatian pribadi Jawa akan saudaranya tersebut
diwujudkan dengan pemberian sajen atau sesaji. Lebih jauh, Keiklasan pengorbanan pribadi
Jawa untuk saudaranya tersebut sebenarnya merupakan titik sentral dari suatu pengorbanan.
Apabila pribadi Jawa telah melakukan sesembahan berupa sajen tersebut, mereka
berkeyakinan telah melaksanakan MHB dalam tataran jagad kecil yang diartikan untuk
menemukan keselamatan hidup. Keselamatan jagad kecil tidak terlepas dari adanya jagad
besar yang merupakan alam semesta (gumelaring urip), yang didalamnya terdapat kontelasi
kosmos, yaitu bapa aksasa dan ibu pertiwi. Keduanya merupakan suatu aktualisasi dari
konsep Kun Fayakun. Selanjutnya, dalam konteks kosmologi kejawen, kun fayakun diartikan
dimaknai sebagai sabda linuwih yang memancarkan manusia sperti anak panah yang lepas
dari busurnya, yang tidak jelas arahnya. Untuk itu, manusia yang selalu memelihara kosmos
yang akan paham “dunung” (sangkan paran), selanjutnya akan mengarahkan kepada konsep
MHB yang bersumber pada Tuhan. Dengan demikian, Dunung berarti jagad gedhe, yaitu:
kiblat papat lima pancer. Makna pancer itu sendiri mengandung pengertian untuk selalu
berusaha mencari arah kiblat, mulai dari wiwitan, yang merupakan sumber hidup (purwo).
diunduh dari:
10 | P a g e
www.multiparadigma.lecture.ub.ac.id
Bawana. Menurut kosmologi Jawa, Bawana adalah jagad ramai yang merupakan ladang
untuk menanamkan kebaikan, agar kelak akan memanen hasil. Jagad rame inilkah yang
merupakan realita hidup pribadi Jawa, dimana pada jagad tersebut ada suatu pertentangan
batin antara untung dan rugi. Untuk itu, pribadi jawa seringkali melakukan ngelmu titen dan
petung demi tercapinya kedamaian jagad rame.
Hayu. Arti harafiah hayu berarti cantik. Namun ternyata, tidak demikian makna ayu dalam
konteks ini, yang mungkin secara literlek ditafsirkan sebagai keindahan dunia. Namun,
pemaknaan Hayu dalam konteks ini jauh lebih dalam yaitu tentang keselamatan dan
kedamaian dunia manusia,
dunia kemanusiaan, bukan alam kodrati dalam konteks
lingkungan hidup.
HASIL DAN PEMBAHASAN
Evraert dan Riahi-Belkaoui (1988) berpendapat bahwa VAS merupakan suatu suplemen
laporan laba rugi yang dengan cukup mudah dihitung dengan menyusun kembali laporan
keuangan konvensional mengikuti pola yang ditetapkan. Statement tersebut mempunyai dapat
dimaknai bahwa VAS hanyalah berganti baju saja, namun tubuh mereka masih merupakan
tubuh Kapitalis. Selanjutnya, bagaimanakah kita memberikan suatu pencerahan pada
perusahaan agar tidak hanya berganti baju, namun juga isinya. Seperti yang diungkapkan di
atas. Semangat kapitalisme tidak sesuai dengan semangat adat ketimuran, khususnya Jawa.
Apabila kita telusur lebih lanjut, item pertama yang muncul dalam VAS adalah
inventori yang dinilai sebesar harga jualnya. Pada akuntansi konvensional, tentunya
Perusahaan berkehendak untuk memperoleh laba yang tinggi yang bisa menggunakan cara:
menurunkan biaya atau menaikkan penjualan dalam konteks ini adalah harga jual. Watak
keserakahan dalam kapitalisme tidak sesuai dengan kearifan MHB. Kearifan MHB
memberikan suatu tuntunan agar manusia jawa tidak bersikap menang sendiri. Untuk itu,
MHB berupaya menuntun manusia Jawa untuk menyikapi hidup secara mendalam dan penuh
laku untuk memangun kayenak tyasing sesama (Endraswara, 2013).
sesama
Kayenak Tyasing
merupakan suatu cara untuk meraih MHB, karena membunyai makna untuk
mendahulukan kebutuhan kolektif, dibandingkan kepentingan sendiri dengan tujuan
diunduh dari:
11 | P a g e
www.multiparadigma.lecture.ub.ac.id
terciptanya kesejahteraan umat. Selanjutnya apabila kita mencermati apakah selling price
yang menjadi item awal dalam penyajian VAS juga telah memangku MHB? Tentu tidak,
karena landasan penyajian masih sama berupa akuntansi konvensional. Lebih lanjut, ada
suatu ungkapan Jawa yang masih diuri-uri dalam lingkungan Jawa yaitu: tuna sathak bathi
sanak yang bermakna bahwa rugi materi tidak apa-apa, namun mendapatkan berkah
persaudaraan.
Ungkapan tersebut sebenarnya juga mengembang konsep MHB, karena
mengandung makna memayu yang artinya mengayomi.
Selanjutnya, harga jual menurut
MHB adalah harga jual yang beragam dengan menerapkan suatu sistem subsidi, sehingga
memungkinkan pihak lemah untuk bisa menikmati apa yang mereka butuhkan.
Selanjutnya, apakah format VAS yang memberikan suatu aliran pada berbagai pihak
di antaranya: buruh, pemerintah (pajak), pemilik dana, depresiasi, dan laba telah cukup
mewakili spirit MHB?
Menurut Maryono, menuangkan
MHB dari aspek lingkungan,
ekologi, dan sosial pada tujuh gatra berikut ini:
1. Hammamayu hayuning tirto (air) bermakna bahwa manusia Jawa seharusnya tetap
menjaga kelestarian air, karena air merupakan sumber kehidupan bagi manusia, karena
ketidakarifan dalam melestarikan air dapat membawa bencana.
2. Hamemayu hayuning wono (hutan) mempunyai makna bahwa manusia seharusnya juga
menjaga kelestarian Hutan, kartena Hutan adalah paru-paru dunia. Dimana tanpa
kehadiran Hutan, maka Ozon yang ada di atas kita akan semakin tipis
3. Hamemayu hayuning samodro (samudera) merupakan kearifan dalam menjaga samudra
dan isinya. Manusia tidak sepantasnya melakukan eksploitasi besar-besaran, serta tidak
selayaknya melakukan pengrusakan
4. Hammamayu hayuning howo (udara) mempunyai makna untuk memperbaiki kualitas
udara
5. Hammamayu hayuning bantolo (tanah) memberikan arti untuk mengatur pola eksploitasi
alam, serta menghindari dampak negatif akibat eksploitasi tersebut
6. Hammamayu hayuning budoyo mengandung arti tentang upaya untuk melestarikan suatu
kebudayaan yang kita miliki
7. Hamemayu hayuning manungsa (manusia) bermakna memanusiakan manusia
Dengan memperhatikan format VAS konvensional, penulis masih belum menemukan
berbagai
komponen di atas. Kenyataannya, perusahaan tidak bisa terlepas dari tujuah
diunduh dari:
12 | P a g e
www.multiparadigma.lecture.ub.ac.id
komponen di atas dalam melakukan kegiatan operasional mereka. Coba kita perhatikan,
perusahaan tidak bisa lepas dari ketujuh komponen di atas. Perusahaan, sebenarnya juga
mempunyai saudara yang seharusnya diperhatikan. Saudara perusahaan akan memberikan
suatu pertolongan pada saat ia dalam keadaan terjepit. Dengan memangku konsep MHB,
perusahaan juga sudah selayaknya memberikan suatu sesaji yang ikhlas demi tercapainya
suatu keharmonisan. Perusahaan tidak sepantasnya hanya mengunggulkan salah satu dari
aspek tanpa memperhatikan aspek yang lainnya. Setidaknya, konsep MHB memberikan
pandangan adanya tujuh saudara yang patut diperhatikan oleh perusahaan.
Gambar 1. Perusahaan dan Lingkungan
Apabila diperhatikan, kearifan MHB sudah memberikan wejangan pada manusia
untuk memberikan apa yang menjadi haknya dengan dasar aspek keadilan untuk mencapai
keseimbangan antara jagad besar dan jagad kecil yang kita miliki. Untuk itu, penyusunan
VAS versi MHB akan mengusulkan tujuh gatra agar dapat tercakup sebagai item yang
menerima suatu aliran dari perusahaan.
Gambar satu menunjukkan ketujuh dari gatra
tersebut membutuhkan perhatian perusahaan.
Lebih jauh, apabila kita perhatikan VAS konvensional, apakah kita melihat perusahaan
telah melakukan keadilan bagi
ketujuh saudara mereka?
VAS konvensional hanya
diunduh dari:
13 | P a g e
www.multiparadigma.lecture.ub.ac.id
mementingkan saudara yang lain yaitu pemilik modal, kreditor, pemerintah dan karyawan.
Namun, ketujuh saudara yang lain tidak diberikan sesaji yang ikhlas.
Dengan demikian,
VAS konvensional tidak adil dalam memberikan kontribusi. Untuk itu penulis berupaya
untuk merancang VAS yang memangku konsep Memayu, Hayuning Bawana.
Value Added Statement - MHB
Barang yang dihasilkan pada:
Harga Jual Normal
Selisih untuk tyasing sesama [(Harga jual normal- Harga tyasing sesama ) *Qn]
XXXXX
XXXXX
Less: Pembelian Barang dan jasa
Harga Normal
Selisih untuk tyasing sesama[(Harga beli normal- Harga tyasing sesama) *Qn]
XXXXX
XXXXX
Total Value Added oleh
Produksi [ (2) - (5) ]
Tyasing sesama [ (3) + (6) ]
Total Value Added
XXXXX
XXXXX
XXXXX
Source of Value Added
Gaji dan Upah
Pajak
Bunga
Depresiasi
Laba
Hammamayu hayuning tirto
Hamemayu hayuning wono
Hamemayu hayuning samodro
Hammamayu hayuning howo
Hammamayu hayuning bantolo
Hammamayu hayuning budoyo
Hamemayu hayuning manungsa
Karyenak Tyasing Sesama
Total Value Added
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
Pada bagan berikut ini Nampak bahwa value added disini mengusung nilai-nilai luhur
MHB. Pada VAS konvensional masih sangat mengentarakan adanya dominasi dari ide
kapitalisme, yaitu acquisition, competition dan rationality yang tidak merujuk pada “the
living person” (Chiapello, 2007). Kenyataannya, tidak semua orang berkemampuan seperti
yang diharapkan, normal, sehat, pintar, tampan/cantik, beruntung. Untuk itu, value added
statement yang memangku MHB juga mempedulikan si the sad majority. Pada VAS yang
memangku MHB menampakkan pada saat perusahaan melakukan penjualan, mereka juga
diunduh dari:
14 | P a g e
www.multiparadigma.lecture.ub.ac.id
harus mempedulikan pihak-pihak yang tidak berkemampuan membeli produk mereka dengan
harga yang normal. Untuk itu, VAS yang memangku MHB memunculkan selisih tyasing
sesame yang menunjukkan kepedulian perusahaan untuk membantu orang yang kurang
berkemampuan baik dalam bentuk pemberian keringanan dan membeli bahan baku dengan
harga yang lebih tinggi untuk kepentingan
memangun karyenak tyasing sesama. Akun
memangun karyenak tyasing sesame bertujuan untuk
mengenakkan hati sesame
(Endraswara, 2013), sehingga semua orang diharapkan akan meningkat penghidupannya baik
pemasok lemah yang diberi insentif lebih dari biasanya agar mereka bisa kuat; perusahaan;
dan customer lemah agar mampu membeli produk yang mereka butuhkan.
Lebih lanjut,
VAS yang memangku MHB juga memasukkan tujuh gatra lainnya
berupa kontribusi terhadap , agar dapat tercakup sebagai item yang menerima suatu aliran
dari perusahaan untuk hayuning tirto (air), hayuning wono, hayuning samodro, hayuning
howo (udara), hayuning bantolo (tanah), hayuning budoyo hayuning manungsa. Dengan
demikian, apabila semua perusahaan telah menerapakan dengan benar dan ikhlas VAS yang
memangku MHB, maka kerusakan bumi yang kita tinggali ini akan semakin bagus, selaras,
dan keseimbangan alam dan seisinya akan semakin terjaga.
KESIMPULAN
Kemampuan VAS konvensional merupakan suatu gebrakan dari Suojanen untuk
memberikan suatu informasi kepada berbagai pihak yang berkepentingan. Semangat VAS
konvensional telah cukup mewakili untuk budaya barat yang erat dengan
semangat
Kapitalisme. VAS konvensional dirasa belum menyentuh kearifan Jawa MHB. Untuk itu,
VAS konvensional perlu dibongkar agar menyentuh dan larut dalam konsep MHB.
DAFTAR RUJUKAN
Belkaoui, Ahmed Riahi. 1992. Third edition. Accounting Theory. USA, Texas: Academic
Press Limited, pp. 11-13.
Bailey, George D. 1986. “The increasing significance of the income statement,” Journal of
Accountancy (pre-1986); Jan 1948; 85, 000001: pp. 10-19
Capra, Fritjof. 2003. The Hidden Connections: A Science for Sustainable Living, London:
Flamingo.
Calne, Donald. 1991. Rationality and Human Behavior. New York: Vintage Book.
diunduh dari:
15 | P a g e
www.multiparadigma.lecture.ub.ac.id
Chiapello, Eve, 2007, “Accounting and the birth of the notion of capitalism,” Critical
Perspectives on Accounting 18 (2007): pp. 263–296.
Davison, Jane and Warren, Samantha. 2009, “Imag[in]ing accounting and accountability,”
Accounting, Auditing & Accountability Journal, Vol. 22 No. 6, 2009: pp. 845-857.
Endraswara, Suwardi. 2013. Memayu Hayuning Bawana: Laku Menuju Keselamatan dan
Kebahagiaan Orang Jawa. Yogyakarta: Narasi
Evraert, Serge;Riahi-Belkaoui, Ahmed, 1998. “Usefulness of value added reporting: A
review and synthesis of the literature,” Managerial Finance; 1998; 24, 11; ProQuest:
pp. 1-15.
Fukuyama, Francis. 1992. The end History and The Last Man. Penguin Book.
Funnell, Warwick, 2007, “Accounting and the Virtues of Anarchy,” The Australasian
Accounting Business & Finance Journal, February 2007:. Vol. 1, No.1.pp.18-27
Hood, John. 2000.”Capitalism and the zero,” Ideas on Liberty; Dec 2000; 50, 12; ProQuest
Research Library: pg. 23-27
Huntington, Samuel P. 1996. The Clash of Civilizations and the Remaking of World Order.
Penerjemah: M. Sadat Ismail. Yogyakarta: Penerbit Qalam.
Iyer, Lars. 2004. "Capitalism and Religion," Journal for Cultural and Religious Theory,"
Vol.
5,
No.
2:
pp.
115-122.
Tersedia
pada
laman:
http://www.jcrt.org/archives/05.2/iyer.pdf
Kartika, Dharsono Sony. 2007. Estetika. Bandung: Rekayasa Sains bandung.
Kam, Vernon. 1986. Accounting Theory, Second Edition. Canada: John Wiley &
Sons, Inc.
Kato, Hisanori 2012 “Local Civilization and Political Decency: Equilibrium and the Position
of the Sultanate in Java,” Comparative Civilizations Review, Number 66, Spring 2012,
hh. 45-57
Key, W.B. 1973. Subliminal Seduction. New York: Signet
Oehr, Tim-Frederik dan Zimmermann, Jochen. 2012. “Accounting and the welfare state: The
missing link,” Critical Perspectives on Accounting 23 (2012) :pp. 134– 152.
Patria, Nezar dan Arief, Andi. 2009. Negara dan Hegemoni. Yogyakarta: Pustaka pelajar.
diunduh dari:
16 | P a g e
www.multiparadigma.lecture.ub.ac.id
Maryono, Agus. Diakses pada tanggal 15 Mei 2013, pukul 2.55. Laman bisa diakses pada
alamat:
http://greatthinkers.pasca.ugm.ac.id/download/1304011950-
Hammamayu%20Hayuning%20Bawono-demokrasi%20air.pdf
McCall, Sam M, and Klay, William Earle. 2009, “Accountability Has Always Been the
Cornerstone of Accounting,” The Journal of Government Financial Management; Fall
2009; 58, 3; pp. 52-58
Sukoharsono, Eko Ganis. 2008. “Religion, Spirituality, and Philosophy: How Do They Work
For An Accounting World?” This Paper is presented at the 3rd Postgraduate
Consortium in Accounting: Socio-Spiritual Accounting, September 2008, The
Department of Accounting, The University of Brawijaya
Zou, Heng-fu, 1995, “The spirit of capitalism and savings behavior.” Journal of Economic
Behavior
and
Organization:
Vol.
28:
pp.
131-143.
diunduh dari:
17 | P a g e
www.multiparadigma.lecture.ub.ac.id
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Pengaruh Penilaian Tingkat Kesehatan Bank dengan RGEC terhadap Harga Saham
(Sally Halawa, Djoko Sigit Sayogo, Eny Suprapti)
Universitas Muhammadiyah Malang
Abstract: The aim of this research is analyzing the influence between the risk base bank
rating and RGEC measurements those are risk profile, good corporate governance, earning
which had been done by proxy with ROA, and capital which had been done by proxy with
CAR towards the stock prices which is measured with closing stock prices’ average in each
month.
The collected data were gathered from 21 banking companies which are listed in BEI.
The analysis method used in this research is double linear regression and robust regression,
using stata 10.0 as the analysis tool.
The result of this research shows that simultaneously, risk profile, GCG, ROA, and CAR
are influential towards the stock prices with determination coefficient 63.71%. Partially, the
stock prices is influenced positively by risk profile and ROA, negatively influenced by GCG
and CAR.
Keywords: Bank, RGEC, Stock Prices, Risk Profile, Good Corporate Governance,
ROA, CAR, Stata.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
A. Latar Belakang
Investasi merupakan salah satu usaha yang
dilakukan untuk meningkatkan nilai
kekayaan, Fahmi (2011) mengungkapkan, investasi dapat didefinisikan sebagai bentuk
pengelolaan dana guna memberikan keuntungan dengan cara menempatkan dana tersebut
pada alokasi yang diperkirakan akan memberikan tambahan keuntungan. Secara garis besar
alokasi dana tersebut dapat dilakukan di dua sektor yaitu investasi pada financial assets dan
investasi pada real assets. Menurut Halim (2002) investasi pada financial assets dilakukan
dipasar uang, misalnya berupa sertifikat deposito, commercial paper surat berharga pasar
uang, dan lainnya. Atau dilakukan dipasar modal, misalnya berupa saham, obligasi, waran,
opsi dan lainnya. Sedangkan investasi pada real assets diujudkan dalam bentuk pembelian
asset produktif, pendirian pabrik, pembukaan pertambangan, pembukaan perkebunan dan
lainnya.
Pasar modal merupakan wadah investasi pada financial assets, salah satu produk pasar
modal yang diminati oleh investor adalah saham. Penelitian Siegel (dalam Tandelilin, 2001),
menemukan bahwa periode 1802-1990, return saham jauh melebihi return obligasi.
Kelebihan return saham atas return obligasi disebut sebagai equity premium. Salah satu
faktor yang menyebabkan terjadinya fenomena equity premium adalah adanya fakta bahwa
risiko saham lebih tinggi dari risiko obligasi. Selain itu, Darmadji dan Hendy (2001) juga
mengungkapkan bahwa saham dikenal dengan karakteristik high risk, high return. Artinya
saham merupakan surat berharga yang memberikan peluang keuntungan tinggi namun juga
berpotensi risiko tinggi. Risiko dapat terjadi karena harga saham yang berfluktuasi. Seiring
dengan berfluktuasinya harga saham, maka saham juga dapat membuat pemodal mengalami
kerugian besar dalam waktu singkat.
Fluktuasi terjadi karena supply dan demand yang dilakukan oleh investor. Darmadji dan
Hendy (2001) mengungkapkan, supply dan demand terjadi karena berbagai faktor, baik yang
sifatnya spesifik atas saham (kinerja perusahaan dan industri dimana perusahaan tersebut
bergerak), maupun faktor yang sifatnya makro seperti kondisi ekonomi negara, kondisi
sosial-politik, maupun rumor-rumor yang berkembang. Karena berbagai faktor tersebut,
investor dihadapi pada berbagai risiko yang mungkin akan timbul ketika berivestasi pada
saham. Risiko dijelaskan oleh Darmadji dan Hendy (2006) diantaranya; tidak mendapat
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
dividen, capital loss, perusahaan bangkrut atau dilikuidasi, saham dikeluarkan dari bursa, dan
saham dihentikan sementara. Sehingga untuk menghindari kerugian yang terjadi, dibutuhkan
penilaian yang tepat untuk memperkecil risiko investasi saham.
Di dunia perbankan, penilaian terhadap risiko telah diatur oleh Bank Indonesia dalam
PBI No.13/1/2011 tentang Penilaian Tingkat Kesehatan Bank Umum dengan menggunakan
pendekatan Risiko (Risk-based Bank Rating/RBBR) baik secara individual maupun secara
konsolidasi. Penilaian Tingkat Kesehatan Bank secara individual mencakup penilaian
terhadap faktor-faktor berikut: risk profile, GCG, earning, dan capital yang disingkat menjadi
RGEC. Peraturan ini menggantikan peraturan penilaian tingkat kesehatan bank sebelumnya
yang berlaku sejak 2004 dalam Peraturan Bank Indonesia No.6/10/PBI/2004 tentang Sistem
Penilaian Tingkat Kesehatan Bank Umum dengan menggunakan penilaian CAMELS.
Dengan adanya self assessment ini, bank dengan peringkat yang baik dapat memberikan
sinyal (good news) kepada investor bahwa bank memiliki kinerja yang baik.
Kinerja merupakan salah satu faktor fundamental yang diidentifikasikan dapat
mempengaruhi harga saham (Fauzi dalam Wulandari et al, 2013), analisis fundamental ialah
pendekatan yang didasarkan pada informasi-informasi yang diterbitkan oleh emiten maupun
oleh administrator bursa efek (Halim, 2003), dengan demikian, informasi penilaian atas
kesehatan bank tersebut dapat memberi sinyal dalam analisis fundamental yang dilakukan
oleh investor, sehingga memicu terjadinya supply dan demand dan mempengaruhi harga
saham perbankan. Dengan penilaian kinerja bank berdasarkan Risk-based Bank Rating/RBBR
harapannya dapat mempermudah penilaian oleh investor mengurangi ketidakpastian dan
memperkecil risiko sehingga menarik minat investor terhadap saham perbankan.
Salah satu penilaian tersebut adalah risk profile, risk profile perlu dipertimbangkan oleh
investor, karena dampak terjadinya risiko kerugian keuangan langsung, kerugian akibat risiko
(risk loss) pada suatu bank dapat berdampak pada pemangku kepentingan (stakeholder) bank,
yaitu pemegang saham, karyawan dan nasabah serta berdampak juga kepada perekonomian
secara umum (Idroes, 2011). Oleh karena itu, penilaian risiko didalam perbankan menjadi hal
yang perlu untuk diperhatikan. Penilaian risiko juga perlu didukung dengan pratik tata kelola
yang baik. Karena Corporate Governancemerupakan konsep yang diajukan guna peningkatan
kinerja perusahaan melalui supervisi atau monitoring kinerja manajemen serta menjamin
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
akuntabilitas manajemen terhadap stakeholder dengan mendasarkan pada kerangka peraturan
(Nasution dalam Tjondro, 2011). Peningkatan kinerja dapat meningkatkan harga saham,
Halim (2002) menyatakan bahwa harga saham dipengaruhi oleh kinerja perusahaan. Kinerja
perusahaan dapat dinilai dengan analisis fundamental yang dilakukan oleh investor, sehingga
penilaian GCG dapat mempengaruhi harga saham.
Kinerja perusahaan dapat dilihat pada earning atau rentabilitas,yang merupakan faktor
penting bagi investor untuk menentukan tingkat pengembalian yang akan diperoleh dimasa
yang akan datang. Seperti yang dijelaskan oleh Tandelilin (2001) dari sudut pandang
investor, salah satu indikator penting untuk menilai prospek perusahaan dimasa mendatang
adalah dengan melihat sejauh mana pertumbuhan profitabilitas perusahaan. Indikator ini
sangat penting diperhatikan untuk mengatahui sejauh mana investasi yang akan dilakukan
dilakukan investor pada suatu perusahaan mampu memberikan return yang sesuai dengan
tingkat yang disyaratkan investor.
Selain itu, bank juga harus dapat menjaga keberlangsungan operasionalnya dengan
modal yang cukup. Capital atau modal berperan dalam mengantisipasi kemungkinan risiko
yang akan timbul, Taswan (2006) mengungkapkan, salah satu fungsi modal adalah
melindungi deposan dengan menangkal semua kerugian usaha perbankan sebagai akibat salah
satu atau kombinasi risiko usaha perbankan. Dengan modal yang memadai untuk
mengantisipasi terjadinya risiko, dapat memberikan kepercayaan kepada investor akan
kelangsungan oparasional perbankan, sehingga dapat mempengaruhi keputusan investasi.
Berdasarkan kebutuhan
investor akan informasi
kinerja perusahaan sebelum
berinvestasi, hal tersebut telah didukung oleh Bank Indonesia dengan dikeluarkannya
Peraturan Bank Indonesia No.13/1/PBI/2011 tentang penilaian tingkat kesehatan bank dengan
menggunakan indikator RGEC, sehingga penilaian dengan indikator RGEC tersebut dapat
menjadi indikator dalam berinvetasi pada saham, dan kemungkinan mempengaruhi harga
saham perbankan. Berdasarkan penjabaran diatas penulis tertarik untuk meneliti tentang
“Pengaruh Penilaian Tingkat Kesehatan Bank dengan RGEC terhadap Harga Saham”.
B. Landasan Teori dan Hipotesis
1.
Landasan Teori
a.
Teori Sinyal
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Menurut Spence (dalam Conelly et al, 2011) signaling theory is fundamentally
concerned with reducing information asymmetry between two parties (Spence,
2002). Hal tersebut dikarenakan different people know different things (Stiglitz
dalam Conelly et al, 2011). Menurut Conelly et al (2011) signaling theory is useful
for describing behavior when two parties (individuals or organizations) have access
to different information. Typically, one party, the sender, must choose whether and
how to communicate (or signal) that information, and the other party, the receiver,
must choose how to interpret the signal.
Setyawan (2012) mengungkapkan bahwa teori sinyal menggambarkan
bagaimana seharusnya sebuah perusahaan memberikan sinyal kepada pengguna
laporan keuangan. Perusahaan yang baik akan memberi sinyal yang jelas dan sangat
bermanfaat untuk keputusan investasi, kredit dan keputusan sejenis. Sinyal yang
diberikan dapat berupa good news maupun bad news. Sinyal baik dapat berupa
kinerja perusahaan perbankan yang mengalami peningkatan dari tahun ke tahun,
sedangkan yang kurang baik dapat berupa penurunan kinerja. Teori sinyal bertujuan
untuk mengurangi adanya asimetri informasi yang terjadi antara pihak-pihak yang
berkepentingan, seihngga sinyal yang diberikan oleh perusahaan berupa good news
ataupun bad news dapat membantu pengambilan keputusan investasi.
b.
Efficient Market Hypotesis
Fama (dalam Hartono, 2008) menyajikan tiga bentuk utama dari efesiensi pasar
berdasarkan ketiga macam bentuk informasi, yaitu:
1)
Efisiensi pasar bentuk lemah (weak form).
Pasar dikatakan efisien dalam bentuk lemah jika harga-harga dari sekuritas
tercermin secara penuh (fully reflect) informasi masa lalu. Informasi masa lalu
ini merupakan informasi yang sudah terjadi. Bentuk efisiensi pasar lemah ini
berkaitan dengan teori langkah acak (random walk theory) yang menyatakan
bahwa data masa lalu tidak berhubungan dengan nilai sekarang. Jika pasar
efisien bentuk lemah, maka nilai-nilai masa lalu tidak dapat digunakan untuk
memprediksi harga sekarang. Ini berarti bahwa untuk pasar yang efisien bentuk
lemah, investor tidak dapat menggunakan informasi masa lalu untuk
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
mendapatkan keuntungan yang tidak normal.
2)
Efisiensi pasar bentuk setengah kuat (semistrong form).
Pasar dikatakan efisien setengah kuat jika harga-harga sekuritas secara
penuh mencerminkan (fully effect) semua informasi yang dipublikasikan (all
publicly available information) termasuk informasi yang berada di laporanlaporan keuangan perusahaan emiten.
3)
Efisiensi pasar bentuk kuat (strong form).
Pasar dikatakan efisien dalam bentuk kuat jika harga-harga sekuritas secara
penuh mencerminkan (fully reflect) semua informasi yang tersedia termasuk
informasi yang privat. Jika pasar efisien dalam bentuk ini, maka tidak ada
individual investor atau grup dari investor yang dapat memperoleh keuntungan
tidak normal (abnormal return) karena mempunyai informasi privat.
2.
Hipotesis
a.
Pengaruh Risk Profile terhadap Harga Saham
Menurut Tandelilin (2001) investor adalah makhluk yang rasional. Investor
yang rasional tentunya tidak akan menyukai ketidakpastian atau risiko. Investor
yang mempunyai sikap enggan terhadap risiko seperti ini disebut sebagai riskaverse investors. Menurut Taswan (2006) yang membedakan risiko dan
ketidakpastian sebenarnya terletak pada tersedianya informasi, sehingga informasi
risiko sangat penting untuk diketahui oleh pemegang saham.
Peraturan Bank Indonesia No.13/1/PBI/2011, mewajibkan bank memberikan
informasi tentang profil risiko dengan skala peringkat yang terdiri dari; risiko
peringkat 1 (sangat rendah), peringkat 2 (rendah), peringkat 3 (cukup tinggi),
peringkat 4 (tinggi), dan peringkat 5 (sangat tinggi), yang berdasarkan penilaian
terhadap risiko inheren dan kualitas penerapan manajemen risiko dalam operasional
Bank terhadap 8 (delapan) jenis risiko yaitu; risiko kredit; risiko pasar; risiko
likuiditas; risiko operasional;risiko hukum; risiko stratejik; risiko kepatuhan; dan
risiko reputasi. Semakin rendah peringkat risiko menunjukkan baiknya kemampuan
bank mengelola risiko, dengan begitu peringkat risiko yang rendah akan
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
meningkatkan harga saham, sehingga informasi peringkat risiko tersebut dapat
dijadikan sinyal oleh investor sebelum melakukan keputusan investasi. Bedasarkan
uraian tersebut dapat dirumuskan hipotesis yaitu:
H1: Risk Profile Berpengaruh Negatif Terhadap Harga Saham
b.
Pengaruh Good Corporate Governance terhadap Harga Saham
Tata kelola yang efektif mendorong bank untuk beroperasi dengan cara yang
aman dan sehat serta menggunakan sumber daya yang lebih efisien. Tata kelola
yang buruk dapat meningkatkan kemungkinan kegagalan sebuah bank (Greuning
dan Sonja, 2009). Praktik tata kelola yang efektif merupakan salah satu prasyarat
utama untuk meraih dan menjaga kepercayaan publik. Tata kelola perusahaan yang
baik telah terbukti meningkatkan kinerja operasional dan mengurangi risiko
penularan kesulitan keuangan. Selain mengurangi risiko tekanan internal, secara
positif memengaruhi persepsi investor terhadap risiko dan kesiapan mereka untuk
memberikan pendanaan (Greuning dan Sonja, 2009).
Tata Kelola perbankan tercermin dalam peringkat penilaian tata kelola yang
diterbitkan bank dalam laporan tata kelola perusahaan yang terdiri dari 5 peringkat
yaitu; GCG peringkat 1 (sangat baik), peringkat 2 (baik), peringkat 3 (cukup baik),
peringkat 4 (kurang baik), dan peringkat 5 (tidak baik), sesuai dengan ketentuan
Bank Indonesia yang mana mewajibkan bank untuk melakukan penilaian atas
peringkat GCG pada peraturan No.13/1/PBI/2011. Semakin rendah peringkat GCG
mencerminkan semakin baik praktik tata kelola yang diterapkan oleh bank, kondisi
ini dapat meningkatkan harga saham. Sehingga informasi penilaian GCG tersebut
dapat dijadikan sinyal bagi investor dalam menilai tata kelola perbankan sebagai
pertimbangan dalam analisis fundamental sebelum mengambil keputusan investasi.
Bedasarkan uraian tersebut dapat dirumuskan hipotesis yaitu:
H2: Peringkat Good Corporate Governance berpengaruh negatif terhadap
harga saham
c.
Pengaruh Earning terhadap Harga Saham
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Menurut Greuning dan Sonja (2009) profitabilitas adalah indikator pengungkap
posisi kompetitif sebuah bank di pasar perbankan dan kualitas manajemennya. Uji
profitabilitas
memfokuskan
pada
pengukuran
kecukupan
laba
dengan
membandingkan laba dengan item lain (Libby 2008). Analis harus memperkirakan
kemampuan perusahaan memperoleh laba. Perusahaan hanya bisa membagikan
dividen besar kalau perusahaan mampu menghasilkan laba besar (Husnan, 2003).
ROA merupakan alat uji profitabilitas dengan membandingkan laba terhadap aset,
banyak analis menganggap rasio pengembalian atas aset merupakan alat yang paling
baik dalam mengukur kemampuan manajemen menggunakan aset secara efektif
(Libby 2008). Sehingga semakin besar ROA menunjukkan semakin baik
kemampuan bank dalam mengelola aset dalam menghasilkan laba, yang kemudian
akan meningkatkan harga saham perbankan karena informasi laba tersebut erat
kaitannya dengan perolehan dividen yang akan diterima oleh investor. Bedasarkan
uraian tersebut dapat dirumuskan hipotesis yaitu:
H3: ROA berpengaruh positif terhadap harga saham
d.
Pengaruh Capital terhadap Harga Saham
Salah satu fungsi modal adalah melindungi deposan dengan menangkal semua
kerugian usaha perbankan sebagai akibat salah satu atau kombinasi risiko usaha
perbankan. Berdasarkan hal tersebut bank harus dapat bekerja pada tingkat efisiensi
yang tinggi dan selalu berusaha menekan risiko, dan juga bank harus memiliki
modal yang cukup dan sehat sebagai penggerak operasi bank (Taswan, 2006).
Dengan modal yang cukup, bank dapat memberi kepercayaan kepada stakeholder
akan kelangsungan operasionalnya. Menurut Siamat (1993), unsur kepercayaan ini
diperlukan pula oleh pemilik saham bank dalam hal pengelolaan bank karena
menyangkut kepentingan nilai atau harga saham bank yang dimilikinya. Karena itu
tingkat kepercayaan ini sangat mempengaruhi harga saham bank yang bersangkutan
disamping akan mempengaruhi kemampuan memperoleh tambahan modal baru.
Sesuai dengan Surat Edaran Bank Indonesia No.13/24/DPNP Lampiran 2, rasio
yang dapat digunakan untuk mengukur kecukupan modal terhadap risiko ialah CAR
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
(Capital Adequacy Ratio) dengan membagi modal dengan aset tertimbang menurut
risiko. Kecukupan modal bank dapat menjamin keberlangsungan operasionalnya
yang kemudian akan membentuk kepercayaan bagi investor bahwa bank telah
mampu
mengantisipasi
kemungkinan
risiko
yang
akan
timbul
sehingga
meningkatkan harga saham, seperti yang diungkapkan Purwasih (2010) CAR tinggi
berarti bank tersebut semakin solvable, bank memiliki modal yang cukup guna
menjalankan usahanya sehingga akan meningkatkan keuntungan yang diperoleh
sehingga akan terjadi kenaikan pada harga saham. Bedasarkan uraian tersebut dapat
dirumuskan hipotesis yaitu:
H4: CAR berpengaruh positif terhadap harga saham
C. Metode Penelitian
1. Data dan Seleksi Sampel
Penelitian ini menggunakan data sekunder berupa annual report dan laporan GCG
yang diperoleh dari Indonesian Stock Exchange (IDX) ataupun website masingmasing perbankan. Populasi pada penelitian ini adalah seluruh perbankan yang
terdaftar di Bursa Efek Indonesia yang diseleksi menggunakan teknik purposive
sampling dengan kriteria yaitu; (1) menerbitkan laporan keuangan pada tahun 2012
dan 2013, (2) melakukan pemeringkatan atas risk profile dan GCG pada tahun 2012
dan 2013, (3) harga saham tersedia pada tahun 2012 dan 2013. Total sampel pada
penelitian ini adalah 21 perusahaan perbankan menggunakan data panel dengan dua
tahun pengamatan sehingga total sampel adalah 42 perusahaan perbankan.
2. Model Penelitian
Pengujian hipotesis yang digunakan pada penelitian ini adalah analisis regresi
berganda menggunakan regresi robust untuk mengantisipasi adanya heteroskedastisitas
dan menambah variabel dummy untuk mengeluarkan pengaruh waktu yang digunakan
untuk mengetahui hubungan dan arah hubungan antara variabel dependen yaitu harga
saham dengan variabel independen yang terdiri dari risk profile, GCG, ROA dan CAR
dari perusahaan perbankan. Model persamaan regresi yang digunakan adalah sebagai
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
berikut:
Harga Saham = Y = α + β1 X1 + β2 X2 + β3 X3 + β4 X4 + ɣ2013 + ε
dimana:
Y
: Harga Saham
α
: Konstanta
β1
: Koefesien Regresi Risk Profile
β2
: Koefesien Regresi Good Corporate Governance
β3
: Koefesien Regresi ROA
β4
: Koefesien Regresi CAR
X1
: Risk Profile
X2
: Good Corporate Governance
X3
: ROA
X4
: CAR
ɣ2013
:
ε
: Faktor Pengganggu
Variabel Tahun
3. Definisi Operasional dan Pengukuran
a.
Harga Saham
Harga pasar saham merupakan harga pada pasar riil, dan merupakan harga yang
paling mudah ditentukan karena merupakan harga dari sesuatu saham pada pasar
yang sedang berlangsung atau jika pasar ditutup, maka harga pasar adalah harga
penutupannya (Anoraga dan Piji, 2003). Harga penutupan yang digunakan pada
penelitian ini adalah rata-rata harga penutupan Bulan Januari hingga Desember pada
tahun 2012 sampai dengan 2014.
Rata − rata HS =
HS Close (Januari + Februari + ⋯ + Desember)
12
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
b.
Risk Profile (X1)
Risk profile merupakan penilaian atas Risiko yang melekat pada kegiatan bisnis
Bank, baik yang dapat dikuantifikasikan maupun yang tidak, yang berpotensi
mempengaruhi posisi keuangan Bank (Surat Edaran Bank Umum Konvensional
No.13/24/DPNP). Pengukuran risk profile yang digunakan dalam penelitian ini
adalah fasilatas self assessment penilaian risiko berdasarkan matrik penetapan tingkat
risiko yang telah ditetapkan oleh Bank Indonesia, hasil penilaian tersebut berupa
peringkat sebagai berikut:
Tabel 1
Peringkat Risiko
Peringkat
1
2
3
4
5
c.
Nilai Risiko
Sangat Rendah
Rendah
Cukup Tinggi
Tinggi
Sangat Tinggi
Good Corporate Governance (X2)
Penilaian faktor GCG merupakan penilaian terhadap kualitas manajemen Bank
atas pelaksanaan prinsip-prinsip GCG (Surat Edaran Bank Umum Konvensional
No.13/24/DPNP). Pengukuran GCG pada penelitian ini adalah hasil self assessment
GCG yang dilakukan perbankan, dimana hasil tersebut berupa peringkat sebagai
berikut:
Tabel2
Peringkat Good Corporate Governance
Peringkat
1
2
3
4
5
Nilai GCG
Sangat Baik
Baik
Cukup Baik
Kurang Baik
Tidak Baik
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
d.
Earning (X3)
Penilaian faktor Rentabilitas meliputi evaluasi terhadap kinerja Rentabilitas,
sumber-sumber Rentabilitas, kesinambungan (sustainability) Rentabilitas, dan
manajemen Rentabilitas (Surat Edaran Bank Umum Konvensional No.13/24/DPNP).
Pengukuran atas variabel earning atau rentabilitas sesuai dengan matriks
parameter/indikator penialaian faktor retabilitas dengan indikator kinerja bank dalam
menghasilkan laba adalah Return On Asset (ROA) (Surat Edaran Bank Indonesia
No.13/24/DPNP, lampiran II) dengan persamaan sebagai berikut:
ROA =
e.
Laba sebelum pajak
x 100%
Rata − rata total aset
Capital (X4)
Penilaian atas faktor Permodalan meliputi evaluasi terhadap kecukupan
Permodalan dan kecukupan pengelolaan Permodalan (Surat Edaran Bank Umum
Konvensional No.13/24/DPNP). Pengukuran atas variabel capital atau pemodalan
sesuai dengan matriks parameter/indikator penialaian faktor pemodalan dengan
indikator kecukupan modal bank adalah Capital Adequacy Ratio (CAR) (Surat
Edaran Bank Indonesia No.13/24/DPNP, lampiran II) dengan persamaan sebagai
berikut:
CAR =
Total modal
x 100%
Aktiva tertimbang menurut risiko (ATMR)
D. Hasil
1.
Statistik Deskriptif
Berdasarkan statistik deskriptif dengan dua tahun pengamatan pada Tabel 3, rata-
rata harga saham penutupan adalah Rp 1986.653, dan standar deviasi yang lebih besar
dari rata-rata yaitu Rp 2999.769, dengan harga saham penutupan terendah yaitu 84.42
dan tertinggi 11556.25. Rata-rata risk profile perbankan berada pada peringkat 2 (risiko
rendah), dan peringkat terendah perbankan yaitu peringkat 1 (risiko sangat rendah) dan
peringkat tertinggi pada peringkat 3 (risiko cukup tinggi).
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Tabel 3
Statistik Deskriptif
Variabel
Harga Saham
Risk Profile
GCG
ROA
CAR
Obs
42
42
42
42
42
Mean
Std. Des
1986.653 2999.769
1.97619 0.4124936
1.904762 0.6555401
2.380714 0.9621328
16.95762 2.983202
Min
84.42
1
1
0.98
11.43
Max
11556.25
3
4
5.15
26.56
Rata-rata GCG perbankan berada pada peringkat 2 menggambarkan penerapan
GCG yang baik, peringkat terendah yaitu 1 menggambarkan penerapan GCG yang
sangat baik, dan peringkat tertinggi yaitu peringkat 4 yang mengambarkan penerapan
GCG yang kurang baik. Rata-rata ROA pada sampel perbankan adalah 23.81% dengan
standar deviasi 9.62%, dan ROA terendah adalah 98% dan ROA tertinggi adalah 515%.
Variabel CAR menunjukkan rata-rata yaitu 196.58% dengan standar deviasi 298.32, dan
nilai terendah adalah 11.43 dan tertinggi 26.56, dimana seluruh perbankan telah
memenuhi standar CAR yang ditetapkan Bank Indonesia sebesar 8%.
2.
Hasil Regresi Linear Berganda
Pengujian dilakukan dengan regresi linear berganda dengan regresi robust
menggunakan alat analisis yaitu Stata. Hasil penelitian pada Tabel 4 menunjukkan nilai
R Square sebesar 0,6371 atau 63.71% yang berarti kemampuan model menerangkan
variabel independen terhadap variabel dependen sebesar 63.71% sedangkan sisanya
sebesar 36.29% dipengaruhi oleh variabel lain.
Berdasarkan Uji F menunjukkan nilai Prob F sebesar 0.000, lebih kecil dari
signifikansi 5%, sehingga diketahui secara simultan Risk Profile, GCG, Earning dan
Capital secara simultan mempengaruhi Harga Saham, maka dapat disimpulkan bahwa
kesehatan bank dengan RGEC telah memberikan sinyal kepada investor dan menjadi
pertimbangan dalam analisis fundamental yang dilakukan investor dalam melakukan
keputusan membeli, menjual atau mempertahankan saham yang dimilikinya.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Persamaan Regresi:
Harga Saham = 1149.177 + 1384.436 Risk – 1348.146 GCG + 2104.698
ROA – 262.918 CAR + 234.485 th2013 + ε
Variabel
(HS)
_cons
Risk
GCG
ROA
CAR
F (5, 36)
Prob F
R Square
Keterangan
HS
Risk
GCG
ROA
CAR
a.
Koef
1149.177
1384.436
-1348.146
2104.698
-262.198
Robuts
Std. Err
1697.358
657.0689
658.1763
318.4337
93.02541
t
Sig
2.11
-2.05
6.61
-2.83
0.042
0.048
0.000
0.008
9.50
0.0000
0.6371
Rata-rata harga saham penutupan
Peringkat risk profile
Peringkat good corporate governace
Return on asset (laba sebelum pajak / rata-rata total aset)
Capital adequacy ratio (total modal / ATMR)
Pengaruh risk profile terhadap harga saham
Hasil uji parsial harga saham terhadap risk profile yang diukur dengan
peringkat risiko menunjukkan signifikansi sebesar 0.042 lebih kecil dari 0.05
dengan koefesien regresi positif Rp 1384.436, maka dapat disimpulkan bahwa Risk
Profile berpengaruh positif terhadap harga saham, sehingga H1 ditolak, pengaruh
ini menunjukkan hubungan yang searah, apabila peringkat risiko perbankan
semakin tinggi, atau semakin mengarah ke angka 5, maka harga saham meningkat.
Halim (2003) menyebutkan bahwa umumnya hubungan risk dan return bersifat
linear, artinya semakin besar rate of risk maka semakin besar pula expected rate of
return. Apabila dikaitkan dengan preferensi investor terhadap risiko, maka hasil
penelitian menunjukkan bahwa investor lebih menyukai risiko (risk seeker). Hal
tersebut dikarenakan apabila bank memperoleh peringkat dibawah rata-rata
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
perbankan, maka bank tersebut cendrung akan meningkatkan kinerjanya pada tahun
berikutnya. Sehingga pengaruh ini telah menunjukkan bahwa informasi peringkat
risiko yang dipublikasikan bank telah dapat memberi sinyal kepada investor.
b.
Pengaruh GCG terhadap harga saham
Variabel GCG yang diukur dengan skala peringkat GCG menunjukkan
signifikansi 0.048 lebih kecil dari signifikansi yang ditentukan, yaitu 0.05 dengan
koefesien
regresi
yaitu
-1.348.146,sehingga
H2
diterima,
pengaruh
ini
menunjukkan hubungan yang berlawanan arah, dimana bila peringkat GCG semakin
rendah, maka harga saham semakin tinggi, hal ini dikarena kriteria peringkat GCG
yang semakin rendah atau semakin mengarah ke angka 1, mengisyaratkan semakin
baiknya penerapan praktik GCG oleh bank, semakin baiknya penerapan GCG pada
bank akan meningkatkan kepercayaan investor terhadap saham perbankan. Hasil
penelitian ini sesuai dengan pernyataan Greuning dan Sonja (2009) dimana tata
kelola perusahaan yang baik telah terbukti meningkatkan kinerja operasional dan
mengurangi risiko penularan kesulitan keuangan. Selain mengurangi risiko tekanan
internal, secara positif memengaruhi persepsi investor terhadap risiko dan kesiapan
mereka untuk memberikan pendanaan. Sehingga dapat disimpulkan bahwa penilaian
peringkat GCG telah dapat memberikan sinyal kepada investor.
c.
Pengaruh ROA terhadap harga saham
Variabel Earning yang diproksikan dengan ROA, berdasarkan tabel 4
menunjukkan signifikansi 0.000, lebih kecil dari signifikansi yang ditentukan, yaitu
0.05 dengan koefesien regresi 2104.698, sehingga H3 diterima, pengaruh ini
menunjukkan bahwa hubungan searah, dimana apabila ROA mengalami
peningkatan
maka
harga
saham
akan
meningkat.
Kemampuan
dalam
memaksimalkan laba bank tentu akan mempengaruhi besarnya keuntungan yang
diperoleh oleh investor melalui deviden yang dibagikan oleh perusahaan, sehingga
informasi rentabilitas ini mampu mempengaruhi pergerakan harga saham. Seperti
yang diungkapkan oleh Husnan (2003) apabila kemampuan perusahaan untuk
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
menghasilkan laba meningkat, maka harga saham akan meningkat, hal ini sejalan
dengan penelitian yang dilakukan oleh Ramdiani dan I Ketut (2013) yang
menunjukkan bahwa ROA berpengaruh positif terhadap harga saham, ROA yang
tinggi
menunjukkan
bahwa
perusahaan
mampu
memperoleh
laba
dan
mengendalikan seluruh biaya-biaya operasional dan non-operasional sehingga
berpengaruh pada peningkatan harga saham perusahaan. Sehingga dapat
disimpulkan bahwa informasi ROA dapat memberikan sinyal kepada
d.
Pengaruh CAR terhadap harga saham
Variabel Capital yang diproksikan dengan CAR, berdasarkan tabel 4
menunjukkan signifikansi sebesar 0.008 lebih kecil dari signifikansi yang
ditentukan yaitu 0.05 dan koefesien regresi yaitu -262.918, sehingga H4: ditolak,
pengaruh ini menunjukkan bahwa terdapat hubungan yang berlawanan arah, apabila
CAR mengalami peningkatan, maka harga saham akan menurun, hasil ini tidak
sesuai dengan yang diungkapkan Purwasih (2010), CAR tinggi berarti bank tersebut
semakin solvable, bank memiliki modal yang cukup guna menjalankan usahanya
sehingga akan meningkatkan keuntungan yang diperoleh, dengan demikian akan
terjadi kenaikan harga saham, hal ini dikarenakan Bank Indonesia telah
mensyaratkan CAR minimal yaitu 8%, berdasarkan statistik deskriptif nilai CAR
dari seluruh sampel adalah 11.43% diatas CAR minimal yang disyaratkan BI. Hal
ini menunjukkan bahwa perbankan mampu menutupi kemungkinan kerugian yang
timbul dari aset, meskipun demikian CAR yang terlalu tinggi menunjukkan terlalu
banyak modal yang disediakan oleh bank, sehingga tingginya CAR direspon negatif
oleh investor. Senada dengan penelitian Takarini dan Ukki (2013) yang berpendapat
bahwa perusahaan perbankan yang memiliki CAR rendah belum tentu akan
mengalami kebangkrutan, karena CAR tersebut sudah diatas ketetapan BI sebesar
8%.
E. Kesimpulan
Penelitian ini bertujuan untuk menganalisis pengaruh penilaian kesehatan bank dengan
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
RGEC trhadap Harga Saham pada bank yang terdaftar di Bursa Efek Indonesia. Hasil
pengujian dengan regresi linier berganda, menunjukkan bahwa variabel dependen yaitu
harga saham secara simultan dipengaruhi oleh variabel independen yang terdiri dari risk
profile, GCG, earning yang diproksikan ROA, dan capital yang diproksikan dengan CAR.
Dan secara parsial risk profile berpengaruh positif terhadap harga saham, GCG berpengaruh
negatif terhadap harga sahan ROA berpengaruh positif terhadap harga saham dan CAR
berpengaruh negatif terhadap harga saham. Hasil tersebut menunjukkan bahwa penilaian
kesehatan bank dengan RGEC telah dijadikan analisis fundamental oleh investor dalam
melakukan keputusan investasi.
Namun penelitian ini memiliki beberapa keterbatasan, diantaranya penelitian ini tidak
menghitung secara keseluruhan komponen penilaian RGEC. Pada variabel risk profile dan
GCG diukur menggunakan peringkat sedangkan erning dan capital diproksikan dengan salah
satu indikator pada Surat Edaran Bank Umum Konvensional No.13/24/DPNP lampiran II,
sehingga disarankan, untuk mempertimbangkan keseluruhan kompenen penilaian tingkat
kesehatan bank agar hasil penelitian lebih akurat. Penelitian ini menggunakan regresi robust
untuk mengantisipasi kemungkinan adanya heteroskedastisitas dan menggunakan dummy
tahun untuk mengantisipasi adanya autokorelasi, sehingga disarankan bagi untuk peneliti
dengan tema sejenis mempertimbangkan kemungkinan adanya heteroskedastisitas dan
autokorelasi tersebut.
Daftar Pustaka
Anoraga, Panji dan Piji Pakarti. 2003. Pengantar Pasar Modal. Jakarta: Rineka Cipta.
Bank Indonesia. 2004. Peraturan Bank Indonesia Nomor: 6/10/PBI/2004 tentang Sistem
Penilaian Tingkat Kesehatan Bank Umum. Jakarta.
Bank Indonesia. 2011. Peraturan Bank Indonesia Nomor: 13/1/PBI/2011 tentang Penilaian
Tingkat Kesehatan Bank Umum. Jakarta.
Bank Indonesia. 2011. Surat Edaran Bank Indonesia No.13/24/DPNP Tanggal 25 Oktober
2011 kepada Semua Bank Umum Konvensional di Indonesia. Jakarta.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Conelly, Brian L, et al. 2011. Signaling Theory: A Review and Assessment.Journal of
Management SAGE. DOI: 10.1177/0149206310388419. Vol. 37 No. 1. Hal: 3967
Darmadji, Tjiptono dan Hendy M. Fakhruddin. 2001. Pasar Modal Indonesia. Jakarta:
Salemba Empat.
Fahmi, Irham. 2011. Manajemen Investasi Teori dan Soal Jawab. Jakarta: Salemba Empat.
Greuning, Hennie van dan Sonja Brajovc Bratanivic. 2009. Analis Risiko Perbankan. Jakarta:
Salemba Empat.
Halim, Abdul. 2002. Analisis Invetasi. Jakarta: Salemba Empat.
Hartono, Jogianto. 2008. Teori Portofolio dan Analisis Investasi. Yogyakarta: BPFEYogyakarta.
Husnan, Suad. 2003. Dasar-dasar Teori Portofolio dan Analisis Investasi. Yogyakarta: Unit
Penerbit dan Percetakan AMP YKPN.
Idroes, Ferry.N. 2011. Manajemen Risiko Perbankan. Jakarta: Rajawali Pers.
Libby, Robert, et al. 2008. Akuntansi Keuangan. Jakarta: Penerbit Offset.
Purwasih, Ratna. 2010. Pengaruh Rasio CAMEL terhadap Perubahan Harga Saham
Perusahaan Perbankan yang Go Public di Bursa Efek Indonesia (BEI) Tahun
2006-2008. Skripsi. Fakultas Ekonomi. Univeritas Diponegoro. Semanrang.
Ramdiani, Ni Nyoman Ketut dan I Ketut Yadnyana. 2013. Pengaruh Good Corporate
Governance dan Kinerja Keuangan pada Harga Saham Perbankan yang Terdaftar
di Bursa Efek Indonesia Tahun 2009-2011. E-Jurnal Akuntansi Udayana. ISSN:
2302-8556.
Vol
2.
No
1.
http://ojs.unud.ac.id/index.php/Akuntansi/article/view/4316.20 Desember 2014.
Setyawan, Aditya Wira Perdana. 2012. Pengaruh Komponen Risk Based Bank Rating
terhadap Harga Saham Perusahaan Perbankan yang Go Public di Bursa Efek
Indonesia (BEI) Tahun 2008-2011. Skripsi. Fakultas Ekonomika Dan Bisnis.
Universitas Diponegoro. Semarang.
Siamat, Dahlan. 1993. Manajemen Bank Umum. Jakarta : Intermedia.
Takarini, Nurjanti dan Ukki Hayudanto Putra. 2013. Dampak Tingkat Kesehatan Bank
terhadap Perubahan Harga Saham pada Perusahaan Perbankan yang Terdaftar di
Bursa Efek Indonesia (BEI). Jurnal NeO-Bis. Vol 7.
Tandelilin, Eduardus. 2010. Portofolio dan Investasi Teori dan Aplikasi. Yogyakarta:
Kanisius.
Taswan. 2006. Manajemen Perbankan. Jogjakarta: UUP STIM YKPN.
Tjondro, David dan R Wilopo. 2011. Pengaruh Good Corporate Governance (GCG) terhadap
Profitabilitas dan Kinerja Saham Perusahaan Perbankan yang Tercatat di Bursa
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Efek Indonesia. Journal of Business and Banking. Vol 1. No 1. Hal 1-14.
Wulandari, Yuliya et al. 2013. Pengaruh Camel terhadap Harga Saham Perusahaan
Perbankan
yang
Terdaftar
di
Bursa
Efek
Indonesia.http://repository.unri.ac.id/xmlui/handle/123456789/1616?show=full.
20 April 2015.
www.idx.co.id
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
CONCURRENT 3
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Determinants of Social and Environmental Disclosure: a Review on Prior Research
Arum Prastiwi
Bambang Subroto
Rosidi
Nurkholis
Introduction:
Studies in the field of accounting information disclosure has been growing rapidly, with a topic that has
shifted from mandatory disclosure to voluntary ones. Since Elkington introduced the concept of Triple Bottom
Line in the 1980s and the stakeholders’ increasing demands for more holistic corporate responsibility
(economic, social and environmental), more companies, then, perform activities of social and environmental
responsibility. Companies have realized that social responsibility activities are future investments. By doing
social responsibility, companies will be able to improve their public image, be easier to gain access to capital,
maintain a quality resource and improve companies’ reputation in the stakeholders’ perspective. Deegan &
Unerman (2006, p. 314) stated that 1990 was regarded as a milestone of initial attention for social
responsibility and the development of research on CSR even though the study of social disclosure had been
done long before the year. Fifka (2013) explained that in 1973, one of partners of Ernst & Ernst, Dennis
Beresford, conducted a study of social disclosure at 500 big companies in America. Other researchers that also
conducted research on social responsibility since twenty years ago were Parket & Eilbirt (1975), Belkaoui
(1976), Hogner (1982) and Parker (1989).
In the last 20 years, studies on social responsibility disclosure has been conducted in various settings in
not only developed contries such as USA, Canada, New Zealand, Australia, UK and others (Belkaoui &
Karpik, 1989; Cormier & Magnan, 1999; Hackston & Milne, 1996; Michelon, Pilonato, & Ricceri, 2014;
Rupley, Brown, & Marshall, 2012) but also in developing countries such as Indonesia, Malaysia, India,
Bangladesh, Thailand, Nigeria, Qatar and Africa (Adelopo, 2011; Chek, Mohamad, Yunus, & Norwani, 2013;
Khan, Muttakin, & Siddiqiu, 2013; Pahuja, 2009; Rouf, 2010; Siregar & Bachtiar, 2010; Suttipun & Stanton,
2012). During the phase, information disclosure of social responsibility has undergoned good development in
terms of theme, tradition to inform as well as media that is used.
In terms of themes, at first, only accounting/financial information that was provided along with social
responsibility activity. Then, information of enviromental responsibility activity was added. Since social and
environmental responsibility activities are carried out for the company’s benefit in the future, the report often
refers to as a sustainability report (Kolk, 2003). The development also occur in the tradition to inform. The
information was previously reported by being embedded in the company's annual report because it was only
considered as supplemental information. However, the information has now been presented more
comprehensive and detailed by providing social and environmental responsibility reports or sustainability
reports separately (stand-alone). This is in line with that stated by Idowu and Towler (2004) that although there
were still many companies combined the report, but in the future they will make the report separately.
Media to present the social and environmental responsibility information is also developing. Earlier, at
the time of information technology has not been developed, especially in developing countries, companies
submitted paper-based financial information. Today, internet (website) as a means of delivering information
has been quite widely used, especially in western countries. The low use of the Internet as an information
medium in the Asian country, according to Chapple and Moon (2005), due to the high cost connection and in
some countries, internet is dominated by government telecommunications systems and its use is restricted.
Research of CSR information disclosure on the internet (web) had been carried out by Chapple and Moon
(2005); Moreno and Capriotti (2009); Goodman, Rolland, and O'Keefe Bazzoni (2009); Sobhani, Amran, and
Zainuddin (2012); Perrigot, Oxibar, and Déjean (2012); Wanderley, Lucian, Farache, and de Sousa Filho
(2008); Chambers, Chapple, Moon, and Sullivan (2003) and many more.diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Definition and theory of social and environmental disclosure
According to Gamerschlag et al., (2011) CSR is regarded as a voluntary contribution of a company for
the sustainability development that exceed legal requirements. Mathews (1995) stated that several other terms
are commonly used to express corporate social responsibility (CSR) those are social disclosure, corporate
social reporting and social accounting. Although some experts have defined CSR, it is actually not easy to
define because: firstly, CSR is a concept that is widely discussed, valuable, complex and has an open
application rules, secondly, CSR is a general term that often overlap and is synonymous with other terms used
in business and public relations conception (Moon, Crane, & Matten, 2005), thirdly, CSR is a dynamic
phenomenon (Carroll, 1999).
Understanding of social responsibility concept is still often debatable. According to Jamali and Mirshak
(2007), there are companies that have a narrow view assuming that CSR is responsibility of economic and
law/legislation. In other words, a company basically has only two responsibilities those are to the welfare of the
stockholders and abide by the rules that are relevant to the company. This view is also known as the classical
view where the main function of the company was only as a provider of goods or services to maximize profits
by abiding by the law and regulations. The other party has a wider view of the CSR. They believe that the
company deliberately act according to the needs of its members and therefore bear the duty and obligation to
follow the wishes of the stakeholders but limited to the company ability. Therefore, the duties and obligations
of the company are wider regarding the economic, legal, ethical, moral and philanthropic responsibilities, and
even more, the company should preserve the environment, develop communities, conserve resources and carry
out social activities.
In applied empirical research, apart from previous research, it also takes a theory as a basis to formulate
hypotheses. Relating to social and environmental disclosure, according to Belkaoui and Karpik (1989), Gray,
Kouhy, and Lavers (1995a) and A. Omran and M. El-Galfy (2014), there is no theory that can be universally
applied to all situations and people. One theory only suits certain conditions and sometimes it requires a
combination of two or more theories to explain a phenomenon. Theories that can be used to explain the
relationship of factors that affect disclosure of social and environmental responsibility are derived from the
Positive Accounting Theory (PAT), which are the agency theory and signaling theory, and the theory derived
from the Political Economy Theory (PET), those are stakeholder theory and legitimacy theory. In addition,
other theories that can be used are instutional theory and political cost theory. Although many theories can be
used to explain the disclosure of CSR, but the most commonly used are the stakeholder theory, the legitimacy
theory and agency theory (Bayoud, Kavanagh, & Slaughter, 2012; Reverte, 2009)
Previous Research
Various developments and changes in the accounting information disclosure are increasingly pushing
the interests of researchers. Existing research findings has been traced in the form of literature study by several
researchers including Adams (2002) that examines the factors affecting the width and the ethical nature of
social and environmental reporting by doing interview to three British companies and four Germany
companies. The result showed that companies’ social and ethical reporting were associated with the company
characteristics (size, industry group,economic/financial performance), general contextual factors (the State of
origin, media pressure, political, cultural, etc.) and internal context (head of the company's identity and
existence of social reporting committee. T. M. Lee and Hutchison (2005) conducted a review of studies in
accounting published in journalsabout factors that led the company disclose environmental information. These
factors are grouped into five themes, namely law and regulations, legitimacy, public pressure and publicity,
industry characteristic, rational analysis of cost-benefit relationship and the latter is the pressure of culture and
attitude. Fifka (2013) mentioned that a large number of research paid special attention to the factors that
affected the responsibility reporting of both internal and external factors. Synthesis of more than 40 countries
(186 individual research results)proved that the social responsibilitydiunduh
disclosure
dari:was more associated with
www.multiparadigma.lecture.ub.ac.id
company size, type of industry, financial performance, social and environmental performance and managerial
attitude (internal factors). Besides, social responsibility information disclosure is also linked to external factors
including the state and media pressure.
Objectives and Reseach Methodology
Eventhough the phenomenon of social and environmental responsibility disclosure has much been
investigated but according to Fifka (2013) there are still opportunities to do further research. First, apart from
voluntary nature that makes each company free to express this kind of information, there are lot of dimensions
or factors that led the company to disclose information (internal and external). Second, existing research results
provided evidence that diverse, so it has not obtained conclusive results.
Based on the previous description, this study is designed, first, to conduct an overview of the existing
empirical research; secondly, to describe the theory used by previous researchers to explain the relationship
between social and environmental responsibility disclosure and influencing factors; Third, to analyze whether
this disclosure determinants differ between groups of countries with different transparency culture.
This study will be conducted based on 59 online published researches, obtained from Google Scholar,
Elsevier, Emerald, ScienceDirect, EJS Ebsco and ProQuest database using keywords social disclosure,
environmental disclosure and sustainability disclosure. The method used is research synthesis that is
summarizing the results of empirical research has been conducted by previous researchers.
Research procedures used in this study is based on Fifka (2013) with some differences: first, the study
adds information about the theory used by previous researchers. Second, in this study, examined factors will be
grouped into three factors related to the company characteristics, the governance attributes and those excluding
the two (others), while Fifka split into two groups: internal and external factors. Third, the country
classification is based on the work of Souissi and Khlif (2012) that classifies into two country groups by
looking at the level of countries transparency culture: High Disclosure Environment (HDE) and countries with
Low Disclosure Environment (LDE), while research conducted with data from two or more different countries
in continental called Transcontinental group (Fifka, 2013). This classification is based on the assertion that
differences in disclosure environment can impact on relationships hypothesized.
Results and Discussion
The result of this study is conducted by grouping countries into three groups. The first group is the
country that has a High Disclosure Environment, those are US, UK, Canada, Australia, New Zealand,
British,and Columbia. The countries often referred to as the Anglo-Saxon countries that are countries using
English as the daily language (English speaking Countries). In the countries, the phenomenon of social and
environmental responsibility was first developing and the disclosure level is higher than other countries
(Gamble, Hsu, Kite, & Radtke, 1995; Guthrie & Parker, 1990). The second group, excluding the previous six
countries, are mostly Asian countries (Indonesia, Malaysia, China India, Taiwan, Bangladesh, Arabic, etc.),
Hong Kong and Europe (Germany). Transcontinental group consists of US and Japan (Jennifer Ho & Taylor,
2007), Europe & USA (Michelon et al., 2014), and the combined of 34 countries (Chih, Chih, & Chen, 2009).
Another reason of the classification is that the Anglo-Saxon countries have an open nature and high attention to
environmental and community issues (Hackston & Milne, 1996), whereas other countries, especially ASEAN
countries are still reluctant to disclose such information because the issue is considered sensitive political and
social issue (Craig & Diga, 1998).
I. Theory of Social and Enviromental Responsibility Disclosure
The discussion will begin with the theories that underlie the relationship between disclosure of social
and environmental responsibility with its determinant. From the previous statement, it was mentioned that
many theories that can be used to relate the level of social and environmental responsibility disclosure,
consistent with Reverte (2009) and Bayoud et al (2012), only three theories are widely used, namely the
stakeholder theory, the legitimacy theory and agency theory.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Stakeholder theory assumes that the existence of a company is determined by the stakeholders. The
main focus of the stakeholder theory is how companies monitor and respond to the needs of stakeholders (Gray
et al., 1995a). Barkemeyer (2007) stated that legitimacy theory has two strengths in explaining the context of
social responsibility in developing countries. The first is the capability of the company to not only maximize
profits, provide more insights of what the company motives to increase social responsibility; second,
organizational legitimacy includescultural factors that isshaped pressure from different institutions in different
contexts. Belkaoui & Karpik (1989) stated that agency theory viewed company as a contractual relationship
between the various economic agents that act opportunistically in an efficient market. In this context, agency
theory can be a rationalization for social responsibility disclosure. Social and environmental disclosure can also
be useful in determining the evidence of debt contract, managerial compensation contracts or political cost.
Eisenhardt (1989) stated that the agency theory provides a picture of the relationship between principal and
agent, and will be better if it is combined with other theories (eg, institutional theory or equity theories). Table
1 shows the theory used by the researchers based on literature study to 59 previous research results. Overall, it
appears that relationship between firm characteristics and governance and the social and environmental
responsibility disclosure is based on stakeholder theory, the legitimacy theory and agency theory. However,
since Guthrie & Parker (1989) and O'Dwyer (2002) stated that one theory is not enough in studying social
reporting, some researchers use some other theories in their studies.
a. High Disclosure Environment (HDE)
In Table 1, it shows only 14 studies which used sample companies in the country from group HDE and there
are three researchers who used a combination of theories in the studies. Among them are Galbreath (2010) who
used employee justice perception theory, equity theory and signaling theory to provide evidence of the CSR
benefit for the company.
Table 1
Theory of Social and Environmental
Disclosure
High Disclosure Low Disclosure
Transcontinental
Environment
Environment
Number
Number
Number
of
%
of
%
of
%
Articles
Articles
Articles
Stakeholder Theory
1
7%
7
17%
1
25%
Legitimacy Theory
4
29%
4
10%
1
25%
Agency Theory
3
21%
7
17%
0
0%
Political Cost
Theory
0
0%
2
5%
0
0%
Institutional theory
0
0%
0
0%
1
25%
Signaling Theory
0
0%
0
0%
0
0%
Mixed Theory
3
21%
7
17%
1
25%
NA
3
21%
15
36%
0
0%
HDE consist of 14 studies; LDE=42 studies; Transcontinental = 3 studies
TOTAL
Number
of
%
Articles
9
15%
9
15%
10
17%
2
1
0
11
18
3%
2%
0%
18%
30%
Giannarakis, Konteos, and Sariannidis (2014) used two theories together, namely Political Cost Theory
and Legitimacy theory to examine the relationship of financial and governance factors on the disclosure of
CSR. Bhattacharyya (2014) examined the relationship between social and environmental disclosure and its
factors by using the legitimacy theory and resource base perspective. diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Next is legitimacy theory. The theory assumes that organization should strive to ensure its operations
comply with the limits and norms of the society. Studies that use this theory was as much as 4 studies or 29%
(Cho, Guidry, Hageman, & Patten, 2012; Cho, Michelon, Patten, & Roberts, 2015; Cormier & Gordon, 2001;
Michelon et al., 2014). The four researchers used legitimacy theory more as the basis for connecting multiple
variables other than the variables inherent with firm governance and characteristics such as the company’s
sensitivity to the GRI, market return and published news. Next is agency theory which stated that the conflict
between the company and all stakeholders can be reduced by disclosing detailed information, including
information about social responsibility and the environment. Studies using this theory were as much as 3 is or
21% that are Belkaoui and Karpik (1989); Rupley et al. (2012) and de Villiers, Naiker, and van Staden (2011).
Whereas stakeholder theory is used by Roberts (1992).
b. Low Disclosure Environment (LDE)
Of the group of countries with low disclosure environment, 36% (15) researches do not clearly identify
what theoretical basis used. In contrast to the group HDE, the LDE use more stakeholder theory and agency
theory, with the same percentage of 17% or 7 studies. Next, 14% (6 studies) from all studies combined of more
than one theory. The principle of stakeholder theory is that what company do including the wider scope of
disclosure of social and environmental responsibility is to meet the stakeholders’ interests. Stakeholder theory
was used in the studies of Bayoud et al. (2012); Chek et al. (2013); Ebiringa, Yadirichukwu, Chigbu, and
Ogochukwu (2013); Huang and Kung (2010); D. Y. Lee (2013); X. Liu and Anbumozhi (2009); and Pahuja
(2009). Studies that used agency theory were Arussi, Selamat, and Hanefah (2009); Dam and Scholtens (2013);
Latridis (2013); G. Liu and Sun (2010); Said, Zainuddin, and Haron (2009); Said, Omar, and Nailah Abdullah
(2013); and Soliman, Din, and Sakr (2012). While those using more than one theory together were Al-Shubiri,
Al-abedallat, and Orabi (2012), who examined the determinants of financial and non-financial of CSR on the
basis of agency theory and the political economy theory, Cormier, Magnan, and Van Velthoven (2005) used
both legitimacy theory and stakeholder theory to examine the relationship of several external variables with the
quality of environmental disclosure. Darus, Arshad, and Othman (2009) examined the relationship of
governance attributes that were the institutional pressure and ownership structure with the CSR disclosure
using institutional theory and agency theory; Ghazali (2007) used the legitimacy theory and political cost
theory to examine the relationship between ownership structure with the CSR disclosure in Malaysia; Lu and
Abeysekera (2014) tested the strength of stakeholder and corporate characteristics on environmental disclosure
by using stakeholder theory and legitimacy theory and the last, Reverte (2009) combined three theories that
were agency theory, the legitimacy theory and stakeholder theory to examine the determinants of companies’
CSR in Spain.
c. Transcontinental
This group only consists of three studies that used, first, institutional theory (Chih et al., 2009) to test the
CSR determinants, second, stakeholder theory (Michelon & Parbonetti, 2012) in examining the effects of
corporate governance towards sustainability disclosures in European and America companies, and third, Ho
and Taylor (2007) used a combination of agency theory and the political cost theory to determine the effects of
corporate governance on the sustainability disclosure.
II. Determinants of social and environmental disclosures
Table 2 shows the tabulation and summary of the determinants used in 59 studies. Based on the processed
data, there are more than 40 types of explanatory factors (independent variables) that were used. Furthermore,
researcher classified all these determinants into three groups: the corporate characteristics, corporate
governance attributes and apart from the two (others). Due to the fact that the variety of independent variables
were much, then five
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Tabel 2
Determinants of Social and Environmental Disclosure (SED)
Authors
Countries
Examined
Company
Characteristics
Corporate
Governance
Attributes
Others
HIGH DISCLOSURE ENVIRONMENT
Belkaoui and
Karpik (1989)
US
Bhattacharyya
(2014)
Australia
Firm Size (+),
Profitability (+),
Leverage (0),
Dividen (0),
Firm Size (+);
Profitability (0);
Firm Age (0);
Cho, Freedman, and US
Patten (2012)
Firm Size (0);
Profitability (0);
Leverage (0);
Cho et al. (2015)
US
Firm Size (-);
Year (+);
Cormier and
Magnan (1999)
Kanada
Firm Size (+);
Leverage (-);
Firm age (0);
Cormier and
Gordon (2001)
Canada &
British
Columbia
Profitability (0);
Leverage (0);
Social Performance (), Differential Return
(0), Market Risk (0),
Capital Intensity (0)
Audit firm (0)
Industry type:
Chemical (0);
Foresty&paper (0);
Engineering (0);
Transport (-);
Mining (0);
Industry Type (+);
Environmental
Perform.(+);
Industry*Enviromental
Performance (-);
Capital
Expend.Intensity (0)
Environmentally
Sensitive
Industries/ESI (+);
Year x Firm size (0);
Year x ESI (0)
Shareholder control Risk (+);
(-); subsidiary (0);
Cap market (+);
Fines & Penalties
Trading volume (+);
(0);
Accounting return (+);
Orders to conform
Market return (0);
(0);
Excess pollution
Legal actions (0);
industry (+); SEC (-);
Oil, refineries,
chemical industry (0);
Steel, metal, mines
indust. (-)
Public Ownership
ABIGOOD News (+),
(+);
ABIBAD News (+);
Capital Market (0);
Earn/Full-time
employees (0); New
Invest in FA (0);
FA/Full Time
diunduh dari:
Employees (+);
www.multiparadigma.lecture.ub.ac.id
Galbreath (2010)
Australia
Firm Size (+);
Firm Age (0);
Employee turn (-);
Customer satisfaction
(+); Reputation (+)
Giannarakis (2014)
US
Firm Size (+);
Profitability (0);
Leverage (0);
CEO Duality (-);
Board SIZE (+):
Freq. of board
meeting (0);
Women on Board
(0)
Giannarakis et al
(2014)
US
Leverage (0)
CEO duality (0);
Women on the
board (0);
Hackston & Milne
(1996)
New Zealand
Firm Size (+);
Profitability (0);
Industry (+);
Michelon et al
(2014)
UK
Size (+);
CSP (+);
CSR report (+);
Assurance (0); GRI
Industry
Environmental and
Social sensitivity (+)
Roberts (1992)
US
Leverage (+);
Profitability (+);
Firm Age (+);
Firm Size (0)
Manag. ownership
(0);
Industry Type: Staples
(0); Consumer
discretionary (0);
Energy (-);
Financial (0);
Health care (0);
Materials (+);
Information tech (0);
Telecomunication (0);
Utility (-)
Greenhouse gas
emissions (+);
Emission reduction
initiative (+);
Risk premium (0);
Industry profile (0)
Political act (+);
Public affairs (+);
Sponsor/foundation
(+); Industry (+);
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Rupley et al (2012)
US
Firm Size (+);
Profitability (0);
Villiers et al (2011)
US
Firm Size (+);
Firm age (+);
Profitability (+);
Leverage (0);
Equipment age
(+); Slack (+);
Beta (0);
Capital Expend.
(0); Market to
Book (0)
LOW DISCLOSURE ENVIRONMENT
Ahmad, et al (2003) Malaysia
Firm Size (0);
Leverage (-);
Profitability (0);
Akrout & Othman
(2013)
Al-Shubiri et al
(2012)
MENA (Arab
Middle
Eastern and
North African)
Amman
Board indep (0);
Board member
serving for more
than one board (+);
CEO duality (0); ;
Institutional
ownership(0);
Board
Independence (+);
CEO-chair duality
(0);
Dir. appointed after
CEO (-); CEOdirector ownership
(0); Insider-director
own. (0); Outsiderdirector own. (0);
Board size (+);
Multiple director
(0);
Active CEOs (+);
Law experts (+);
Board tenure (0);
CEO compensation
(-); Governance
commite (+);
Institutional
ownership (0);
Media (+);
Gender (0);
Industry (0);
CER report (+) ;
Exist. of committe
CSR (0)
Audit firm (+);
Effective tax rate (0);
Member of
environmentally
sensitive (0)
Business Culture (0);
Internet penetration (0)
Firm Size (+);
Leverage (-);
Profitability (+),
Family ownership
(0); Goverment
ownership (0);
Growth in Asset
(+); Dividen (0);
Firm Size (+);
Firm Age (+);
leverage (-)
Individual
ownership (0);
Institutional
ownership (0);
Majority ownership
(0);
Shareholder (+);
Advertising (0);
Industry sensitivity
(+); Industry ROA (+);
Ind competition (0)
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Arussi, et al (2009)
Malaysia
Leverage (0);
Profitability (0);
Firm size (+);
Bayoud et al (2012)
Libya
Bowrin (2013)
Caribbean
Firm Size (0);
Firm Age (0);
Profitability (0);
Firm Size (+);
Chauhan (2014)
India
Chek, et al (2013)
Malaysia
Cormier, et al
(2005)
German
Dam & Scholtens
(2013)
Eropa
Firm Size (+);
Leverage (0);
Profitability (-);
Liquidity (+)
Darus, et al (2009)
Malaysia
Firm Size (+);
Profitability (+)
Ebiringa, et al
(2013)
Esa & Ghazali
(2012)
Nigeria
Firm Size (0);
Profitability (+);
Firm Size (0);
Profitability (0);
Leverage (+);
Year (0)
Malaysia
Firm size (+),
Profitability(-),
Leverage(0),
Sales (+)
Size (+);
Profitability (0);
Leverage (0)
Leverage (0);
Fixed Assets
Age (+); Firm
Size (+);
Existing of dominant
personalities (0);
Level of technology
(+); Ethnicity CEO
(+);
Industry type (+)
Proportion
Independent
directors (0);
Organizational culture
(+); National culture
(0);
Foreign influence (+);
Importance Public
Equity (0); Industry
affiliation (+); Gender
(0);
Concentrated
ownership (-);
Foreign ownership
(-);
Risk (+);
Capital market (0);
Trading volume (+);
Market return (0);
Media exposure (+);
SEC registrant (-)
Hirschman-Herfindah
ind.(-)
Blockholder 5%
(0); Blockholder
10% (-);
blockholder 20% ()
Existence
goverment
regulation (+);
Board interlock (0);
Family ownership
(-); Goverment
ownership (+);
Foreign ownership
(0);
Country (0)
Independent Non
Executive directors
(-),
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Boardsize (+)
Gamerschlag et al
(2011)
Jerman
Gao, et al (2005)
Hongkong
Ghazali (2007)
Malaysia
Gunawan (2013)
Indonesia
Haji (2013)
Malaysia
Huang & Kung,
(2010)
Taiwan
Huang (2010)
Taiwan
Firm size:
LogTA (0);
Log employ (+);
Profitability (0);
US Listed (+)
Firm Size (+);
Firm Size (+);
Profitability (0);
Freefloat (+),
Industry type (+);
Own. concentration
(0); Director
ownership (-);
Goverment own.
(+);
Firm Size:
Owners' influence
Total Assets (+), (+)
Total Sales (+),
Market Cap. (+);
Profitability:
ROA (+),
ROE (+),
EPS (+);
Firm Age (+);
Solvency (0);
Firm size (+);
Independent nonProfitability (0); executive directors
Leverage (0)
(0);
Board size (+);
Board meetings
(0);
Own. concentration
(0); Director
Ownership (-);
Government own.
(+);
Firm Size (+);
Fines (+);
Leverage (0);
Blockholder own.
Profitability (-)
(-); Audit firm (+);
Profitability (0);
Firm size (+);
Visibility (+),
Industry type (0);
Advertising (+);
Inventory Turnover
(0); Employees (+);
Industry sensitivity
(+);
Export Ratio (0);
R & D Intensity (0);
Independent Board
(0); Foreign
ownership (+);
Goverment own.
(+); Institutional
own. (+)
Controlling
stockholderdiunduh
(0)
dari:
www.multiparadigma.lecture.ub.ac.id
Kansal, et al (2014)
India
Profitabilitybeginning (0);
Profitabilitycurrent year (0);
Firm Size (0);
Firm Age(0)
Firm size (+);
Profitability (+);
Leverage (0)
Khan (2010)
Bangladesh
Khan (2013)
Bangladesh
Firm size (+);
Firm age (+);
Leverage (-);
Profitability (+);
Latridis (2013)
Malaysia
Profitability (+);
Leverage (+);
Firm size (+);
Asset age (0);
Lattemann,
Fetscherin, Alon,
Li, and Schneider
(2009)
China & India
Firm size (+);
Industry clasification
(+); Social Reputation
(+)
Composition of
non-executive
directors (+);
Composition of
women directors
(0);
Foreign ownership
(+);
Management own.
(-); Public
ownership (+);
Foreign ownership
(+); Independent
Board (+);
CEO duality (0);
Audit committee
(+);
Indep. board
director (+); Indep.
audit comm. (+);
Audit Size (+);
Exist. audit comm.
(+); Management
own. (+);
Institutional own.
(+);
Environmental
perform. (-);
Environmental
initiatives and
awareness (+);
Amount of debt or
equity raised (+);
Tobin's Q (+);
Stock price volatility
(-); Capital spending
(+);
Favour. media
coverage (+);
Beverage industry (+);
Chemical industry (+);
Food producer (+);
Foresty and Paper (+);
Minning (+);
Changes mgt (+);
Cross listed (+)
CEO duality (-);
Governance
Outside board
Environmental Index
member (+);
(+);
Industry:
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Manufacturing (+);
Lee (2013)
Korea
Profitability (+);
Firm age (-);
Firm Size (+);
Firm Size (+),
Leverage (+) ,
Profitability (0),
Li, Zhang, and Foo
(2013)
China
Liu & Anbumozhi
(2009)
China
Liu & Sun, (2010)
China
Lu & Abeysekera,
(2014)
China
Muttakin and Khan
(2014)
Bangladesh
Pahuja (2009)
India
Firm Size (+);
Profitability (0);
Leverage (0);
Rahman, Zain, and
Al-Haj (2011)
Malaysia
Reverte (2009)
Spanyol
Firm Size (+);
Firm Age (0);
Profitability (0);
Leverage (0)
Intl. Listing (+),
Firm Size (+),
Profitability (0),
Firm size (+);
Firm age (0);
Profitability (0)
Firm size (+);
Profitability (+);
MBV (-)
Leverage
(0);Firm Size
(+);
Profitability (+);
Overseas listing
(0)
Firm Size (+);
Profitability (+);
Leverage (0);
Firm Age(+);
Marketing fee (+);
R&D spending (+)
Own. concentration
(+), Government
own. (0),
Independent
director (-)
Government Power
(+); Shareholder
Power (0);
Private control (-);
Cash control (0);
Private x cash
control (+);
Board
independence (0);
Board size (0)
Goverment power
(0); Shareholder
power (-);
Independent
auditor (0);
Member of a sensitive
Industry (0),
Economic Zoning (+),
Family Ownership
(-);
Industry Types:
Cement/Ceramic ind
(0); Engineering
industry (0);
Food industry (-);
Paper, Printing
industry (-); Pharmacy
industry (0);
Other industry (+)
Sector (+);
Poluting ind (+);
Foreign Association
(0); Large business
house (0); Ratio export
(0);
Environmental
Perform. (+)
Creditor Pressure (0);
Place (0);
Learning capacity (0);
Industry membership
(+);
Own. concentration Media Exposure (+),
(-),
Industry
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
environmental
Leverage (0)
Said, et al (2013)
Malaysia
Firm Size (0)
Said, Zainuddin &
Haron (2009)
Malaysia
Firm Size (+),
Profitability (0)
Siregar & Bachtiar
(2010)
Indonesia
Skouloudis, Jones,
Malesios, and
Evangelinos (2014)
Soliman, et al
(2012)
Firm Size (+);
Profitability (0);
Leverage (0)
Greece/Yunani Firm Size (+);
Egypt
Firm Age (+);
Firm Size (+);
Profitability (+);
Leverage (+)
sensitivity (+),
Board size (0);
Board indep (0);
Chairman indep
(+); Chairman age
(+);
CEO age (0);
Chairman with
finance background
(0);
CEO with finance
background (0);
Chairman with law
background (0);
CEO with law
background (+);
Female dir (0);
Board of director
with finance
background (0);
Board of director
with law
background (0);
Board Size (+),
Board Independent
(0),
CEO Duality (0),
Audit Committee
(+), Ownership
concentration(+),
Managerial
ownership (0),
Foreign ownership
(0), Goverment
ownership (+),
Board size (+);
Foreign ownership
(0);
Government Own.
(-);
Industry Types:
Consumer Product
(0); Industrial Product
(+); Trading &
services (0);
Plantations (0);
Construction (0);
Technology (0);
Internationalization
(+);
CSR initiative (+)
Management own.
(-); Institutional
own. (+); Foreign
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
ownership (+);
Suttipun & Stanton
(2012)
Uwalomwa (2011)
Thailand
Firm Size (+);
Profitability (0)
Ownership status
Country of origin (0);
(0);
Nigeria
Management own.
(+)
Yuan (2011)
Cina
Firm Size (+);
Board Structure
Industry type (+);
Leverage (0);
(0);
Profitability (0); Majority ownership
(0); Management
own. (0); CEO
duality (0)
Note: (+) indicates positive and significant correlation between independent and dependent variables;
(-) indicates positive and significant correlation; (0) indicates no correlation
TRANSCONTINENTAL
Chih, et al (2009)
34 countries
Ho & Taylor, (2007)
US & Japan
Michelon & Parbonetti
(2012)
Europe &
USA
Profitability (+);
Firm Size (+);
Firm Size (+);
Leverage (0);
Liquidity (-);
Profitability (-);
Profitability (0);
Firm Size (+);
Leverage (0);
Firm Age (0);
Listing status
(0);
Competitiveness
industry (-); Quality of
Management Schools
(+);
Cooperation LaborEmploy Relation
Index (+);
Reg.-Equator
Principles (+);
Inflation rate (-);
IPI (0);
CCI (+)
Industry Types (-);
Country (+)
Independent
director (0); CEO
duality (0);
Community
Influential member
of board (+);
Director in charge
of csr (0); Board of
director (0);
Reputation (+);
Market Risk (0);
Country (0);
CSR commite (0);
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
highest ranking on the use of variables was taken from each group, except for the corporate governance
attributes group,taken seven highest variable because the group had the greatest variation of independent
variable.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
From the results summarised in Table 3, for a group of Corporate Characteristics, it is known that the five
highest variables are Firm Size, Profitability, Leverage, Firm Age and Listing Status. The second group, the
corporate governance attributes, consists of CEO duality, Board Size, Board Independence, ownership
concentration, managerial ownership, foreign ownership and government ownership. While the third group,
other variables, consists of social/environmental concerned, industry types, social/environmental performance,
industry sensitivity and media exposure. The following analysis is based on countries transparency culture.
a. High Disclosure Environment (HDE)
In the Anglo-Saxon countries, 12 studies used firm size variable and 75% of it confirmed positive
relationship with the dependent variable (the social and environmental responsibility disclosure). The second
variable is the profitability, out of 9 studies that examined the relationship of these variables, 33% proved the
existence of a positive relationship, while 67% negatively related and unrelated. Next is leverage, with
predictions of negative relationship with the disclosure level, which means that the higher the leverage, the
lower the level of disclosure and from 8 researches, only 13% of the results supported the prediction. Firm age
variable had been successfully demonstrated in five studies and 40% weresiginificant. The variable of
corporate governance attributes was not widely used in the country group of HDE. Only 4 researchers
examined the effect of CEO-duality and only 25% were able to prove significant results. Board size and board
independencewere used in two studiesthatboth proved significant influence. Ownership attributes, managerial
ownership and government ownership, were used by only one researcher and only government ownership were
proved to be havepositive effect.
There are five researchers that used other variables, first, the industry type variable and three studies or 60%
proved significantly positive relationship. Social and environmental performance and industry sensitivity which
each wastested in three studies. All three studies confirmed positive relationship of industry sensitivity variable,
while only two studies could provide proof of positive relationship to social and environmental performance
variable.
b. Low Disclosure Environment (LDE)
Research on the disclosure of social and environmental responsibility in a country with a low level of
disclosure mostly used variables inherent to the companies’ internal conditions, those are characteristics and
corporate governance. Firm size and profitability variable were widely used respectively by 41 and 34 research.
83% research proved significant effectoffirm size variable, but only 35% proved positive effect of profitability
variables and a total of 56% research confirmed negative effect. This is presumably because many people still
viewed that the activities of social and environmental responsibility was just a waste sinceit had no direct
benefit to the company (Siregar & Bachtiar, 2010). Meanwhile, listing status variable that was only used in 4
studies but the results showed that 75% of them managed to prove a significant influence. This is because
companies that do listings on more than one country have requirements to disclose more information, including
information about social and environmental responsibility.
Governance attributes that were widely used in the group of LDE countries were board independence and
ownership concentration, and respectively only 23% and 40% research showed evidence of a significant effect.
The results of studies indicated that the size of the board of directors proved to be influential (67% of the 6
studies), but independence level was not necessarily considered because the independent directors did not
ensure better company's social and environmental responsibility. Government ownershipwas proved to increase
the disclosure of social and environmental responsibility, proven from eight studies(63%)that showed
significant positive results.
The results of other variables did not differ from group of HDE country, industry type variables were
statistically significant (all five studies were able to prove a significant effect). This indicated that the
disclosure of social and environmental responsibility is mostly carried
out dari:
by companies that had high
diunduh
www.multiparadigma.lecture.ub.ac.id
environmental impacts such as mining, manufacturing and food-related companies. Media exposure/pressure
and social/environmental concerned variable, although had not widely used (respectively 3 and 2 studies), but
both were proven to affect disclosure level.
c. Transcontinental
Study using sample of countries of different culture was only able to prove that the disclosure of social
and environmental responsibility was affected by the company size (3 results of study) and profitability even
though only one of the three studies that prove the positive effect. Corporate governance attributes are not a
concern in the transcontinental group, since only one study used this attribute and the result showed no
significant results. Two studies used industry type variable and one research used social/environmental
performance variable, but the results were not significant either.
Conclusion and limitation
From the overall review, it is known that no difference exists in in the use of the theory as a basis for
the hypotheses formulation and conclusions among the three groups of countries (HDE, LDE and
Transcontinental). This means that the same theory may be used in countries with low or high transparency
culture and for study in the countries with different transparency culture. The widely used theories are
stakeholder theory, legitimacy theory and agency theory. Since there is no a universal theory, then in doing
research on this theme, researchers may use some theories simultaneously.
There are slight differences in selection of explanatory/independent variables among the three groups of
countries. Studies in LDE countries still used more variables inherent with the company (internal variables)
namely company characteristics and governance. While studies in HDE countries and transcontinental were
more oriented on variables other than those two variables. Overall, larger companies disclosed more social and
environmental responsibility. In the globalization era where companies are increasingly developing its
business by listing in more than one country, the companies are required to be more socially and
environmentally responsible. Besides, the rapid development of information technology will make companies
do more ethical activities.
This study only used small samples of research results that were only published online and in English,
so the results may not have been able to represent the phenomenon of the social and environmental
responsibility disclosure globally. For further research, it is recommended to increase the number of samples,
both published and unpublished, and if possible to include the results of a study written inother languages (nonEnglish), so that the results will be more representative. The review result suggests that the individual research
on disclosure is not conclusive, thus it still requires a lot of research with similar themes to build a more robust
theory. This study also used narrative review that makes it more subjective. Considering that the amount of
research on the theme of social and environmental responsibility have been frequently carried out with variety
of results, and to overcome the weaknesses of the individual studies, the meta analysis is very important to
conduct to provide more comprehensive and objective results.
Reference:
A. Omran, M., & M. El-Galfy, A. (2014). Theoretical perspectives on corporate disclosure: a critical evaluation
and literature survey. Asian Review of Accounting, 22(3), 257-286.
Adams, C. A. (2002). Internal organisational factors influencing corporate social and ethical reporting: beyond
current theorising. Accounting, Auditing & Accountability Journal, 15(2), 223-250.
Adelopo, I. (2011). Voluntary disclosure practices amongst listed companies in Nigeria. Advances in
Accounting, Incorporating Advances in International Accounting, 27, 338-345. doi:
10.1016/j.adiac.2011.08.009
diunduh
Al-Shubiri, F. N., Al-abedallat, A. Z., & Orabi, M. M. A. (2012). Financial
and dari:
Non Financial Determinants of
www.multiparadigma.lecture.ub.ac.id
CSR. Journal of Knowledge Management, Economics and Information Technology(5).
Arussi, A. S. A., Selamat, M. H., & Hanefah, M. M. (2009). Determinants of financial and environmental
disclosures through the internet by Malaysian companies. Asian Review of Accounting, 17(1), 59-76.
Barkemeyer, R. (2007). Legitimacy as a Key Driver and Determinant of CSR in Developing Countries. Paper
presented at the Marie Curie Summer School on Earth System Governance, Amsterdam.
Bayoud, N. S., Kavanagh, M., & Slaughter, G. (2012). Factors Influencing Levels of Corporate Social
Responsibility Disclosure by Libyan Firms: A Mixed Study. International Journal of Economics and
Finance, 4(4). doi: 10.5539/ijef.v4n4p13
Belkaoui, A. (1976). The Impact of the Disclosure of the Environmental Effects of Organizational Behavior on
the Market. Financial Management (Winter), 5(4), 26-31.
Belkaoui, A., & Karpik, P. G. (1989). Determinant of the Corporate Decision to Disclose Social Information.
Accounting, Auditing and Accountability Journal, 2(1), 36-51.
Bhattacharyya, A. (2014). Factors Associated with the Social and Environmental Reporting of Australian
Companies. Australasian Accounting, Business and Finance Journal, 8(1), 25-50.
Carroll, A. B. (1999). Corporate social responsibility evolution of a definitional construct. Business & society,
38(3), 268-295.
Chambers, E., Chapple, W., Moon, J., & Sullivan, M. (2003). CSR in Asia: A seven country study of CSR
website reporting.
Chapple, W., & Moon, J. (2005). Corporate Social Responsibility (CSR) in Asia A Seven-Country Study of
CSR Web Site Reporting. Business & society, 44(4), 415-441.
Chek, I. T., Mohamad, Z. Z. B., Yunus, J. N., & Norwani, N. M. (2013). Corporate Social Responsibility
(CSR) Disclosure in Consumer Products and Plantation Industry in Malaysia. American International
Journal of Contemporary Research, 3(5).
Chih, H.-L., Chih, H.-H., & Chen, T.-Y. (2009). On the Determinants of Corporate Social Responsibility:
International Evidence on the Financial Industry Jounal of Business Ethics, 93, 115-135. doi:
10.1007/s10551-009-0186-x
Cho, C. H., Freedman, M., & Patten, D. M. (2012). Corporate disclosure of environmental capital expenditures:
A test of alternative theories. Accounting, Auditing & Accountability Journal, 25(3), 486-507.
Cho, C. H., Guidry, R. P., Hageman, A. M., & Patten, D. M. (2012). Do actions speak louder than words? An
empirical investigation of corporate environmental reputation. Accounting, Organizations and Society,
37(1), 14-25. doi: 10.1016/j.aos.2011.12.001
Cho, C. H., Michelon, G., Patten, D. M., & Roberts, R. W. (2015). CSR Disclosure: The more things change...?
Accounting, Auditing & Accountability Journal, 28(1).
Cormier, D., & Gordon, I. M. (2001). An examination of social and environmental reporting strategies.
Accounting, Auditing & Accountability Journal, 14(5), 587-617.
Cormier, D., & Magnan, M. (1999). Corporate environmental disclosure strategies: determinants, costs and
diunduh dari:
benefits. Journal of Accounting, Auditing & Finance, 14(4), 429-451.
www.multiparadigma.lecture.ub.ac.id
Cormier, D., Magnan, M., & Van Velthoven, B. (2005). Environmental disclosure quality in large German
companies: economic incentives, public pressures or institutional conditions? European Accounting
Review, 14(1), 3-39.
Craig, R., & Diga, J. (1998). Corporate accounting disclosure in ASEAN. Journal of International Financial
Management & Accounting, 9(3), 246-274.
Dam, L., & Scholtens, B. (2013). Ownership concentration and CSR policy of European multinational
enterprises. Journal of Business Ethics, 118(1), 117-126.
Darus, F., Arshad, R., & Othman, S. (2009). Influence of Institusional Pressure and Ownership Structure on
Corporate Social Disclosure. Interdisciplinary Journal of Contemporary Research in Business, 1(5),
123-150.
de Villiers, C., Naiker, V., & van Staden, C. J. (2011). The effect of board characteristics on firm
environmental performance. Journal of Management, 0149206311411506.
Deegan, C., & Unerman, J. (2006). Financial Accounting Theory. New York: McGraw-Hill Education.
Ebiringa, O. T., Yadirichukwu, E., Chigbu, E. E., & Ogochukwu, O. J. (2013). Effect of Firm Size and
Profitability on Corporate Social Disclosure: The Nigerian Oil and Gas Sector in Focus. British Journal
of Economics, Management & Trade, 3(4), 563-574.
Eisenhardt, K. M. (1989). Agency Theory: An Assessment and Review. Academy of Management Review,
14(1), 57-74.
Fifka, M. S. (2013). Corporate Responsibility Reporting and its Determinants in Comparative - a Review of the
Empirical Literature and a Meta-analysis. Business Strategy and the Environment, 22, 1-35.
Galbreath, J. (2010). How Does Corporate Social Responsibility benefit Firms? Evidence from Australia.
European Business Review, 22(4), 411-431. doi: 10.1108/09555341011056186
Gamble, G. O., Hsu, K., Kite, D., & Radtke, R. R. (1995). Environmental disclosures in annual reports and
10Ks: An examination. Accounting Horizons, 9, 34-34.
Gamerschlag, R., Moller, K., & Verbeeten, F. (2011). Determinants of Voluntary CSR Disclosure: Empirical
Evidence from Germany. Review of Managerial Science, 5, 233-262. doi: 10.1007/s11846-010-0052-3
Ghazali, N. A. M. (2007). Ownership Structure and CSR Disclosure: some Malaysian Evidence. Corporate
Governance, 7(3), 251-266. doi: 10.1108/14720700710756535
Giannarakis, G., Konteos, G., & Sariannidis, N. (2014). Financial, Governance and Environmental
Determinants of Corporate Social Responsible Disclosure. Management Decision, 52(10), 1928-1951.
doi: 10.1108/MD-05-2014-0296
Goodman, M., Rolland, D., & O'Keefe Bazzoni, J. (2009). Greening corporate identity: CSR online corporate
identity reporting. Corporate Communications: An International Journal, 14(3), 249-263.
Gray, R., Kouhy, R., & Lavers, S. (1995a). Corporate Social and Environmental Reporting : A Review of the
Literature and A Longitudinal Study of UK Disclosure. Accounting, Auditing and Accountability
diunduh dari:
Journal, 8(2), 47-77.
www.multiparadigma.lecture.ub.ac.id
Guthrie, J., & Parker, L. D. (1989). Corporate Social Reporting: A Rebuttal Of Legitimacy Theory. Accounting
and Business Research, 19(76), 343.
Guthrie, J., & Parker, L. D. (1989). Corporate Social Reporting: a Rebuttal of Legitimacy Theory Accounting
and Business Research, 9(76), 343-352.
Guthrie, J., & Parker, L. D. (1990). Corporate social disclosure practice: a comparative international analysis.
Hackston, D., & Milne, M. J. (1996). Some determinants of social and environmental disclosures in New
Zealand companies. Accounting, Auditing & Accountability Journal, 9(1), 77-108.
Ho, L.-C. J., & Taylor, M. E. (2007). An Empirical Analysis of Triple Bottom‐Line Reporting and its
Determinants: Evidence from the United States and Japan. Journal of International Financial
Management & Accounting, 18(2), 123-150.
Hogner, R. H. (1982). Corporate Social Reporting: Eight Decades of Development at US Steel. Research in
Corporate Performance, 4, 243-250.
Huang, C.-l., & Kung, F.-h. (2010). Drivers of Environmental Disclosure and Stakeholder Expectation:
Evidence
from
Taiwan.
Journal
of
Business
Ethics,
96(3),
435-451.
doi:
http://dx.doi.org/10.1007/s10551-010-0476-3
Idowu, S. O., & Towler, B. A. (2004). A comparative study of the contents of corporate social responsibility
reports of UK companies. Management of Environmental Quality: An International Journal, 15(4),
420-437.
Jamali, D., & Mirshak, R. (2007). Corporate Social Responsibility (CSR)_Theory and Practice in a Developing
Country Context. Journal of Business Ethics, 72, 243-262. doi: 10.1007/s10551-006-9168-4
Jennifer Ho, L. C., & Taylor, M. E. (2007). An Empirical Analysis of Triple Bottom‐Line Reporting and its
Determinants: Evidence from the United States and Japan. Journal of International Financial
Management & Accounting, 18(2), 123-150.
Khan, A., Muttakin, M. B., & Siddiqiu, J. (2013). Corporate Governance and Corporate Social Responsibility
Disclosure: Evidence from an Emerging Economy. Journal Business Ethics, 114, 207-223. doi:
10.1007/s10551-012-1336-0
Kolk, A. (2003). Trends in sustainability reporting by the Fortune Global 250. Business Strategy and the
Environment, 12(5), 279-291.
Latridis, G. E. (2013). Environmental disclosure quality: Evidence on environmental performance, corporate
governance and value relevance. Emerging Markets Review, 14, 55-75.
Lattemann, C., Fetscherin, M., Alon, I., Li, S., & Schneider, A. M. (2009). CSR communication intensity in
Chinese and Indian multinational companies. Corporate Governance: An International Review, 17(4),
426-442.
Lee, D. Y. (2013). Corporate Social Responsibility Disclosure among Large Korean Companies. Australian
Journal of Business and Management Research, 2(11), 1-14.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Lee, T. M., & Hutchison, P. D. (2005). The decision to disclose environmental information: A research review
and agenda. Advances in Accounting, 21, 83-111.
Li, Y., Zhang, J., & Foo, C.-T. (2013). Towards a theory of social responsibility reporting: Empirical analysis
of 613 CSR reports by listed corporations in China. Chinese Management Studies, 7(4), 519-534.
Liu, G., & Sun, J. (2010). Ultimate ownership structure and corporate disclosure quality: evidence from China.
Managerial Finance, 36(5), 452-467.
Liu, X., & Anbumozhi, V. (2009). Determinant factors of corporate environmental information disclosure: an
empirical study of Chinese listed companies. Journal of Cleaner Production, 17(6), 593-600. doi:
10.1016/j.jclepro.2008.10.001
Lu, Y., & Abeysekera, I. (2014). Stakeholders' power, corporate characteristics, and social and environmental
disclosure: evidence from China. Journal of Cleaner Production, 64, 426-436.
Mathews, M. R. (1995). Social and Environmental Accounting: A Practical Demonstration of Ethical Concern.
Journal of Business Ethics, 14(6).
Michelon, G., & Parbonetti, A. (2012). The effect of corporate governance on sustainability disclosure. Journal
of Management & Governance, 16(3), 477-509.
Michelon, G., Pilonato, S., & Ricceri, F. (2014). CSR reporting practices and the quality of disclosure: An
empirical analysis. Critical Perspectives on Accounting.
Moon, J., Crane, A., & Matten, D. (2005). Can corporations be citizens? Corporate citizenship as a metaphor
for business participation in society. Business Ethics Quarterly, 429-453.
Moreno, A., & Capriotti, P. (2009). Communicating CSR, Citizenship and sustainability on the web. Journal of
Communication Management, 13(2), 157-175.
Muttakin, M. B., & Khan, A. (2014). Determinants of corporate social disclosure: Empirical evidence from
Bangladesh. Advances in Accounting, 30(1), 168-175.
O'dwyer, B. (2002). Managerial perceptions of corporate social disclosure: An Irish story. Accounting, Auditing
& Accountability Journal, 15(3), 406-436.
Pahuja, S. (2009). Relationship between environmental disclosures and corporate characteristics_a study of
large manufacturing companies in India. Social Responsibility Journal, 5(2), 227-244. doi:
10.1108/17471110910964504
Parket, I. R., & Eilbirt, H. (1975). The practice of business social responsibility: the underlying factors.
Business Horizons, 18(4), 5-10. doi: 10.1016/0007-6813(75)90019-1
Perrigot, R., Oxibar, B., & Déjean, F. (2012). Determinants of Corporate Social Disclosure in the Franchising
Sector: Insights from French franchisors' websites. Available at SSRN 2005702.
Rahman, N. H. W. A., Zain, M. M., & Al-Haj, N. H. Y. Y. (2011). CSR Disclosure and Its Determinants:
Evidence from Malaysian Government Link Companies. Social Responsibility Journal, 7(2), 181-201.
doi: 10.1108/17471111111141486
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Reverte, C. (2009). Determinants of Corporate Social Responsibility Disclosure Ratings by Spanish Listed
Firms. Journal of Business Ethics, 88, 351-366. doi: 10.1007/s10551-008-9968-9
Roberts, R. W. (1992). Determinants of corporate social responsibility disclosure: An application of
stakeholder theory. Accounting, Organizations and Society, 17(6), 595-612. doi: 10.1016/03613682(92)90015-k
Rouf, M. A. (2010). Corporate Characteristics, Governance Attributes and The Extent of Voluntary Disclosure
in Bangladesh. Online Open Access Publishing platform for Management Research, from Integrated
Publishing Association
Rupley, K. H., Brown, D., & Marshall, R. S. (2012). Governance, media and the quality of environmental
disclosure.
Journal
of
Accounting
and
Public
Policy,
31(6),
610-640.
doi:
http://dx.doi.org/10.1016/j.jaccpubpol.2012.09.002
Said, R., Omar, N., & Nailah Abdullah, W. (2013). Empirical investigations on boards, business characteristics,
human capital and environmental reporting. Social Responsibility Journal, 9(4), 534-553.
Said, R., Zainuddin, Y. H., & Haron, H. (2009). The Relationship between Corporate Social Responsibility
Disclosure and Corporate Governance Characteristics in Malaysian Public Listed Companies Social
Responsibility Journal, 5(2), 212-226. doi: 10.1108/17471110910964496
Siregar, S. V., & Bachtiar, Y. (2010). Corporate Social Reporting: empirical evidence from Indonesia Stock
Exchange International Journal of Islamic and Middle Eastern Finance and Management, 3(3), 241252.
Skouloudis, A., Jones, N., Malesios, C., & Evangelinos, K. (2014). Trends and determinants of corporate nonfinancial disclosure in Greece. Journal of Cleaner Production, 68(0), 174-188. doi:
http://dx.doi.org/10.1016/j.jclepro.2013.12.048
Sobhani, F. A., Amran, A., & Zainuddin, Y. (2012). Sustainability disclosure in annual reports and websites: a
study of the banking industry in Bangladesh. Journal of Cleaner Production, 23(1), 75-85.
Soliman, M. M., Din, M. B. E., & Sakr, A. (2012). Ownership Structure and CSR: An Empirical Study of the
Listed Companies in Egypt. The International Journal of Social Sciences, 5(1), 63-74.
Souissi, M., & Khlif, H. (2012). Meta-analytic review of disclosure level and cost of equity capital.
International Journal of Accounting & Information Management, 20(1), 49-62.
Suttipun, M., & Stanton, P. (2012). Determinants of Environmental Disclosure in Thai Corporate Annual
Reports. International Journal of Accounting and Financial Reporting, 2(1), 99-115. doi:
10.5296/ijafr.v2il.1458
Uwalomwa, U. (2011). An Examination of the Relationship between Management Ownership and CSR
Disclosure: A Study of Selected Firms in Nigeria. Research Journal of Finance and Accounting, 2(6),
23-30.
Wanderley, L. S. O., Lucian, R., Farache, F., & de Sousa Filho, J. M. (2008). CSR information disclosure on
the web: a context-based approach analysing the influence of country of origin and industry sector.
Journal of Business Ethics, 82(2), 369-378.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Yuan, Y. (2011). Research on the Influential Factors of CSR Information Disclosure. Management &
Engineering, 2, 11-16. doi: 10.5503/J.ME.2011.02.003
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
SHOULD INDONESIA DO REDENOMINATION? ANALYSIS OF EFFECT OF INFLATION AND
EXCHANGE RATE IN 25 COUNTRIES REDENOMINATION
Ihtifazhudin Abadi Bowo, Chalimah, and Siti Yunitarini
[email protected] , [email protected] , and [email protected]
I. INTRODUCTION
In the past 85 years, there were 50 countries that already do redenomination, and some of these
countries there are successes and failures in the implementation of the redenomination. These problems often
lead to inflation, interest rates, export-import, sanering misperceptions, money illution, implementation time,
and the fundamentals of a country's economy, and as well it is possible that a few countries have done
Redenomination due to the range of value exchange rate are still large if compared with international exchange
rate (US dollars) (www.fiskal.depkeu.go.id).
Does Indonesia have to do redenomination ?. This paper assesses that Indonesia needs to do
redenomination, because is developing countries but has a less efficient currency among Asian countries. The
right moment is when Indonesia will be in the global trade area who gathered in ASEAN, State Likewise
Turkey, Romania, Poland and other countries that have done redenomination. Turkey did redenomination when
will join the European regional countries as well as Romania.
Layna Mosley's Research (2005) concluded that the redenomination can increase the credibility of
countries experiencing high inflation and a decline in the value of the currency of a country despite the
redenomination has real costs for short-term and long-term. Mosley stated that political factors (political
variables) should not be overlooked. Political variables include: the government's time horizon, the governing
party's ideology, the fractionalization of the government and Legislature, etc. It is therefore recommended that
in doing redenomination should pay attention to the balance of the economic factors and political factors.
Layna Mosley's Research (2005) concluded that the redenomination can increase countries credibility
that experiencing high inflation and a decline currency value of country, despite the redenomination has real
costs for short-term and long-term. Mosley stated that political factors (political variables) should not be
overlooked. Political variables include: the government's time horizon, the governing party's ideology, the
fractionalization of the government and Legislature, etc. It is therefore recommended that in doing
redenomination should pay attention to the balance of the economic factors and political factors.
Tongam Sihol Nababan's Research (2010) concluded that many aspects that affect and are affected by
the redenomination, one of which is the socialization of the society in which a country do redenomination.
Harryadin Mahardika, et all (2012) concluded that the respondents (consumers) agree that there
redenomination of dollars. The relationship between X1 and Y indicates that ± 70% of respondents claimed to
know redenomination and agreed to be implementation. While the relationship between X2 and Y indicates that
the respondent was not affected when administered 2 reference price which is the price of the old currency and
the new currency.
Abeokuta and Ijebu Ode's Research (2013) on currency recalibration (redenomination and
restructuring). The impact of currency restructuring policy in the context of macroeconomic implications for
Nigeria significantly lower, probably not push inflation policy in an open economy. However redenomination
has been very successful in stabilizing the macroeconomic environment, inflation is declining, stable exchange
rate, fiscal restraint and prudence and rational policy credibility. The result however, indicates that the currency
denomination of any kind is only possible in countries with high levels of output, which Nigeria has not been
reached. Therefore, this paper recommends that, before the start of the currency restructuring policy, the
government must put fiscal and monetary policies are appropriate to promote the production so as to improve
the economic base of the nation's monetary sector sustainable.
Ioana Duca's research (2005) shows that redenomination is a technical procedure reducing the nominal
value of cash ensigns, which already held approximately 50 countries as part of economic reforms. Rediunduh dari:
denomination does not change the substance of the national currency,
but it is important because the
www.multiparadigma.lecture.ub.ac.id
psychological impact, both nationally and internationally. re-denomination of the national currency should be
done only when the following conditions are met:
(1) Decrease in consolidated inflation. Low inflation rate, joined dropping-zero operation will increase the
credibility of the national currency;
(2) The positive results obtained significant other, proving the success of economic reform and restructuring
(eg real terms increase in GDP). This has been demonstrated in most of the countries that put the process of
re-denomination as a policy in inflation decreasing and effort to keep inflation under controlled margins.
Safdari Mehdi and Motiee Reza’s Research (2012) shows that the value of the national currency in
each country depends on many factors, including: The position in the global economy, efficiency and cost of
government, political stability, law and justice to attract foreign capital, and the principles of international law.
In the economy, the most important of elimination-zero application (redenomination) maintain the the national
of currency value. The results of this study showed that the success rate associated with the implementation
plan and the authorities, like many other projects. Of course in the end, correct and complete implementation of
this project is to evaluate the economic benefits.
The high inflation is to affect the redenomination, because with redenomination can be muted inflation
than select options sanering, raise interest or taxes, or other policies that can be inflicted losses to the people.
Currency exchange rates or exchange rate can influence the redenomination of the efficiency and public
confidence in the domestic currency against the dollar and the euro. High interest rates can trigger other
economic factors such as hyperinflation that the country will experience a financial crisis and to reduce the
confidence of domestic currency for the people. Export-Import can affect the redenomination if the domestic of
currency value in a country less gain influence / attention of other countries, including countries in the region.
Misperception Sanering can affect the redenomination when creating community psychology paradigm for
cutting currency so that people are reluctant to save and prefer gold than the domestic currency. Money illution
could affect the redenomination when most people assume that the redenomination policy just drain the wealth
of the people as well as sanering. Implementation time of the policy, this can affect the redenomination when
preparing the application and implementation of the redenomination is not mature, and can cause a lot of harm.
Economic fundamental factors of a country can affect the redenomination because redenomination successfully
implemented when the fundamental factors in conditions that allow is good. Thus it can be stated that some of
the factors that affect the redenomination include: Inflation, Exchange Rates, Interest rates, Export-Import,
misperceptions sanering, money illution, implementation time, andEcomonic fundamental factors of a country.
However, to be achieved through this research are: (1) To determine and analyze the effect of inflation
on the redenomination, and (2) To determine and analyze the effect of exchange rate on the redenomination.
II. RESEARCH FRAMEWORK
2.1. Redenomination
Redenomination is simplifying denominations (fractional) currency into fractions less by reducing
digits (zero) without reducing the currency value. The same thing simultaneously performed also in the good
prices , so the purchasing power has not changed.
Redenomination done when a stable macro-economic conditions, economic growth and inflation
control. Redenomination well prepared and measured to the public is ready, so as not to cause turbulence in the
community psychology. Redenomination is very different from the sanering, as in table 1
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Table 1: Redenomination difference with sanering
PARAMETERS
ACTION
Goal
REDENOMINATION
Simplification denomination (fractional)
currency into smaller denominations by
eliminating / reducing the digit 0 (zero)
without reducing the value of the
currency.
- Minimize and freshen transaction
- Balance the regional economy by
State
SANERING
Cutting the value of
the currency
denomination
Reducing the amount
of money in
circulation
MONEY
VALUE OF
GOODS
EFFECT ON
THE PRICE OF
GOODS
PURCHASING
POWER
LOSS
Fix
Reduce
Effect (rounding a sharp upward price if
not provided small currency
denominations (cents)
no effect
Fix
down
no harm
CONDITION
WHEN DONE
Stable macro economy, economic
growth, and inflation controlled
harm
Macroeconomic
instability,
hyperinflation
Suddenly and without
preparation
MOMENTUM
Gradually, the proper preparation and
OF DONE
measurable
* assembled from various sources
2.2. Inflation
Inflation is a process of rising prices in general and continuous with regard to market mechanisms that
can be caused by various factors, among others, increased private consumption, excess liquidity in the market
which lead to the consumption or even speculation, to include also result the existence of the launch of
distribution of goods. In other words, inflation is also a process of decline in currency values continuously.
Inflation is the process of an event, not a high-low level of prices. That is, the perceived high price level is not
necessarily indicate inflation. Inflation is an indicator to see the rate of change, and is considered to occur if the
price increase takes place continuously and influence each other. The term inflation is also used to mean an
increase in money supply which is sometimes seen as the cause of rising prices. (Brigham dan Houston, 2010)
Inflation can be caused by two things, demand pull inflation and cost push inflation (Brigham dan
Houston, 2010)
Demand pull inflation occurs due to excessive total demand which is usually triggered by a flood of
liquidity in the market resulting in high demand and trigger changes in the price level. The flood of liquidity in
the market is also caused by many factors in addition to the main course of the Central Bank's ability to
regulate the circulation of money, interest rate policy of the Central Bank, to the speculation that occurred in
the financial industry sector. (Agus Sartono. R, 2010)
Cost push inflation occurs due to the scarcity of production and / or also including the scarcity of
distribution, although demand is generally no changes are improved significantly. Decreased production itself
can result from a variety of things such as the existence of a technical problem at the source of production
diunduh dari:
(factories, plantations), natural disasters, weather, or the scarcity of raw
materials to produce the production,
www.multiparadigma.lecture.ub.ac.id
and speculation (hoarding), thus triggering the production relative scarcity in market. Likewise, the same thing
can happen in the distribution, which in this case infrastructure factors play a very important role. Increased
production costs can be caused two things, namely the rise in prices, for example, raw materials and an increase
in salaries / wages, for example, civil servants salary increase will lead to private businesses to raise the price
of goods (Agus Sartono. R, 2010).
Inflation can also be classified according to the intensity, namely
 Moderate Low Inflation (inflation 1 digits) for example 1% to 9%, usually people still believe and have the
purchasing power and also the currency value is still valuable.
 Galloping Inflation (two-digit inflation) for example 10% to 99%, where people began to doubt, purchasing
power decreases, the currency value becomes increasingly declining.
 Hyper Inflation (high inflation of over 100%) is the process of rising prices very quickly, which causes the
price level to two or more times in a short time period, circumstances like these people have no trust in the
currency. Where the nominal value of money so worthless if this situation occurs, the government did
Sanering is cutting of money value (Sadono Sukirno, 2002)
Inflation has a positive and negative impact depending on severity on inflation. If inflation is lightweight, it
has a positive effect in the sense that can stimulate the economy better, which increases national income and
make people eager to work, saving and investment holding. Conversely, in times of severe inflation, which in
the event of uncontrolled inflation, the state of the economy into chaos and felt sluggish economy. People are
not excited about working, saving, or hold investments and production as prices are rising rapidly. The
recipients of fixed income such as civil servants or private employees and workers will also be overwhelmed
bore and offset the price so that their life is low and fell from time to time (Agus Sartono. R, 2010).
2.3. Exchange Rate
Exchange rate is a number that indicating the exchange rate of the domestic currency against foreign
currencies. There are two kinds of exchange rate system, the system of fixed exchange rates and a floating
exchange rate system. The system of fixed exchange rates is where the exchange rate of each foreign currency
locked in domestic currency amount, while the floating exchange rate system is where the exchange rate of
each foreign currency is allowed to vary on a number of domestic currency.
In a fixed exchange rate system, the Central Bank contribute a maximum of keeping its currency
exchange rate that has not changed from par value specified. It is not easy to curb the exchange rate so as not
change from par value set, let alone day-to-day-basis. Impose exchange rate to remain and not change to
requires the Central Bank to provide a large amount of foreign exchange reserves. Therefore, the system of
fixed exchange rates then tolerated by providing a space for the exchange rate to fluctuate from par value, but
its fluctuation is limited just to the upper band and the lower band are determined by the Central Bank. If the
exchange rate moves up to get out of the upper band of his or down to exit the lower band it, the Central Bank
intervened in the foreign exchange market by selling foreign exchange to reduce the rate or buying to raise the
rate.
Central Bank can widen the upper interval limit-down by raising the upper limit and lose
proportionately lower limit of the par value. For example, initially the rupiah exchange rate against the dollar
(USD / $) is authorized by Central Bank to move plus 10% and minus 10% of the par value of Rp. 10,000.
This means that Central Bank did not intervene in the foreign exchange market for the exchange rate USD / $
move between Rp. 11,000 (Rp. 10,000+ (Rp. 10.000x10%)) and Rp. 9,000 (Rp Rp. 10,000-(Rp. 10.000x10%)).
Exchange rate system is called fixed exchang rate with winder bands.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Periodically, for example weekly or monthly, Central Bank may raise or lower the upper limit-down
without changing the upper limit of the interval-bottom. For example, the exchange rate against the dollar
(USD / $) was originally authorized by the bank engaged in the interval Rp. 10,000 / $ and Rp. 8,000 / $, then
to Rp. 11,000 / $ and Rp. 9,000 / $, and converted to USD. 9,000 / $ and Rp. 7,000 / $, and so on. Exchange
rate system is called crawling peg system, it is intended to exchange rate in line with the motion can be longterm trend.
In a floating exchange rate system, where the exchange rate is determined by the market mechanism,
Central Bank did not maximum contribute in the foreign exchange market. Central Bank did not intervene and
act fully as in the fixed rate system. However, the market mechanism that the struggle between the demand and
supply of foreign currency exchange rates, sometimes fluctuate push sharply or move illegally to become
uncontrollable. By Central Bank, it is felt to interfere with the export-import and investment activities.
Wildness exchange rate fluctuates within the framework of a floating exchange rate system finally invites
Central Bank to minimum contribute and just make a smoothing of the exchange rate movements. The
combination of a floating exchange rate system plus smoothing policy is called a dirty float. Thus fixed
exchange rate with winder bands, crawling peg system, and a dirty float is three exchange system that sits
between a fixed exchange rate system and a floating exchange rate system (Jose Rizal Joesoef, 2008).
In the sometime. increasing money supply trigger increasing price, if prices are rising continuously and
affect other commodity prices will lead to inflation. The high rate of inflation may affect the redenomination
because redenomination is expected to relieve or suppress the high inflation rate which has been prepared
carefully. Similarly, the exchange rate of a country who feel the nominal value of its currency is too large will
do the efficiency by reducing the nominal value of its currency or domination (redenomination) to equate the
country with other countries and regional countries. Based on the description above, the framework can be
constructed as follows:
Scheme 1: Research Framework
Inflation
(X1)
Redenomination
(Y)
Exchange Rate
(X2)
III. METHODOLOGY
3.1. Research Object
Objects in this study is redenomination who have done some parts of the country in the world, with state
criteria as follows:
1.
2.
3.
4.
Countries that have done Redenomination not Sanering.
Countries that have inflation data in while doing Redenomination.
Countries that have exchange rate data in while doing Redenomination.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Countries that have data for at least one of the points 2 or 3 in the
year while doing Redenomination.
5. Countries that have data changes in the old currency into the new currency after redenomination.
6. State that has historical data on the implementation of the redenomination (if any and published).
Based on the criteria of research that has been determined, then the countries sampled in this study are as
follows shown in the following table
Table 2 : Countries as Research Sample
No.
Countries as
Research Sample
1
2
3
4
5
6
7
8
9
10
11
12
13
Afghanistan
Angola
Argentina
Azerbaijan
Belarus
Bolivia
Brazil
Bulgaria
Congo, Dem, Rep.
Croatia
Georgia
Israel
Israel
Redenomination
implementation No.
Year
2002
14
1999
15
1992
16
1992
17
2000
18
1987
19
1986
20
1999
21
1998
22
1994
23
1995
24
1980
25
1985
Countries as
Research
Sample
Latvia
Peru
Peru
Polandia
Romania
Russia
Sudan
Turki
Uganda
Ukraina
Uruguay
Iceland
Redenomination
implementation
Year
1993
1985
1991
1995
2005
1998
1992
2005
1987
1996
1993
1981
3.2. Operationalization of Variables
Related to the issues to be addressed in this study, it can be explained operational variables of this study
is dependent and independent variable.
a. Inflation
Inflation measured by the Consumer Price Index / CPI (% per year). Inflation as measured by the
consumer price index reflects the annual percentage change in the cost to the average consumer to obtain a
basket of goods and services that can be fixed or changed at specified intervals, such as yearly.
CPI=
And than counting inflation rate by the formula;
Inflation rate =
Note: n is period
b. Exchange Rate
Exchange rate measured by the official exchange rate (LCU per US $, period average). Official exchange
rate refers to the exchange rate determined by national authorities or the level specified in the exchange market
legal sanctions. It is calculated as an annual average based on monthly averages (local currency units relative to
the US dollar).
c. Redenomination
Redenomination measured using the index figure for the percentage change in nominal currency.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Figures index is a concept which can give you an idea of the changes in the variables of a period to the
next period. Thus the index numbers can be interpreted as the comparative figures relative changes expressed
in percentage (%) against another.
Formula to find the percentage of redenomination by using the index number formula:
Redenomination =
3.3 Analysis Method
In this study used four classic assumption test, namely: normality test, heteroscedasticity,
multicollinearity, and autocorrelation test. Test models using a goodness of fit with the One-Sample
Kolmogorov-Smirnov test, R². Data analysis used multiple regression analysis, and t test (Ghozali, 2011).
IV. FINDING AND DISCUSSION
Table 4 :
Inflation, Exchange rate, and Redenomination
Countries as Redenomination
%
No.
Research
implementation
Inflation
Sample
Year
%
exchange
rate
(local
currency/
US $)
1
Afghanistan
2002
0
47,26
2
Angola
1999
248,20
2,79
3
Argentina
1992
40,24
0,99
4
Azerbaijan
1992
912
0,01
5
Belarus
2000
169
876,25
6
Bolivia
1987
14,6
2,05
7
Brazil
1986
147,1
0
8
Bulgaria
1999
2,6
1,84
9
Congo,
Dem, Rep.
1998
29,1
1,61
units and Value
new currency
after the
%
Redenomination Redenomination
(Duca Ioana,
2005)
1.000 Afgani = 1/1.000 x 100%
1 New Afgani = 0,1
1.000.000
1/1.000.000 x
Kwanzas
100%
Reajustado = 1
= 0,0001
Kwanza
10.000 Australes 1/10.000 x
= 1 Peso
100%
Convertible
= 0,01
10 Soviet
1/10 x 100%
Rubels
= 10
= 1 Manat
1.000 Rubles
1/1.000 x 100%
= 1 New Ruble = 0,1
1.000.000 Peso 1/1.000.000 x
Bolivianos
100%
= 1 Bolivianos = 0,0001
1.000 Cruzeiros 1/1.000 x 100%
= 1 Cruzado
= 0,1
1.000 Old Leva 1/1.000 x 100%
= 1 New Leva = 0,1
100.000 New
1/100.000 x
diunduh dari:
Zaire
100%
www.multiparadigma.lecture.ub.ac.id
10
Croatia
1994
107
6
11
Georgia
1995
162,70
0
12
Israel
1980
131
0,01
13
Israel
1985
304,6
1,18
14
Latvia
1993
109
0,68
15
Peru
1985
163,4
0
16
Peru
1991
409,5
0,77
17
Polandia
1995
28,1
2,42
18
Romania
2005
9
2,91
19
Russia
1998
27,7
9,71
20
Sudan
1992
117,6
0,1
21
Turki
2005
10,1
1,34
22
Uganda
1987
200
42,84
23
Ukraina
1996
80,3
1,83
24
Uruguay
1993
54,1
3,94
25
Iceland
1981
50,8
7,22
= 1 Franc
= 0,001
Congolaise
1.000 Croation 1/1.000 x 100%
Dinara = 1 Kuna = 0,1
1/1.000.000 x
1.000.000
100%
Kuponi = 1 Lari
= 0,0001
10 Pounds = 1 1/10 x 100%
Sheqel
= 10
1.000 Old
1/1.000 x 100%
Sheqalim
= 0,1
= 1 New Sheqel
100 Talonu = 1 1/100 x 100%
Litas
=1
1.000 Soles = 1 1/1.000 x 100%
Inti
= 0,1
1/1.000.000 x
1.000.000 Intis
100%
= 1 New Sol
= 0,0001
10.000 Old
1/10.000 x
Zlotych = 1 New 100%
Zloty
= 0,01
1/10.000 x
10.000 Old Lei
100%
= 1 New Leu
= 0,01
1.000 Rubles = 1/1.000 x 100%
1 New Ruble
= 0,1
10 Pounds = 1 1/10 x 100%
Dinar
= 10
1/1.000.000 x
1.000.000 Lirasi
100%
= 1 New Lirasi
= 0,0001
100 Shillings = 1/100 x 100%
1 New Shilling = 1
100.000
1/100.000 x
Karbovanets = 1 100%
Hryvnia
= 0,001
1.000 New
1/1.000 x 100%
Pesos = 1 Peso
= 0,1
Uruguayo
100 Old Kronur 1/100 x 100%
= 1 Krona
=1
Various conditions of inflation in the countries sampled, grouped into four conditions as follows:
1. Light (<10%): Afghanistan, Bulgaria, and Romania.
diunduh
dari: and Turki.
2. Medium (10%-30%): Bolivia, Congo.Dem.Rep, Polandia,
Russia,
www.multiparadigma.lecture.ub.ac.id
3. Hight (30%-100%): Argentina, Ukraina, Uruguay, and Iceland.
4. Hyperinflation (>100%): Angola, Azerbaijan, Belarus, Brazil, Croatia, Georgia, Israel (’80
dan ‘85), Latvia, Peru (’85 dan ‘91), Sudan, and Uganda.
The inflation of 4 conditions can be concluded that many countries do redenomination due to have
hyperinflation, by doing redenomination expected inflation rate can be reduced.
From the above data shows that redenomination is not just a matter of want to reduce inflation, but some
countries do redenomination for want of domestic currency in parallel with the dollar and the euro. So that
when the local currency demanded by the natives as well as the dollar or the euro will happen ratio will
increase local currency per dollar or euro. Countries included in this case is Poland and some other countries,
with redenominating zeros in the currency expected to be able to boost the efficiency and interest in the use of
the local currency for the transaction of business or capital markets
Four test classic assumptions, namely: normality test, heteroscedasticity, multicollinearity,
autocorrelation, and the goodness of fit test, showed the following results:
1. The image histogram shows that the sample is Normal distribution for forming a bell curve, and the picture
Normal P-P Plot shows that the Normal distribution sample for the points located around the line.
2. With the Prak Gleyser method graphical, indicates that the sample does not contain Heteroskidastity
symptoms because sig.Inflasi value (0.241) and sig.Kurs (0,452), both showed greater than alpha (α =
0.05).
3. The Tolerance value of less than 10 (inflation and exchange rate = 1.000 = 1.000), showing no symptoms of
Multicolinearity.
4. The Durbin-Watson value= 2.313, the number of independent variables (k) = 2 and samples number (n) =
25, then dL and dU value obtained with the help of DW table as follows: dL = 1.2063 and dU = 1.5495 .
Then we find 4-dL (4 to 1.2063 = 2.7937) and 4-dU (4 to 1.5495 = 2.4505), and the result turned out to be
the DW = 2.313 to 4-dU dU so the conclusion is no autocorrelation and decision received.
5. Asymp.Sig. (2-tailed) value = 0.052, indicating a greater than α = 0.05 indicates the suitability of the
model in this study and the normal distribution. While coefficient of determination (R2) value of 0.247 or
24.7%. This means that redenomination (Y) is only able to contribute approximately 24.7% of the changes
that occurred in inflation variable (X1) and Exchange rate (X2).
6. Regression coefficients and t-test can be seen in the following table:
Table 4 :
Regression Coefficients
Standardized
Coefficients
Coefficients
Model
1
B
Std. Error
(Constant)
.248
.755
Inflasi
.008
.003
.003
Kurs
-.002
a. Dependent Variable: Redenominasi
Beta
t
Sig.
.329
.746
.489
2.640
.015
-.100
-.541
.594
a. t value of Inflation (X1) = 2,640 and sig. of 0.015 which is smaller than α (0.05), so Inflation (X1)
significantly affects the redenomination (Y).
b. t value (X2)of Exchange rate is -0.541 and sig. of 0.594 which is greater than α (0.05), so that the exchange
rate (X2) effect but not significantly the redenomination (Y).
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
V. CONCLUSIONS AND SUGGESTIONS
5.1. Effect of Inflation on redenomination.
Inflation significant effect on redenomination. It is not contrary to the application of the common
redenomination or do some countries which are often the benchmark for many countries which do
redenomination when hyperinflation hit the country.
These results are consistent with Layna Mosley research (2005) which states that inflation significant
effect on redenomination. The same thing also expressed by Ioana Duca (2005) also concluded that inflation
significant effect and on redenomination
5.2. Effect of exchange rate on redenomination.
Exchange rate not significant effect on redenomination. This is contrary to the application of the common
redenomination or do some countries which are often the benchmark for many countries which do
redenomination when feeling domestic currency exchange rate against the dollar getting away, and because the
domestic currency or less desirable because it prefers to use dollars. So that residents and traders will not be
keen to use the domestic currency and would prefer to trade the currency in the form of dollars or gold.
Results were not in accordance with the results of Layna Mosley (2005) which states that not all countries
do Redenomination due to high inflation rate just yet many countries that do redenomination of seeing the ratio
of domestic currency against the dollar, so the exchange rate effect on redenomination. Safdari and Motiee
Mehdi Reza (2012) also stated that in the economy, the most important of elimination-zero application
(redenomination) maintain the national currency value. These results indicate that the effect on the
redenomination of the national currency and the national economy. success rate associated with the
implementation plan and the authorities, etc., It can be concluded that the exchange rate affects the
redenomination.
Judging from the data results of the calculation are three momentum redenomination of the unknown
value of the exchange rate to be used in research that zeros in Brazil (1986), Georgia (1995), and Peru (1985).
This is what may cause significant influence between the exchange rate of the redenomination
5.3. Inflation and exchange rate predictions in Indonesia on redenomination
Indonesia currently has a fairly low inflation in the range of 6.4% in March 2015 and the exchange rate
against the dollar is 12.877,24 per US $ in March 2015. Although the inflation rate in a low condition, but this
is the right moment for Indonesia Redenomination because the domestic currency value against the dollar is too
high and causes less public confidence in the rupiah. On the other hand Indonesia will join the global trade
market with ASEAN or Asean Economic Community (AEC).
Redenomination of the rupiah is expected to realize an efficient and attractive to domestic society than
foreign currency. While the economy is stable and controllable as Indonesia's current situation, indeed it is the
right time for the successful implementation of redenomination.
VI. REFERENCES
Abeokuta dan Ijebu Ode. 2013. Macroeconomic Implication of Currency Management in Nigeria: A
Synthesis of the Literature. British Journal of Economics, Finance and Management Sciences, vol.8,
no.1, June 2013: 12-28
Agus Sartono, R. 2010. Manajemen Keuangan Teori dan Aplikasi; Edisi Keempat, BPFE Yogyakarta,
Yogyakarta, Cetakan Keempat.
Brigham dan Houston, 2010. Dasar-dasar Manajemen Keuangan; Edisi Kesebelas, Salemba Empat, Jakarta.
Duca, Ioana. 2005. The National Currency Re-Denomination Experience In Several Countries – A
Comparative Analysis. Titu Maiorescu University Bucharest.
Harryadin Mahardika, et all. 2012. Dampak Redenominasi Rupiah Terhadap Konsumen. UI. Depok
Ghozali, Imam. 2011. Aplikasi Analisis Multivariate Dengan Program
IMB SPSS
diunduh
dari: 19. Edisi Kelima. Badan
www.multiparadigma.lecture.ub.ac.id
Penerbit Universitas Diponegoro. Semarang.
Jose Rizal Joesoef. 2008. Pasar Uang dan Pasar Valuta Asing. Jakarta: Salemba Empat.
Mosley, Layna. 2005. Dropping Zero, Gaining Credibility? Currency Redenominasi in Developing Nations.
Dept. Political Science. University of North Carolina, Chapel Hill, NC, USA.
Sadono Sukirno. 2002. Pengantar Teori Makroekonomi. Edisi Kedua. Jakarta: PT RajaGrafindo Persada.
Safdari Mehdi dan Motiee Reza. 2012. An investigating Zeros Elimination of the National Currency and Its
Effect on National Economy (Case study in Iran)”. Pelagia ResearchLibrary, European Journal of
Experimental Biology, Vol. 2 (4):1137-1143
Tongam Sihol Nababan. 2010. Redenominasi Mata Uang: Isu Panas Bagi Rupiah. Volume II. UHN. Medan
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
The Effect of Environmental Performance and Corporate Social Responsibility Disclosure to Corporate
Financial Performance
Yessica Natalia
Imam Subekti
Faculty of Economic and Business, Brawijaya University
1. INTRODUCTION
In this globalization and technological advance era, competition among business sectors is being more
rigorous. For go-public companies, the competition does not only occur between the same industrial sectors,
but also occurs in the inter-industry sectors. During the year of 2013, Indonesian manufacturing industries fell
in line with the rising of crude oil prices and the depreciation of rupiah against the U.S. dollar (Tirani, 2013).
Economic crisis in Europe and USA also gave negative impacts to Indonesian manufacturing companies. In
facing the threat of crisis in Europe and USA, Indonesian Ministry of Industry has set three priority steps to
encourage the growth of the national manufacturing industry and one of those steps is maintaining the increase
in domestic investment.
Many companies often violate the principles of profit maximization to get funding and attract investors
such as low environmental management, poor environmental performance, and lack of interest in social
aspects. To date, a company is an organization that is expected to give a lot positive impacts to the society and
consideration about surrounding environmental sustainability. The positive impacts that can be given by the
companies are opening job opportunities, reducing the number of unemployment, increasing amount of GDP,
producing consumer goods or services, and resource relocation. However, people realize that many negative
social impacts are caused by companies. Then the public is demanding that company can pay attention and take
action to the social impact caused by its production activities.
Public sue the companies on the negative impacts that become worse and uncontrollable such as
pollution, poisoning, noise, discrimination, coercion, authoritarianism, and unclean food production. People
want the impacts to be controlled because the social impact on people's lives is huge. Based on this
phenomenon, accounting science experienced some development. So far, accounting only provide information
about the activities of the company to the third parties (stockholders and bondholders) which has direct
contribution to the company, while other parties are often neglected. By the existence of these demands, now
accounting summarizes information not only about the company's relationship with the third parties, but also
with the environment.
The concept of environmental accounting is already started to develop since 1970s in Europe (Almilia
and Wijayanto, 2007). More recently, there has been a belief held by many people that modern businesses have
a responsibility to society that extends beyond the stockholders or investors in the firm. They believe that
business exists for more than profits (or economic goals), with the public expecting something else from
business. As a result, the original concept of social responsibility involving the maximization of profits has
been modified. Not only profits have to be made, but also the social aspect has to be considered.
The environmental issues nowadays are being a concern by the government, consumers, and investors.
To complete the rules that are already exist, the government of Indonesia through the Ministry of Environment
established Performance Rating Program in Environmental Management (PROPER), which has implemented
since 1995 in the field of environmental impact management to improve the company's role in environmental
conservation program. Company's environmental performance is measured using colors ranging from the best
to the worst; gold; green; blue; red; and black. Then it would be easy for the society to determine how the level
of structuring corporate environmental performance is.
The research conducted by Pfleiger et al (2005) showed that the efforts of environmental conservation
by the company would bring a number of benefits, including the interest of shareholders and stakeholders of
the company's profits due to environmental management that is responsible
ondari:
the public’s perception. Other
diunduh
www.multiparadigma.lecture.ub.ac.id
results indicate that the good environmental management can avoid claims of society and government as well
as improve the quality of product which on ultimately will be able to increase the company’s financial profit.
Public, as one component of stakeholders also wants to know how big the impact of the company's
activities for the society. For that, the company is required to provide information about the performance to the
public. Some forms of media can be used by companies to present environmental reports, one of them is
Corporate Social Responsibility (CSR) report. The rules about the implementation of CSR have been defined in
the UU no. 40 of 2007, which stated that if the company carries on business in the field or in connection with
the resources, it required to carry out social or environmental responsibility. If not it will be subjected to
sanctions in accordance with laws and regulations. Law no. 25 of 2007 about Investment stated that every
investor must carry out corporate social responsibility and obligation to preserve the environment.
Companies consider CSR not only as the form of cost, but also as an investment to improve the image
of the company, can ensure the sustainability, and corporate facilities in contribute to the social, economic, and
a better environment for communities around the company to be looked legitimate among stakeholders. Current
global trend is the inclusion of the company that began implementing CSR in capital market activity. For
example, New York Stock Exchange has the Dow Jones Sustainability Index (DJSI) for the share of a company
that has a value of corporate sustainability categorized by one of the criteria is the implementation of CSR.
This study tries to examine the influence of environmental performance and Corporate Social
Responsibility (CSR) Disclosure to corporate financial performance by using data from basic industry and
chemical companies listed in IDX and join PROPER program over the period of 2010-2012. Corporate Social
Responsibility disclosure is measured using Global Reporting Initiative Index and corporate financial
performance using stocks expected return. This study also added some control variables that are earnings per
share, book value per share, and cash flow of operating per share.
2. LITERATURE REVIEW AND HYPOTHESIS DEVELOPMENT
The purpose of this supplementary report is to provide additional information regarding to the
company’s activities as well as a mean to give signal to stakeholders about other matters, such as providing the
signal about the company's concern for the environment. These signals are expected to be positively accepted
by the market so it can affect company market performance that is reflected on company stock price. Thus,
signaling theory emphasizes that the company will likely present more complete information to gain a better
reputation than companies that do not disclose, which eventually will attract investors.
Based on ISO 14001, environmental performance is all about how well an organization manages the
environmental aspects of its activities, products, and services and the impact they have on the environment. In
Indonesia, environmental performance can be measured by PROPER (Performance Rating Program in
Environmental Management). The program aims to encourage companies adhere to environmental regulations
and achieve environmental advantages (environmental excellence) through the integration of the principles of
development sustainable production processes and services, with the implementation of environmental
management systems, 4R, energy efficiency, resource conservation and ethical business conduct and
responsible to the community through community development programs. PROPER assessment data sources
mainly come from self-monitoring data that are undertaken by the company in accordance with applicable
regulations. The technical team assessing the data based on the self-monitoring by checking the documents of
accredited laboratory test results. The self-monitoring data will be verified by the technical team as a function
of check-recheck the data self-monitoring company. The ranking in the PROPER range in gold, green, blue,
red, and black (from the best to the worst).
Corporate social responsibility means that a corporation should be held accountable for any of its
actions that affect people, their communities, and their environment (Post, Lawrence, and Weber, 2002). Many
of today’s corporate executives see themselves as steward, or trustees, who act in the general public interest.
diunduh dari:
Post et al. (2002) also stated that although the companies are privatelywww.multiparadigma.lecture.ub.ac.id
owned and try to make profits for the
stakeholders, business leaders who follow the stewardship principle believe they have an obligation to see that
everyone, particularly those in need benefits from their firms actions.
The guideline that most widely used as a foundation in CSR reporting is GRI (Global Reporting
Initiative). GRI established in New York in 1997 and now is centered in Amsterdam. It is a network-based
organization that has pioneered the development of the world, most use of sustainability reporting framework
and is committed to its continuous improvement and application in around the world
(www.globalreporting.org). Based on Global Reporting Initiative (2013), the indicators contained in the GRI
are economic performance indicators, environmental performance indicators, labor practice performance
indicators, human rights performance indicators, social performance indicators, and product responsibility
performance indicators.
2.1 The Effect of Environmental Performance to Corporate Financial Performance
Some researches indicate that environmental performance will affect corporate financial performance.
Suratno, et al. (2006) found that there is a significant effect of environmental performance towards financial
performance. It is explained that environmental performance of the company give an effect to corporate
financial performance. Based on legitimacy theory, the company continues striving to ensure that they operate
within framework and norms that exists in the community or environment where the company is, where they
are trying to ensure that their activities are accepted by external parties as a “valid” (Deegan, Rankin, and
Tobin, 2002).
Company uses their annual report to describe the impression of environmental and financial
responsibility, so they can be accepted by the public. With the acceptance of the public, it is expected to attract
more investors that can increase company’s value and profit. This provides an explanation that corporate
financial performance gives an effect on corporate financial performance. Thus, the first research hypothesis in
this study is:
H1: Environmental Performance has positive impact towards Corporate Financial Performance.
2.2 The Effect of Corporate Social Responsibility Disclosure to Corporate Financial Performance
Corporate Social Responsibility Disclosure is a method by which the management will be able to
interact with the community widely, to influence public perception to an organization or company. Therefore,
company should disclose environmental information and quality so the company can be categorized as having
good environmental performance. Company is expected to get social legitimacy and maximize their financial
strength in a long-term period by implementing CSR. The disclosure of CSR will be listed in annual report so
public and market agents will determine the company’s performance.
Based on stakeholder theory, company is not an entity that only operates for its own sake, but also must
provide benefits for stakeholders (Ghozali and Chariri, 2007). To provide benefits for stakeholders, company
can implement various strategies such as environmental conservations, labor assurance, increasing product
quality and safety, etc. All of those strategies are included in Corporate Social Responsibility elements. The
relationship between CSR Disclosure and Corporate Financial Performance also can be linked with signaling
theory that gives a signal about company performance and activities to the society. The information contained
in annual report have an important role in capital market, either for investors individually or market as a whole.
Thus, the second hypothesis for this study is:
H2: Corporate Social Responsibility Disclosure has positive impact on Corporate Financial Performance.
3. RESEARCH METHOD
3.1. Population and Sample
The population in this research is manufacturing companies engaged in basic industry and chemical
diunduh
dari:
sector that listed in Indonesia Stock Exchange over 2010-2012. Based on
IDX Factbook
2010-2012, companies
www.multiparadigma.lecture.ub.ac.id
that listed in year 2010 are 58 companies, in year 2011 are 59 companies, while in year 2012 are 60 companies.
Total of basic industry and chemical companies listed in IDX over 2010-2012 are 177 companies. The
selection of the study is based on several criteria related to variables research that will be discussed.
The research object in this research is chosen by using judgment sampling, which is one form of nonprobability sampling method. There are 55 samples that fulfill the criteria of variables research. The summary
of observation samples are presented below.
Table 1
The Result of Sample Selection Process
Description
The
number
of
observation research
(firm year)
Number of basic industry and chemical companies listed in IDX
over period 2010-2012
177
Criteria:
- Companies that do not join PROPER program over
(118)
2010-2012
- Companies that do not publish annual report yet
(4)
Total samples
55
3.2. Type and Source of Research Data
Type of data used in this research is secondary data, in the form of company annual report, which is
obtained from company’s official website. Other data such as stock prices, dividend, earnings per share, book
value per share, and cash flow of operating per share were obtained from the official website of IDX
(www.idx.co.id), Indonesian Capital Markets Database from IDX Corner (pojok BEI) of Economic and
Business Faculty Brawijaya University Malang, and official websites of each sample company. Corporate
Social Responsibility disclosure data were obtained from annual report of each company. While environmental
performance data were obtained from database from Indonesian Ministry of Environment.
Operational Definition and Variable Measurement
Variables used in this research are Environmental Performance (EP) and Corporate Social
Responsibility Disclosure (CSRD) as independent variables. Researcher also use some control variables that
are Earnings per Share (EPS), Book Value per Share (BVS), and Cash Flow of Operating per Share (CFOS).
While Corporate Financial Performance (CFP) used as dependent variable.
3.3.1. Environmental Performance (EP)
Environmental performance is measured from the achievements of the company to follow the PROPER
program. PROPER program is one of the efforts made by the Ministry of Environment to encourage corporate
structuring in environmental management through information instruments. The ranking system also included
the rating companies in five colors that are:
Table 2
PROPER Ranking Criteria
Ranking
Score
Explanation
Gold
5
Environmental excellent is shown consistently in the production
process and/or services, implementing ethical business and
responsible to the community.
Green
4
Environmental management has conducted more than that is required
by the regulation (beyond compliance) through the efforts of the 4Rs
(Reduce, Reuse, Recycle and Recovery), and the efforts of social
diunduh dari:
responsibility (CSR / ComDev).
www.multiparadigma.lecture.ub.ac.id
Blue
3
Environmental management has made efforts required in accordance
with the provisions or regulations.
Red
2
There is environmental management efforts, but only partially
achieve the appropriate results with the requirements stipulated in
legislation.
Black
1
There is no environmental management effort, intentionally no
attempt of environmental management as required, as well as the
potential to pollute environment.
Source: Environment Minister Regulation No 5 year 2011 about Performance Rating Program Ranking in
Environmental Management
3.3.2. Corporate Social Responsibility Disclosure (CSRD)
CSR disclosure in this study is the proxy use ICSR (Index Corporate Social Responsibility) based on
the Global Reporting Initiatives (GRI) obtained from www.globalreporting.org. Based on GRI 2013, there are
three focus of disclosures, that are economic, environmental, and social as a basic for sustainability reporting.
The indicators of GRI are economic performance indicator (9 items), environmental performance indicator (34
items), labor performance indicator (16 items), human rights performance indicator (12 items), social
performance indicator (11 items), and product performance indicator (9 items). From those 91 items of
indicators, a checklist has been made based on Indonesian Capital Market Supervisory Agency (Bapepam) No.
VIII.G.2 (1996) to cover certain categories that correspond to data distribution of companies in Indonesia, the
total amounted to 79 items of indicators. Thus, Corporate Social Responsibility Index (CSRI) formula is:
Where:
CSDI : Corporate Social Responsibility Disclosure Index of company j
nj : number of item to company j, total nj = 79
Xij : 1 = if item i was disclosed; 0 = if item i was not disclosed.
Thus, 0 < CSDIj < 1
3.3.3. Corporate Financial Performance (CFP)
In financial performance that measured by the market performance, financial performance can be seen
from stock’s expected return. Based on the publication of Simon Fraser University and Swarthmore College
Computer Society, financial performance scale that is measured by stock’s expected return has a formula as
follows:
Financial Performance Scale = Capital Gain (Loss) + Dividend Yield
of year t
= ( P1 – P 0 )
+ Div
P0
P0
( P1 – P0 ) + Div
P0
Where: P1 = stock price at 31 March of year t + 1
P0 = stock price at 31 March of year t
Div = dividend distributed in year t + 1
=
According to the efficient market hypothesis, efficient marketdiunduh
is a market
dari: in which the values of all
assets and securities at any instant in time fully reflect all available public
information (Keown, Martin, Petty,
www.multiparadigma.lecture.ub.ac.id
and Scott, 2002). Company gives publicly information to stakeholders in the form of financial and annual
report periodically. The regulation of Indonesian Capital Market Supervisory Agency (Bapepam)
No.36/PM/2003 stated that the declaration of financial statements accompanied by an accountant's report to the
prevalent opinion must be submitted to Indonesian Capital Market Supervisory Agency (Bapepam) no later
than the end of the third month (90 days) after the date of annual financial statements. That is why the stock
price (P1) used in this research is derived from the stock price at March 31 on the next one year of calculated
CFP. Then, the dividend used is obtained from the value of dividend distributed in year t+1 because it represent
how much the company’s profit on the previous year (year t).
3.3.4. Control Variables
Control variables in this research are as follow:
a. Earnings per Share (EPS)
Earnings per share (EPS) is probably the most widely available and commonly used corporate
performance statistic for publicly traded firms (White, Shandi, and Fried, 2003). EPS reflects the portion of a
company's profit allocated to each outstanding share of common stock. Earnings per share serves as an
indicator of a company's profitability. Growth level of EPS is based on the ability of company to gain profit.
Based on White et al. (2003), there are two types of earnings per share calculation, simple capital structure and
complex capital structure. For firms that have only common shares, the computation of EPS is relatively
straightforward. Meanwhile, for companies who have capital structures include options and convertible
securities (preferred shares and debt) are said to have complex capital structures. These firms must recognize
the potential effect on EPS upon conversion of those securities if such a conversion will result in dilution
(lowering) of EPS. Basic EPS calculation is:
b. Book Value per Share (BVS)
White et al. (2003) stated that book value per share represents the equity of the firm (common equity
less preferred shares at liquidation value) on a per-share basis (number of shares outstanding at balance sheet
date) and is sometimes used as a benchmark for comparisons with the market price per share. Book value per
share data of this research is obtained from Indonesian Capital Market Directory (ICMD). The calculation of
book value per share is:
c.
Cash Flow of Operating per Share (CFOS)
The statement of cash flows reports cash receipt and cash payments by operating, financing, and
investing activities, which are the primary business activities of a company (Subramanyam and Wild, 2009).
Operating cash flow refers to the cash flow that results from the firm’s day-to-day activities of producing and
selling. Operating cash flow is an important number because it can reflect on a very basic level, whether or not
a firm’s cash inflows from its business operations are sufficient to cover its everyday cash outflows.
Calculation of operating cash flow is derived from revenues minus cost. Depreciation is not included because it
is not a cash outflow. Interest is also not included because it is a financing expense. Meanwhile, tax is included
because tax are paid in cash. Then, it should be divided by the number of shares outstanding to get the value of
cash flow operating per share (CFOS). Data of operating cash flow and number of shares outstanding are
obtained from company’s annual report and Indonesian Capital Market Directory. Based on Subramanyam et
diunduh dari:
al. (2009), cash flow from operating activities per share is described below:
www.multiparadigma.lecture.ub.ac.id
Cash Flow from Operating Activities =
Per Share (CFOS)
cash flow from operating activities
number of shares outstanding
3.4. Data Analysis Method
Software application that is used to analyze data in this research is SPSS version 19. Analysis data
technique used in this research is multiple regression analysis. Regression analysis, measuring the strength of
the relationship between two or more variables, as well as showing the direction of the relationship between
dependent variable and independent variable (Ghozali, 2006). There is one statistic model in this research that
will described below:
CFP = β0 + β1EP + β2CSRD + β3EPS + β4BVS + β5CFOS + e
Where: CFP = Corporate Financial Performance
EP = Environmental Performance (PROPER)
CSRD = Corporate Social Responsibility Disclosure
EPS = Earnings Per Share
BVS = Book Value per Share
CFOS = Cash Flow of Operating per Share
β 0 = Constanta
β 1, …, β 5 = Coefficient of each variable
e = Error
4. RESULT AND ANALYSIS
4.1. Descriptive Statistic Test
The following table presents the descriptive statistics from the company sample.
Table 3
Descriptive Statistics
Variables & Data
Minimum Maximum Mean
Corporate Financial
Performance (CFP)
P1
P0
Div
Environmental Performance
(EP)
Corporate Social
Responsibility Disclosure
(CSRD)
Earnings Per Share (EPS)
Book Value per Share (BVS)
Cash Flow of Operating per
Share (CFOS)
0.09
1.98
0.6988
Standard
Deviation
0.40794
7
7
0.90
1
153
137
3.30
5
44.02
40.61
2.0266
3.31
37.174
32.689
0.68471
0.814
0.10
0.42
0.2347
0.08373
0.01
5.76
0.32
35.96
75.24
3.19
12.3406
32.8453
2.1062
10.14351
19.89992
0.77607
The result of descriptive statistic on table 4.1 above, showed the minimum, maximum, mean, and
standard deviation of each dependent and independent variables in this research. Some variables except
Environmental Performance (EP) and Corporate Social Responsibility Disclosure (CSRD) have been
transformed because it has not met any of the classic assumption tests. diunduh dari:
www.multiparadigma.lecture.ub.ac.id
The independent variable, Corporate Financial Performance (CFP) has a range value from 0.09 to 1.98.
Based on the observation of Basic Industry and Chemical Company samples, PT Sumalindo Lestari Jaya in
year 2011 has the lowest number of CFP that is 0.09. Meanwhile, the company with the highest number of CFP
is PT Surya Toto Indonesia in 2010 with the value of 1.98. The average value of CFP from sample companies
is 0.6988 and it standard deviation is 0.40794.
The components of CFP are stock price (P1 and P0) and dividend distributed (Div). The lowest value of
P1 is 7, which is owned by PT Kertas Basuki Rahmat in 2012. PT Indocement Tunggal Prakarsa in 2012 has
the highest value of P1 which is 153. While the lowest value of P0 is 7 by PT Arwana Keramik in 2010 and the
highest value of P0 is owned by PT Indocement Tunggal Prakarsa in 2012. Among the sample companies, PT
Suparma in 2011 has the lowest dividend value and the highest dividend value is owned by PT Surya Toto
Indonesia in 2011 and 2012.
On Environmental Performance variable, it is showed that the range of value is 1 to 5. The score 1 is
given to PROPER companies that got the black ranking, while score 5 is given to companies that got gold
ranking. From descriptive test above, it is showed that the average of EP is 3.31 and it standard deviation is
0.814. It means that most of sample companies got blue ranking in the PROPER rating program. The variable
of Corporate Social Responsibility Disclosure (CSRD) showed that the lowest score for CSR Disclosure is 0.10
by PT Citra Tubindo in year 2010, PT Indah Kiat Pulp and Paper in 2011, and PT Fajar Surya Wisesa in 2011.
It means that those sample company only implemented 8 out of 79 Corporate Social Responsibility Disclosure
Index by Global Reporting Initiatives (GRI). Then, the highest score is 0.42 by PT Holcim Indonesia in year
2010 and 2012. The average score of CSRD is 0.2347 with standard deviation of 0.08373. It seems that the
disclosure of Corporate Social Responsibility in annual report of Basic Industry and Chemical Company listed
in IDX over 2010-2012 is still low. It is because the report of Corporate Social Responsibility is a voluntary
action, so those companies do not focus on Corporate Social activities on annual report.
On Earnings per Share (EPS) variable, PT Toba Pulp Lestari in 2011 has the lowest value that is 0.01,
while PT Indocement Tunggal Prakarsa in 2012 has the 35.96 that is the highest value for EPS variable. The
average value for EPS is 12.3406 and it standard deviation is 0.14351. It seems that the earnings per share
value of Basic Industry and Chemical companies in Indonesia over 2010-2012 has a varied range. There are
some companies that had relatively small value of earnings per share.
The variable of Book Value per Share (BVS) showed that the lowest value is 5.76 by PT Sumalindo
Lestari Jaya in 2011. Otherwise, PT Asahimas Flat Glass in 2012 has the highest score of BVS that is 75.24.
Book Value per Share of sampling companies has the average score of 32.8453 and standard deviation of
19.89992. It can be seen that basic industry and chemical companies in Indonesia that joined PROPER program
over 2010-2012 have BVS value in quite wide range. Most of sample companies have BVS value that are still
much lower than PT Asahimas Flat Glass in 2012.
On Cash Flow of Operating per Share (CFOS) variable, PT Surya Agung Kertas in 2012 had the
smallest value that is 0.32 while PT Indocement Tunggal Prakarsa in 2012 had the highest value of CFOS that
is 3.19. Otherwise, the sample companies have average CFOS value of 2.1062 with standard deviation of
0.77607. The data above showed that sample companies have CFOS values that are not too low or higher than
average value.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
4.2. Results of Hypothesis Tests and Discussion
Hypothesis testing of this study use Multiple regression analysis. Result of the analysis is showed at
Table 4 as follows.
Table 4
The Result of Multiple Regression Test
Variables
Coefficient t value
Significance F value
Adjusted R2
Constant (a)
3.043
3.709
.001
5.620
0.328
Environmental
-0.417
-2.969
.005
Performance (EP)
Corporate Social
2.094
2.964
.005
Responsibility Disclosure
(CSRD)
Earnings Per Share (EPS) 0.039
2.221
.032
Book Value per Share .000
-1.879
.068
(BVS)
Cash Flow of Operating .000
-0.473
.639
per Share (CFOS)
The coefficient value of Environmental Performance (EP) is -0.417 and significant at 1 percent. It
means that H1 (Environmental Performance has positive impact to Corporate Social Responsibility) is not
supported. Moreover, Corporate Social Responsibility Disclosure (CSRD) coefficient value is 2.094 and
significant at 1 percent. This result supports H2 that state that Corporate Social Responsibility Disclosure has
positive effect on Corporate Financial Performance.
This result shows a contradictory phenomenon with the existing legitimacy theory where good
environmental performance is not an indicator of good financial performance. Based on theory of legitimacy, a
company with high environmental performance should have a good effect to the surrounding community and
the investors. In developed country, such as Indonesia, public and society have not considered about the
importance of green product and green company yet. The awareness of environmental preservation is still low.
From the perspective of the company itself, the allocation of funds for environmental conservation will bring
some additional expenses for the company. It will automatically reduce the company’s profit. Then, the
reduction of the company’s profit will affect the investors’ decision making.
Investors as one of the most instrumental part of the company should be more concern about the
sustainability aspect of the company. Sustainability aspect is not only come from the financial one, but also
about how the company can manage and preserve its surrounding society and environment. Based on this
research result, most investors of manufacturing companies in Indonesia still not consider about this thing. This
phenomenon is allegedly because there are other variables that used by Indonesian market actors or investors in
determining the investment portfolio in basic industry and chemical company, for example financial ratio,
company size, or category of investment whether the company is investing in domestic or foreign direct
investment (FDI).
Government should do more courage to promote the real purpose of PROPER program so it would not
be a useless reputation program. From this study result, it can be seen that investors did not consider PROPER
rating that is acquired by the company. This resulted in the absence of a significant positive relationship
between environmental performance and financial performance of a company. Nowadays, the investors still
more concern about how the company can gain profit than its environmental management.
Corporate Social Responsibility is a concept applied by the company as their social responsibility for
not only the shareholder but also the stakeholder and related society to emphasize moral and ethic principles.
diunduh review
dari: from society and get the
Corporate Social Responsibility becomes a strategy that is used to get positive
www.multiparadigma.lecture.ub.ac.id
best result for the company itself. In its development, Corporate Social Responsibility (CSR) is defined as a
concept that has roles in the growth of a company. The growth of a company reported on the financial
statements that reflect the company’s performance.
The annual report gives information about the financial and non-financial performance of a company to
show the responsibility and transparency to stakeholders such as investors and shareholders. This disclosure is
intended to give a good image performance among the company’s stakeholders. Information published can be
used as an announcement to give a signal to investors in investment decisions making. Based on the signaling
theory, the purpose of this supplementary report is to provide additional information regarding to company
activities as well as a mean to give signal to stakeholders about other matters, such as provide signal about the
company's concern for the environment.
From the sample companies, it can be seen that all of them have already disclose the report of Corporate
Social Responsibility but still in unorganized structure or have not followed some reporting standard yet. The
guideline that most widely used as a foundation in CSR reporting is GRI (Global Reporting Initiative). It is not
only explained the environmental activity of the company, but also the indicators of labor, human rights,
product safety, social, and economic performance. Thus, it will be better for the company to improve and
increase the quality of its CSR disclosure.
The result test of hypothesis 2 supported the previous research of Bayoud (2012), Suratno (2006), Waal
(2010), and Fitriyani (2012) that already found a significant correlation between CSRD and financial
performance of a company. Company that disclosed its Corporate Social Responsibility in its annual report can
attract the investors and stakeholders. When the investors read the disclosure of company’s CSR activity, it will
affect their decision to hold their stocks and it will attract new investors. Thus, the high number of company’s
profitability will increase the company’s financial performance.
5.
CONCLUSION AND RECOMMENDATIONS
This study found that environmental performance affects negatively to corporate financial performance.
It is not surprising to see that in a developing country, such as Indonesia, environmental performance is not
associated with financial performance. More environmental friendly products or services that usually bring
higher price are not in favor of most Indonesian consumers. From the perspective of the company itself, funds
allocation for environmental preservation will generate some additional expenses and not likely to have effect
on better financial performance. Government should do more courage to promote the importance of
environmental performance trough PROPER program. Thus, the investors will more consider about the
environmental management of the company.
This study found evidence that Corporate Social Responsibility disclosure has a positive effect to
corporate financial performance. This eviedence supports the stakeholder theory which stated that social
responsibility disclosure aims to show the public about what are social activities that already done by the
company and its impact to society. It also supports the signaling theory where good information or
announcement from the company can be a good signal for the stakeholders especially the investors. When the
investors read the disclosure of company’s CSR activity, it will affect their decision to hold their stocks and it
will attract new investors. Thus, the high number of company’s profitability will increase the company’s
financial performance. That is why, it is better for the companies in Indonesia to keep improving the quality of
its CSR disclosure.
There are several limitations to this research, which need to be disclosed so that similar studies can be
better in the future. The limitations are first, the sampling companies of this research are limited only of Basic
Industry and Chemical Companies. Second, this research was conducted by the method of content analysis,
which was conducted by reviewing the information contained in the annual report and it greatly affect the level
assessment of Corporate Social Responsibility disclosure. The checking of Global Reporting Initiative (GRI)
disclosure items are done manually and allows errors in the performance appraisal process. Third limitation is
Global Reporting Initiative (GRI) Index is actually more suitable for used in sustainability report. Because not
all of the sampling companies in Indonesia have already published its diunduh
sustainability
dari: report, this research used
www.multiparadigma.lecture.ub.ac.id
Corporate Social Responsibility report that is stated in company’s annual report.
Based on these research limitations, there are some suggestions can be given by the researcher. It is
advisable to conduct another research in the future by adding sample, for examples oil and gas industry
companies that its environmental disclosure is regulated in PSAK. Then, next research can use another method
that is more detail to avoid the occurrence of bias and do not have high level of subjectivity.
This research used a standard index that is not necessarily in accordance with the conditions of
extensive disclosures in Indonesia, so it is necessary to use a standard that can represent the broad disclosure of
companies in Indonesia. Besides that, next research can be conducted with extending the observation period so
that the amount of sample is also much more. It can improve the data distribution better.
REFERENCES
Almilia, L. S. and Wijayanto, D. (2007). Pengaruh environmental performance dan environmental disclosure
terhadap economic performance. Proceedings The 1st Accounting Conference. Depok.
Al-Tuwaijri, S.A., Christensen, T.E. dan Hughes II, K.E. (2004). The Relations among environmental
disclosure, environmental performance, and economic performance: a simultaneous equations approach.
Accounting, Organizations and Society Journal. Vol. 29. pp.447-471.
Badan Pelaksana Pasar Modal. (1996). Keputusan Ketua Bapepam and LK No. KEP-38/PM/1996 dated
January 1996 about Annual Reporting, Regulation No. VIII.G.2, 1996.
Badan Pelaksana Pasar Modal. (2003). Keputusan Ketua Bapepam and LK No. KEP-36/PM/2003 dated
September 2003 about Obligation of Submitting Periodic Financial Report No. X.K.2, 2003
Bayoud, N.S.M. (2012). Corporate social responsibility disclosure and organizational performance: the case of
Libya. Dissertation. Australia: University of Southern Queensland.
Deegan, C., Rankin, M. and Tobin, J. (2002), An Examination of the Corporate Social and Environmental
Disclosures of BHP from 1983-1997: A Test of Legitimacy Theory. Accounting, Auditing and
Accountability Journal, Vol 15.
Fitriyani. (2012). Keterkaitan kinerja lingkungan, pengungkapan Corporate Social Responsibility (CSR) dan
kinerja finansial. Minor Thesis. Semarang: FE-UNDIP.
Foreign Affairs and Trade International Canada. (2013). Corporate social responsibility.
http://www.international.gc.ca/trade-agreements-accords-commerciaux/ds/csr.aspx. (Retrieved June 9,
2013).
Fuad, M., Christine, H., Nurlela, Sugiarto, and Paulus, Y.E.F. (2006). Pengantar bisnis. Jakarta: Gramedia.
Global Reporting Initiative. (2013). Sustainability Reporting Guidelines: Reporting Principles and Standard
Disclosures. www.globalreporting.org.
Ghozali, I. (2006). Aplikasi analisis multivarite dengan SPSS. Semarang: Badan Penerbit Universitas
Diponegoro.
Ghozali, I. (2011). Aplikasi analisis multivariate dengan program IBM SPSS 19. Semarang : Badan Penerbit
Universitas Diponegoro.
Ghozali, I. and Chariri, A. (2007). Teori akuntansi. Semarang: Badan Penerbit
Universitas Diponegoro.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Godfrey, Jayne et al. (2010). Accounting theory. Australia: John Wiley.
Harrington, Diana and Wilson, B. (1989). Corporate financial analysis. Illinois: Dow Jones-Irwin.
Hossain, M., Perera, B. and Rahman, R. (1995). Voluntary disclosure in the annual reports of New Zealand
companies, Journal of International Financial Management and Accounting, Vol. 6, No. 1, pp. 69-87.
Ikatan Akuntan Indonesia. (2011). Standar Akuntansi Keuangan (SAK) No.1 (revision of 2004). Jakarta:
Salemba Empat.
Indrawan, D. (2011). Pengaruh Corporate Social Responsibility terhadap kinerja perusahaan. Minor Thesis.
Semarang: FE-UNDIP.
Investopedia. (2013). Financial performance. http://www.investopedia.com/ terms/f/financialperformance.asp.
(Retrieved June 12,2013).
Jensen, M. and Meckling, W. (1976). Theory of the firm: Managerial behavior, agency costs and ownership
structure. USA: University of Rochester.
Jordan, R. W. (2003). Fundamentals of corporate finance. Singapore: The Mc-Graw.
Keown, A., Martin, J., Petty, J., and Scott, D. (2002). Financial Management Principles and Applications.
USA: Prentice Hall.
Martono and Harjito,A. (2008). Manajemen Keuangan. Yogyakarta: EKONISIA.
Minister of Environment Republic of Indonesia. (2012a). Keputusan Menteri Lingkungan Hidup Republik
Indonesia No.237 th.2012 tentang hasil penilaian peringkat kinerja perusahaan dalam pengelolaan
lingkungan hidup tahun 2011-2012. Jakarta: MLH.
Minister of Environment Republic of Indonesia. (2011). PROPER Press Release 2011. Jakarta: MLH.
Minister of Environment Republic of Indonesia. (2012b). PROPER Press Release 2012. Jakarta: MLH.
Pflieger,J., Matthias,F., Thilo,K., and Peter,E. (2005). The contribution of life cycle assessment to global
sustainability reporting of Organization. Management of Environmental Quality Journal, Vol. 16, No.
2, pp 167-179.
Post, J., Lawrence, A., and Weber, J. (2002). Business and society: corporate strategy, public policy, ethics.
United States: McGraw-Hill.
Priyatno, Duwi. (2013). Analisis Korelasi, Regresi, dan Multivariate dengan SPSS. Yogyakarta: Gava Media.
Rahmawati, A. (2012). Pengaruh kinerja lingkungan terhadap financial corporate performance dengan
corporate social responsibility disclosure sebagai variabel intervening. Minor Thesis. Semarang: FEUNDIP.
Sarumpaet, Susi. (2005). The Relationship Between Environmental Performance and Financial Performance of
Indonesian Companies. Jurnal Akuntansi & Keuangan, Vol. 7, No.2, pp 89-98. Surabaya: Universitas
Kristen Petra.
Schroeder, R., Clark, M., and Cathey, J. (2011). Financial accounting theory and analysis. USA: Wiley.
Sembiring, E. (2003). Pengaruh Karakteristik Perusahaan terhadap Pengungkapan
diunduh dari: Tanggung Jawab Sosial.
www.multiparadigma.lecture.ub.ac.id
Semarang: Badan Penerbit Universitas Diponegoro.
Shocker, A.D. and Sethi, S.P. (1974). An approach to incorporating social preferences in developing corporate
action strategies in the unstable ground: corporate social policy in a dynamic society. Los Angeles:
Melville Publishing.
Simon Fraser University. (n.d). Security analysis and portfolio management. Lecture Published PDF.
Retrieving from http://www.sfu.ca/poitras/html.
Subramanyam, K.R. and Wild, J. J. (2009). Financial Statement Analysis. United States: McGraw-Hill.
Suratno, Darsono, and Maimunah,S. (2006). Pengaruh environmental performance terhadap environmental
disclosure dan economic performance: studi empiris pada perusahaan manufaktur yang terdaftar di
Bursa Efek Jakarta periode 2001-2004. SNA IX Padang. Padang.
Swarthmore College Computer Society. (2001). Finance. Lecture Published PDF. Retrieved from
www.sccs.swarthmore.edu/users/02/rebecca/html.
Tilling, M. V. (2004). Refinements to Legitimacy Theory in Social and Environmental Accounting. South
Australia: Flinders University.
Tirani, E. (2013). Industri Manufaktur Indonesia Melemah. http://www.metrotvnews.com. (Retrieved October
3, 2013).
Verrecchia, R. (1983). Discretionary disclosure. USA: University of Pennsylvania, Philadelphia.
Vincent, Olusegun. (2011). Environmental sustainability conduct and corporate performance in extractive
sector. Doctoral Symposium. London: Brunel Business School.
Wall, Marjolein van der. (2010). The influence of corporate social performance on corporate financial
performance in SMEs. Thesis. The Hague: Tilburg University.
Weston, J. F., and Brigham, E.F. (1993). Essentials of managerial finance. New York: The Dryden Press.
White, G., Shandi, A., and Fried, D. (2003). The analysis and use of financial statements. USA: Willey.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Foreign Ownership Effect to Corporate Social Responsibility and Market Performance
Putu Wenny Saitri
([email protected])
Universitas Mahasaraswati
Introduction
Corporate Social Responsibility (CSR) has evolved into a important issue in the last decade. CSR is the claim
that the company not only operates for the benefit of the shareholders, but also for the welfare of the
stakeholders in business practices, which are, workers, local communities, government, NGOs, consumers, and
the environment (Dahlia and Siregar, 2004). CSR disclosure practices in Indonesia have been done voluntarily
in the previous years. Now, CSR has evolved into an important strategy for the company and should not be
regarded as a burden, but an opportunity for the company to do the best for all parties, along with changes in
the structure of society and the environment.
International Organization for Standardization (ISO) defined CSR The responsibility of an organization
for the impacts of its decision and activities on society and the environment, through transparency and ethical
behavior that Contribute to sustainable development ,including health and welfare of society, Takes into
account the expectation of stakeholders, in compliance with applicable law and consistent with international
norms of behavior, and integrated throughout the organization and practices in its relationship. CSR has been
regulated by the Indonesian Government with the Law No. 25 of 2007 on Investment and Law No. 40 of 2007
on Corporation, which regulates company’s responsibility to implement CSR. The company is expected to gain
social legitimacy and maximize its profits in the long term through the implementation of CSR.
The company use annual report to convince people that it has been operated in accordance with
people’s pretension. For investors who have a long-term investment horizon, CSR report is used as a source to
determine investment decisions. A company that has a high commitment to the implementation of CSR will be
appreciated by public so the company’s reputation will be increase. A good reputation will make it easier to the
company to run its business, which in turn will improve its market performance that will be reflected in the
increase of its stock price.
A multinational company or a company with foreign ownership has seen many advantages that can be
taken by its shareholders, typically based on the home market (operation’s market) which can provide a longterm existence (Suchman, 1995 in Barkemeyer 2007). A foreign ownership has believed will increase CSR
activity or the number of CSR activity disclosed in company’s annual report. CSR disclosure by a multinational
company usually focused on social issues, such as human rights, education, employment, and environmental
issues (Machmud and Djackman, 2008). Therefore, multinational companies tend to disclose more CSR
information than non-multinational company (Cahyono and Yuyetta 2009). The extent of CSR information
disclosed in annual report, will affect the company performance which will shown by the increase of its stock
price.
This research is based on previous research by Cahyono and Yuyetta (2009), which investigate the
influence of CSR disclosure on market performance with foreign ownership as a moderating variable.
Relatively little research has examined the effect of foreign ownership on influence of CSR to market
performance has motivated to do this research. Foreign ownership is a number of shares of Indonesia’s
company that held by foreign parties either by individual or organizations (Rustiarini 2011). As we known,
European countries are very concerned with issues of social, such as human rights, education, labor, and the
environment, like greenhouse effect, illegal logging, and water pollution. It makes multinational companies
began to change their behavior in their operation in order to maintain the legitimacy and the reputation of the
company (Fauzi, 2006). Therefore, the bigger amount of foreign ownership
diunduhwill
dari:make a bigger pressure to
www.multiparadigma.lecture.ub.ac.id
disclose CSR information, and the number of CSR disclosure will give company a good reputation which will
increase its market performance.
THEORY DEVELOPMENT
Stakeholder Theory
Stakeholder is a group or individual that has interest in the company and could affect or be affected by the
activities of the company. Stakeholders are classified as stockholders, creditors, employee, customers,
suppliers, communities, and the government. Ansoff (1965) in Chan et al., (2010) used stakeholder theory to
define the objectives of the organization, with one of the major objectives being to balance the conflicting
demands of the firm’s various stakeholders. One way to manage the company on good relationship with its
stakeholder is by implementing and disclosing CSR activities. Trough CSR disclosure, a company shows its
concern for all parties who is affected by the company activity. An effective and sustainable CSR activity will
show the company commitment to involve the community welfare. Therefore, this commitment is expected to
increase company’s positive image and public will appreciate it by the increasing of company stock price.
Legitimacy Theory
Central to organizational legitimacy is the notion of a social contract. An organization exists and can
use community resources when society considers that the organization is legitimate Holder-Webb et al. (2009)
in Chan et al (2010). Legitimacy theory focused on contract between company and the community. The
company has a contract to perform its activities based on the value of justice and how company respond to
various group interests to legitimate company’s activity (Tilt 1994 in Hanifa 2005).
Legitimacy theory relies on the assumption that managers will adopt strategies to demonstrate to society that
the organization is attempting to comply with society’s expectations. As a society’s values change over time,
organizations have to continuously demonstrate that their operations are legitimate and that they are good
corporate citizens (Chan et al, 2010). CSR could be a way to show that company has done its business in a
legitimate manner. By disclosing CSR information, organizations ensure community that their business is not
only focused on their economic welfare, but also involve in increasing the social welfare.
CSR Disclosure
The regulation concerning CSR in Indonesia is regulated in Law No 25 of 2007 on Capital Investment
and Law No 40 0f 2007 on Limited Liability Companies which require the company to conduct CSR activities.
This regulation is aimed to ensure company to conduct social and environmental responsibility which is
harmonious and balanced with the surroundings and the local society according to the values, norms and
culture of that society.
ISO (International Standardized Organizations) 26000 has defined CSR as the responsibility of an organization
for the impacts of its decision and activities on society and the environment, through transparency and ethical
behavior that Contribute to sustainable development ,including health and welfare of society, takes into account
the expectation of stakeholders, is in compliance with applicable law and consistent with international norms of
behavior, and Is integrated throughout the organization and practices in its relationship. CSR may be
considered as a tool and way of doing business towards sustainable development. CSR is a good way of doing
business strategically & profitably. Hence, legitimacy and stakeholder theory provide a potential theoretical
framework to explain the need of CSR information to keep the good relation between company and its
environment. If companies don’t deem the community expectation to create a harmonious and balance
environment, then company will lose people trust and people will react by doing thing that could threat the
company business. CSR is way for a company to maintain its legitimacy and its relationship with community
and environment.
CSR and Market Performance
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Stakeholder theory has explained that company should be balanced the stakeholder’s various interest.
They are expected to show that they not only focusing on maximizing their profit, but also maximizing the
social and environment welfare. The company tends to include certain information in the annual report to meet
the objective of their stakeholder. CSR is one of information which is considered to meet the needs of
information about its concern for its stakeholder. CSR reporting includes some information economic policy,
environmental, social, customer’s relation, and employment. By disclosing more CSR information, a company
hopes to attract attention and expecting a positive response from public and investors. The positive response
will reflect in the increase in company stock price. Almilia and Wijayanto (2007) in Dahlia and Siregar (2008)
states that investor will give a positive respond to a company with a good environmental performance by the
increasing of stock price fluctuation through periods. Otherwise, a company with a poor environmental
performance will rise investor’s doubt and give a negative respond by the decreasing of stock price fluctuation
through periods.
Dahlia and Siregar (2008) find the effect of CSR toward financial performance, and no effect of CSR
toward market performance. Balbanis et., al (1998) in Dahlia (2008) find that stock market reaction to company
financial performance that disclose CSR disclosure is negative. Lang and Lundholm (1993) find that a higher
level of CSR disclosure has a positive association on market performance. Alexander and Buchholz (1978)
didn’t find any significant relation between social disclosure and market performance. Fiori, et al (2007) finds
that CSR doesn’t have a significant effect between social disclosure and company stock price. Flammer (2012)
found the positive stock market reaction to eco-friendly Company, and negative stock market reaction to ecoharmful company.
The extent of CSR information will show how company concern about the sustainability of social n
environment welfare. This awareness will ensure public that the company has been conducting business
activity which is not only give benefit to company but also give a positive impact to their social environment
surrounding. Once public find that company has fulfilled the social and environment welfare, they will give a
positive response about company activity in return. Public’s positive response will increase along with the
increasing of company stock price over periods.
Based on the explanation, the hypothesis 1 stated as follows:
H1 = CSR has a positive effect toward company’s market performance
CSR, Foreign Ownership and Market Performance
Foreign ownership is a number of shares of Indonesia’s company that held by foreign parties either by
individual or organizations (Rustiarini 2011). Desender, et al (2008) finds that foreign ownership has a positive
effect on stock price performance, especially on crisis period. This indicates that public will have more
expectation on multinational company, because the investor of multinational company usually comes from
Europe or US which has a better economic system than national company.
A company with high number of foreign ownership, particularly European or United States stockholder, is
considered to have a higher concern for the environment. As known, European countries are very concerned
with social issue, e.g., human rights, education, employment, and environment as greenhouse effect, illegal
logging, and water pollution. It makes multinational companies began to change their behavior in operation in
order to maintain the legitimacy and reputation of the company (Fauzi, 2006).
In order to maintain its legitimacy, the company will use CSR disclosure to provide assurance that they not
only focused on economic performance but also concern about social and environment sustainability. Tanimoto
and Suzuki (2005) find that foreign ownership in public companies in Japan became a trigger for the adoption
of GRI in disclosing CSR. CSR disclosure can be a favorable element for corporate strategy, contributing the
risk management and maintaining relationship that can provide long-term benefit for the company (Heal and
Garrer, 2004 in Sucahyo,2009 ). Therefore, a multinational company will have a better CSR report that a
national company. By disclosing more information about CSR, the diunduh
companydari:
is expected to get a positive
www.multiparadigma.lecture.ub.ac.id
respond from investor and public. This positive respond will be shown in the rising of their stock price.
Based on the explanation, the hypothesis 1 stated as follows:
H2 = Foreign ownership a moderating effect toward relationship of CSR and Market performance
Research Method
The companies selected to test this research were taken from all companies traded on Indonesia Stock
Exchange from 2011-2013. This research use purposive sampling method to select research sample. Companies
without SRI-Kehati rankings from 2011-2013 were excluded from the sample. Companies with no foreign
ownership were excluded from the sample. This left a final sample of 17 companies.
Independent variable of this research is CSR. CSR disclosure has been defined in a number of ways.
This research used CSRI based on ISO 26000, as ISO 26000 can be used to all type of organization. ISO 26000
included 40 disclosure items, every CSRI items disclosed will be scored as 1, and will be scored 0 if it not
disclosed. Each item will be summed to obtain the overall score of the company.
Dependent variable of this research is market performance. Market performance is measured in term of
company’s closing stock price on each period. This research assumed that stock price describes company
information and market appreciation to company performance on certain period.
This research used foreign ownership as a moderating variable. Foreign ownership is defined as a
number of shares of Indonesia’s company that held by foreign parties either by individual or organizations.
Foreign ownership is measured by foreign ownership percentage in the company.
This research used ordinary least square to test hypothesis 1 and moderated regression analysis to test
the moderation effect on hypothesis 1. Following is the research equation:
MP = α + β1CSRI +  ........................................................................................... (1)
where :
MP
= market performance
CSRI = Corporate Social Responsibility Index
α
= constant
β1
= regression coeficient

= standard error
MP = α + β1CSRI+ β2FO + β3CSRI*FO +  ....................................................... (2)
where :
MP
= market performance
CSRI
= Corporate Social Responsibility Index
FO
= foreign ownership
α
= constant
β1, β2, β3 = regression coeficient

= standard error
Results and Discussion
Classical assumption for regression model has been conduct to this research model such as
autocorrelation, multicollinearity, normality, and heteroscedasticity. Normality test show this research data has
a normal distribution with a significance level above 0.05. Multicollinearity between the variables did not
appear to be a problem, as the result show tolerance value more than 10% and VIF is less than 10.
Heteroscedasticity also did not appear to be a problem in this research as the results show the signifinance level
above 5%. Autocorrelation test show there is no autocorrelation problem in this research which shown by the
Durbin-Watson value 1.938 which between DU<DW<4-DU, or 1.6754<1.938<2.3246.
The SPSS results for the first research model using linear regression shown adjusted R 2 value 0,182 and
F at significance level 0,004. This result show that the regression diunduh
model can
dari:be used to predict market
www.multiparadigma.lecture.ub.ac.id
performance but CSR has no significance effect to maarket perfomance. Second research model examination
show adjusted R2 value 0.407 with F significance level at 0.003.
Hypothesis Testing
1) Hypothesis 1
This first hypothesis testing found no significant effect between CSR toward market performance. This result
show that stakeholder hasn’t affected by company CSR disclosure even the company show a great attention on
CSR activities. This finding support earlier studies by : Fiori, et al (2007), Dahlia and Siregar (2008) which
found that CSR disclosure has no effect to company market performance (stock price). Fiori, et al (2007) note
some possible explanation of these finding : a). CSR is a relatively new issue in Italy, and most investors have a
low degree of perception of the matter; b) The quality of disclosure for CSR is not easily measurable; there is a
lack of general accepted principles and most firms use CSR disclosure as an additional instrument of
advertising, avoiding to give relevant information; c) Most investors are short-term oriented while CSR’s
impact is mostly in the medium-long term. Even CSR is not a new issue in Indonesia and government has
regulated the CSR disclosure, this result indicates that CSR disclosure hasn’t become the main reason for
investment decision. It shows that investor and stakeholder perceive CSR activity as a obligation to fulfill
government regulation and not as an action to balance the stakeholder interest, or an action to maintain
company sustainability. Therefore, hypothesis 1 is rejected.
2) Hypothesis 2
Based on Moderated Regression Analysis (MRA), foreign ownership don’t have a significance moderation
effect toward the effect of CSR to market performance which was also recorded by Cahyono and Yuyetta
(2009). This indicate that foreign ownership is considered not affect the extent of CSR activity. Sample of this
research using companies that included in Sri-Kehati Index, which rank companies based on their social and
environmental activity. However, the rank or index that company received hasn’t become the investor base to
make investment decision. Therefore, the number of foreign ownership and the extent of CSR information
disclosed in annual report has no effect of company stock price. This probably because, the investor and
stakeholder only focused on financial performance, and consider CSR as an expenses which will decrease their
profitability. In addition, investor and stakeholder probably consider the disclosure of CSR activity is only to
meet the obligation of the government regulation and not think its as a strategy to maintain the company good
relation with their stakeholder which can increase company profit in the future. Therefore, the hypothesis 2 is
rejected.
Conclusion, Limitations, and Suggestions for Further Research
The purpose of this study is to examine the influence of CSR towards market performance and the
effect of foreign ownership as a moderated variable on the influence of CSR toward market performance. This
research was particularly interested in examining the foreign ownership, as this variable does not frequently
appear to have been included in prior csr disclosure influence studies.
The analysis of 2011-2013 annual report of 17 listed companies which included in Sri-Kehati Index
indicates that CSR has no significance influence to market performance and foreign ownership has no
moderated effect toward relationship of CSR to market performance. Having said that, it is important to
acknowledge that adjusted R2 indicates that only 40% of the variation in the stock price fluctuation between the
companies in our sample can be explained by the independent variables which examined.
It is hoped that the finding from this study will contribute to the CSR literature and will contribute to
various stakeholder. For example, investor is hoped to be more aware and more concider about the CSR
disclosure. It has been noted, that several investor assume CSR only as a promotion or an expense which can
decrease their short-term profit, whereas, CSR should be consider as a strategy to maintain company
sustainability which also can provide long-term profit. This study failed
to show
diunduh
dari:that the number of foreign
www.multiparadigma.lecture.ub.ac.id
ownership could affect the number of CSR disclosure and also effect the market performance. This indicate
that foreign investor didn’t think CSR as a big issue that should be considered to be conducted or disclosed in
the annual report.
This study has several limitations. First, CSR information is drawn from company annual report which
has a possibility that company did not describe it in detail. Second, this study only use a small number of
sample, which only 17 companies, and only examined 2011-2013 annual report disclosure, and may not be
generalisable across other periods and countries. Third, this study has an subjectivity in determining CSR
disclosure index.
There are a number of other areas that future research could also usefully explore. First, further research
could explore other factor not examined in this study and could possibly has a moderating effect toward the
influence of CSR to market performance. For example, corporate governance, ownership structure, etc. Second,
this study only examined CSR information that disclosed on company annual report. Further research could
examine other source of information, for example company website, or newspaper publication.
References
Alexander, G & Buchhloz, RA 1978. “Corporate Social Responsibility and Stock Market Performance”.
Academy of Management Journal. Vol. 21. No.3 (Sep), pp.479-486
Barkemeyer, Ralf. 2007. “Legitimacy as a Key Driver and Determinant of CSR in Developing Countries”.
Paper for 2007 Marie Curie Summer School on Earth System Governance, 28 May-06 June 2007, Amsterdam.
Cahyono, B & Yuyetta, E.N.A 2009, ‘ Pengaruh Corporate Social Responsibility Terhadap Kinerja Perusahaan
Dengan Kepemilikan Asing Sebagai Variabel Moderating (Studi Empiris pada Perusahaan Manufaktur Yang
Terdaftar di Bursa Efek Indonesia)’.
Chan. C. M., Watson. J and Woodliff. D 2004. “CSR Disclosure and Corporate Governance Quality: Australian
Evidence”.
Dahlia, L & Siregar, SV 2008. “Pengaruh Corporate Social Responsibility Terhadap Kinerja pasar (Studi
Empiris Pada Perusahaan Yang Tercatat Di Bursa Efek Indonesia Pada Tahun 2005 dan 2006)”. Simposium
Nasional Akuntansi (SNA) XI. Pontianak, 22-25 Juli 2008.
Desender, KA, Cestona, MAG, Cladera, RC 2008 Stock price performance and ownership structure during
periods of stock market crisis: the Spanish case http://demo.uib.es/
Fauzi, H. 2006. “Corporate Social and Environment Perfomance: A Comparative Study Between Indonesian
Companies and Multinational Companies (MNCs) Operating In Indonesia”. Jurnal Akuntansi dan Bisnis,
Vol.6, No.1, Februari 2006, pp 87-100.
Fiori. G., Donato.F.and Izzo M.F 2007. “Corporate social responsibility and firms performance, an analysis
Italian listed companies”. Retrieved from http://www.ssrn.com
Flammer, C 2012, Corporate Social Responsibility and Stock Prices: The Environmental Awareness of
Shareholders. Retrieved From http://corporate-sustainability.org//
Haniffa, R.M., & Cooke, TE 2005.” The Impact of Culture and Governance on Corporate Social Reporting”.
Journal of Accounting and Public Policy. Vol.24, pp. 391-430
Lang, M & Lundholm, R 1993. “Cross-sectional determinants of analysts ratings of corporate
Disclosures”. Journal of Accounting Research 31, pp.246–271.
Lang, M & Lundholm, R 1996. Corporate disclosure policy and analyst behavior. The Accounting Review 71,
pp.467–493.
Machmud. N & Djackman, C.D. 2008. “Pengaruh Kepemilikan Terhadap Luas Pengungkapan Tanggung
Jawab Sosial (CSR Disclosure) Pada Laporan Tahunan Perusahaan : Studi Empiris Pada Perusahaan Publik
Yang Tercatat Di Bursa Efek Indonesia Tahun 2006”. Disampaikan pada Simposium Nasional Akuntansi
(SNA) XI. Pontianak, 22-25 Juli 2008.
Rustiarini. NW 2010. “Pengaruh STruktur Kepemilikan Saham Pada Pengungkapan Corporate Social
Responsibility”. Jurnal Ilmiah Akuntansi dan Bisnis, vol 6 no 1 januari diunduh
2011
dari:
www.multiparadigma.lecture.ub.ac.id
Tanimoto, K & Suzuki, K 2005.”Corporate Social Responsibility in Japan:Analyzing the Participating
Companies in Global Reporting Initiative”.Working Paper 208,Japan.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Appendix 1
No
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
CSR DISCLOSURE ITEM
Disclosure Item
Organizational Governance
Decision making processes and structures /Corporate governance
Ethical behaviour/code of ethics
Respect for stakeholders interests
Respect for the rule of law
Labour Practice
Employment and employment relationships
Conditions of work and social protection
Social dialogue
Health and safety at work
Human development and training in the workplace
Fair operating practices
Anti-corruption
Responsible political involvement
Fair competition
Promoting social responsibility in the value chain
Respect for property rights
Consumer issues
Fair marketing, factual and unbiased information and fair contractual
practices
Protecting consumers' health and safety
Sustainable consumption
Consumer service, support, and complaint and dispute resolution
Consumer data protection and privacy
Access to essential services
Education and awareness
Community involvement and development
Community involvement
Education and culture
Employment creation and skills development
Technology development and access
Wealth and income creation
Health
Social investment
Human rights
Due diligence
Human rights risk situations
Avoidance of complicity
Resolving grievances
Discrimination and vulnerable groups
Civil and political rights
diunduh dari:
Economic, social and cultural rights
www.multiparadigma.lecture.ub.ac.id
36
37
38
39
40
Fundamental principles and rights at work
The environment
Prevention of pollution
Sustainable resource use
Climate change mitigation and adaptation
Protection of the environment, biodiversity and restoration of natural
habitats
Appendix 2
Descriptive Statistics
Descriptive Statistics
N
MP
FO
CSRI
Valid N
(listwise)
51
51
51
Minimu Maximu
m
m
1030
74000
.20
.98
.51
1.00
Mean
9717.16
.6982
.8082
Std.
Deviation
11670.469
.21533
.15547
51
Classical Assumption
Normality Test
One-Sample Kolmogorov-Smirnov Test
N
Mean
Normal
Parameters(a,b)
Most Extreme
Differences
Std. Deviation
Unstandardi
zed Residual
51
.0000000
11579.9584
0863
Absolute
.261
Positive
.261
Negative
-.221
Kolmogorov-Smirnov Z
Asymp. Sig. (2-tailed)
a Test distribution is Normal.
b Calculated from data.
Autocorrelation
Model Summary(b)
1.866
.149
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Std. Error
Mode
Adjusted
of the
l
R
R Square R Square
Estimate
1
.124(a)
.015
-.047 11943.815
a Predictors: (Constant), CSRIxFO, CSRI, FO
b Dependent Variable: MP
DurbinWatson
1.938
Multicollinearity
Coefficients(a)
Mode
l
Collinearity
Statistics
Toleranc
e
VIF
1
(Constant
)
FO
.228
CSRI
.536
CSRIxF
.208
O
a Dependent Variable: MP
4.945
1.672
4.972
Heteroscedasticity
Coefficients(a)
Unstandardized
Coefficients
Mode
B
l
1
(Constant 47356.6
)
10
FO
47620.8
94
CSRI
46013.4
11
54696.8
CSRIxF
33
Std.
Error
30664.5
98
Standardized
Coefficients
Beta
t
Sig.
B
Std.
Error
1.544
.129
39201.4
02
-1.153
-1.215
.231
35391.7
59
-.804
-1.300
.200
45834.3
67
1.183
1.193
diunduh
.239 dari:
www.multiparadigma.lecture.ub.ac.id
O
a Dependent Variable: absUt
Hypothesis 1
Variables Entered/Removed(b)
Mode Variables Variables
l
Entered Removed Method
1
CSRI(a)
. Enter
a All requested variables entered.
b Dependent Variable: MP
Model Summary
Mode
Adjusted
l
R
R Square R Square
1
.047(a)
.002
.182
a Predictors: (Constant), CSRI
Std. Error
of the
Estimate
11776.032
ANOVA(b)
Mode
l
1
Regressio
n
Sum of
Squares
1492058
6.300
Mean
df
Square
14920586.3
1
00
Residual
6795071
617.023
49
Total
6809992
203.324
50
F
Sig.
5.108
.004(a)
138674930.
960
a Predictors: (Constant), CSRI
b Dependent Variable: MP
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Coefficients(a)
Unstandardized
Coefficients
Mode
B
l
1
(Constant 12556.7
)
64
CSRI
3513.66
2
a Dependent Variable: MP
Standardized
Coefficients
Std.
Error
8812.58
1
Beta
10711.8
88
-.047
t
Sig.
B
Std.
Error
1.425
.000
-.328
.744
Hypothesis 2
Regression
Variables Entered/Removed(b)
Mode Variables Variables
l
Entered Removed Method
1
csrixfo,
CSRI,
. Enter
FO(a)
a All requested variables entered.
b Dependent Variable: MP
Model Summary
Std. Error
Mode
Adjusted
of the
l
R
R Square R Square
Estimate
1
.124(a)
.015
.407 11943.815
a Predictors: (Constant), CSRIxFO, CSRI, FO
ANOVA(b)
Mode
l
1
Regressio
n
Sum of
Squares
105220366.
038
Mean
df
Square
35073455.3
3
46
Residual
670477183
7.286
47
Total
680999220
3.324
50
a Predictors: (Constant), CSRIxFO, CSRI, FO
F
17.246
Sig.
.003(a)
142654719.
942
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
b Dependent Variable: MP
Coefficients(a)
Unstandardized
Coefficients
Mode
B
l
1
(Constant 18859.6
)
77
Std.
Error
40676.4
55
CSRI
15647.6
08
46947.0
14
FO
10018.6
70
CSRIxF
O
18875.2
93
Standardized
Coefficients
Beta
t
Sig.
B
Std.
Error
.464
.000
.208
.333
.740
52000.4
88
.185
.193
.848
60799.0
87
.311
.310
.758
a Dependent Variable: MP
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
ACCOUNTING INFORMATION SYSTEM MANAGEMENT, STRATEGY, INNOVATION AND
THE INFLUENCE TO OPERATING PERFORMANCE OF COMPANY MANUFACTURING OF
INDONESIA : ENTERING THE FREE TRADE ERA
Ratna A.ZR ,Harry Prabowo ,Tresno Ekajaya
Jakarta State University
Introduction
Entering the era of the free market and competition many challenges to be overcome by the business
world, where challenges become more and more complex. It is characterized by environmental progress
because of changes in information technology that are becoming more advanced and the company demanding
sensibility particularly in terms of performance to respond to changes in is going to happen, so that the
company can remain in existence in domains of competition.
The Survival and growth of a company dependent on information system management accounting
(Mulyadi in Pamungkas, 2008).Management will be greatly helped by the use of information a good
accounting and will help the management in the decision-making that is effective. So as to minimize of
uncertainty and reduce the risk in choosing alternative.This Research Used accounting information system
management, strategy, innovation as indepedent variable, and the operating performance of company as
dependent variable. Place in this research are areas of Jakarta with the object of this research is a manufacturing
company located in Jakarta. Respondents who answered the questionnaire instrument is a person who works in
the company's operations section, both managers and staff. Long research that authors did was December 2014
until January 2015.
The method analysis that have been used for this research are multiple linear regression the next test is
done on the research of multiple linear regression analysis. Multiple linear regression analysis was conducted to
look at the ability of the independent variables the dependent variable in explaining. Multiple linear regression
analysis was carried out with SIAM (X 1), ST (X 2), and IN (X 3) as free as well as variable (Y) as a variable
dependent. As for the regression formula is as follows:
Y=  + 1SIAM + 2ST + 3IN+ e
Multiple regression test can be seen based on table 5. Based on the results of the regression analysis that
has been done is obtained the following results:
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Table 5
Multiple Linear Regression Analysist
Coefficientsa
Unstandardized
Coefficients
Model
1 (Constan
t)
B
Std. Error
Standardize
d
Coefficient
s
Beta
Collinearity
Statistics
t
Toleranc
Sig.
e
VIF
-3.728
3.816
-.977 .335
SIAM
(X1)
.339
.149
.251 2.27 .029
7
.483
2.072
ST (X2)
.476
.137
.346
2.893
IN (X3)
.313
.130
.452 3.46 .001
9
.287 2.40 .022
5
.412
2.427
a. Dependent Variable: KOP (Y)
From the table above can be seen that the coefficients the regression coefficient for variables 0,339
accounting information system management, strategy of 0,476, for variables 0,313 of innovation, then multiple
linear regression equation can be formulated as follows:
Y=  + SIAM + ST + IN+ e
Description :
Y
= Operating Performance of Comany (Y)
SIAM
= Accounting Information System Management (X1)
ST
= Strategy (X2)
IN
= Innovation(X3)
e
= Error
Based on table 5, for multiple regression test can be explained as follows:
a. The coefficient of accounting information system management (X1) is 0,339. Views from multiple
regression test results in table 5, show that each increase of 1 unit of accounting information system
management variable will increase the probability of operational performance of the company. Vice
versa, if other independent variable value is fixed and the value of accounting information system
management experienced a decline of 1 unit, then the value of the variable performance of the
company's operations will be decreased by 0,339 units. In this case the effect of the independent
variable X1 is directly proportional to the increasing Mean Y. X1, the value of Y will also progressively
increased, so did the opposite.
b. The coefficient of strategy (X2) is 0.476. Views from multiple regression test results in table 5, shows
that every increase of 1 unit of the variable, then the Strategy will
increase
the probability of operational
diunduh
dari:
www.multiparadigma.lecture.ub.ac.id
performance of the company. Vice versa, if other independent variable value is fixed and the value of
the strategy has decreased 1 unit, then the value of the variable Operational performance of the
company will experience a decrease of 0,476 units. In this case the effect of the independent variable
X2 is directly proportional to the increasing Mean Y. X2, then the value of Y will also progressively
increased, so did the opposite.
c. The coefficient of innovation (X3) is 0,313. Seen from the results of the regression test results in table
5, shows that every increase of 1 unit of variables innovation, will increase the probability of
operational performance of the company. Vice versa, if the independent variable of another fixed value
decreased 1 unit of innovation, the value of the variable operating performance of company will be
decreased by 0,313 unit. In this case the effect of the independent variable X3 is directly proportional to
the increasing Mean Y. X3, then the value of Y will also progressively increased, so did the opposite.
Conclusions and Recommendations
Based on the results of this research can conclude that:
1. Accounting information system management positive influence on the operating performance of the
company .The results of this research as empirically prove that the better accounting information system
management in the company it will increase the probability of operating performance of the company.
2. Strategy positive influence on the operating performance of the company .The results of this research as
empirically prove that the better strategy in the company it will increase the probability of operating
performance of the company.
3. Innovation positive influence on the operating performance of the company .The results of this research
as empirically prove that the better innovation in the company it will increase the probability of
operating performance of the company.
It is recommended to researchers subsequent to extend by adding the existing departments in the
manufacturing company as a subject of research, namely the financial, Human Resource, and more. In addition,
to further research we recommend that you use independent variables plus or more markedly by including
aspects such as decentralization, Total Quality Management (TQM), Operational Auditing or Accounting
Professional Ethics.
Bibliography
Ahmad, K. (2007). AkuntansiManajemen. Jakarta: PT. Raja GrafindoPersada.
Ancok, D. (2012). KepemimpinandanInovasi.Jakarta :Erlangga.
Dirgantoro, C. (2004). ManajemenStratejik. Jakarta: PT. Grasindo.
Fahmi, I. (2010). ManajemenKinerja. Bandung: Alfabeta.
Ghozali, I. (2011). AplikasiAnalisis
UniversitasDiponegoro.
Multivariate
Dengan
Program
SPSS.
Semarang:
BP
Halwani, H. (2005). EkonomiInternasionaldanGlobalisasiEkonomi. Bogor Selatan: Graha Indonesia.
Hansen &Mowen.(2005). Management Accounting. Jakarta: SalembaEmpat.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Kodrat, D. S. (2009).ManajemenStrategi. Yogyakarta: GrahaIlmu.
Mangkunegara, A. P. (2005). EvaluasiKinerja. Bandung: RefikaAditama.
Manurung, L. (2010). StrategidanInovasi Model BisnisMeningkatkanKinerja Usaha. Jakarta: PT. Elex Media
Komputindo.
Samryn, L. M. (2011). PengantarAkuntansi. Jakarta: Rajawali Pers.
Simanjuntak,
P.
J.
(2005).
ManajemendanEvaluasiKinerja.
LembagaPenerbitFakultasEkonomiUniversitas Indonesia.
Jakarta:
Sudarmanto.(2009). KinerjadanPengembanganKompetensi. Yogyakarta: PustakaPelajar.
Sugiyono.(2007).
Alfabeta.
MetodePenelitianPendidikanPendekatanKuantitatif, Kualitatif,
dan R&D.
Bandung:
Supratikno, H. (2006). ManajemenKinerjaUntukMenciptakanKeunggulanBersaing. Yogyakarta: GrahaIlmu.
Tika, P. (2006). BudayaOrganisasidanPeningkatanKinerja Perusahaan. Jakarta: PT. BumiAksara.
Umar, H. (2005). EvaluasiKinerja Perusahaan. Jakarta: GramediaPustakaUtama.
Umar, H. (2010). DesainPenelitianManajemenStrategik. Jakarta: Rajawali Pers.
Wibowo.(2013). ManajemenKinerja. Jakarta: Rajawali Pers.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Carbon Emission Disclosure Practices after Mandatory Disclosure Policy:
an Empirical Evidence from Public Listed Companies in Indonesia
by
Rizal Yaya, Sigit Arie Wibowo, Ulvaturrahmah and Aras Halim Bernas1
Universitas Muhammadiyah Yogyakarta
Introduction
A report published by the Intergovernmental Panel on Climate Change (IPCC) stated that the climate is
changing across the Earth and that this is largely a result of human activities. This can be observed in the
atmosphere, land, oceans and cryosphere. It was said that the atmospheric concentrations of important
greenhouse gases such as carbon dioxide (CO2), methane (CH4), and nitrous oxide (N2O) have increased over
the last few centuries starting from industrial age in 1750 and continued with business and industry
development (IPCC, 2013). According to Whitmarsh (2005), these increases have reduced the earth’s ability to
maintain its stable temperature.
Responding to this matter, a number of actions have been initiated by governments and nongovernmental organizations (NGOs) across the world to urge firms to reduce carbon emissions. Kolk and
Pinkse (2009) noted that the Kyoto Protocol and the European Union Emission Trading Scheme are two
notable actions to reduce the emissions. Following the Kyoto Protocol, many countries then ratified the treaty
and imposed a number of policies as follow up. National policies in relation to carbon emission reduction
include policies on natural resources utilization and on reporting on what has been achieved. For the regulated
companies, those policies can be classified into either voluntarily or mandatory.
Prior to signing the Kyoto Protocol in 2004, Indonesia Government had few policies to reduce global
warming and they were focused only on oil and gas sector. After signing the protocol, the Indonesian
Government issued a new Limited Company Act (UU no. 40 year 2007) where it is compulsory for any
company which operates in the area related to natural resources to undertake social and environmental
responsibility activities. This act was then followed by the Decree of the Ministry of National Owned
Companies no 05/MBU/2007 on Partnerships in Environmental Development. Later in 2012, the Indonesian
Government issued a Government Regulation (PP no. 47 year 2012) on social and environmental
responsibility. This is the first regulation in Indonesia which mandated limited companies to plan and allocate
budget related to their social and environment responsibilities, in Shareholders General Assembly. The
regulation also requires the companies to report their social and environment activities in their company annual
report. By having this law, it is expected that the role of companies in Indonesia in enhancing environmental
sustainability will increase and the quality of social and environmental reporting will improve.
This study aims at evaluating the effect of the new mandatory regulation on Indonesian environmental
disclosure practices. Although the regulation has been introduced onlyrecently, it is relevant to seek first
indications of the effects.
Literature Review
In accounting literature, studies on environmental disclosures are based on legitimacy theory (Gray et
al., 1995; Deegan, 2002). Guthrie and Parker (1989) said that disclosure practice is a response to economic,
social and political pressures surrounding companies and to legitimise corporate existence and behaviours. In
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
1
Korespondensi bisa dilakukan dengan Dr. Rizal Yaya melalui email [email protected] atau [email protected]
this context, legitimacy is defined as ‘a condition or status which exists when an entity’s value system is
congruent with the value system of the large social system of which the entity is a part’ (Lindblom, 1994). Choi
et al (2013) linked the legitimacy theory to the social contract concept,that a social contract would exist
between organisations and individual society members where the society offers organisations legal rights and
authority to access resources needed i.e. natural and human resources. Then, in order to have access to the
resources needed, organisations ‘must continuously seek to comply’ with the community expectations to ensure
their operations ‘remain legitimate’ (Mathews, 1993).
Lindblom (1994) said that legitimacy is dynamic and subject to change in time and place. Therefore,
what was perceived acceptable in the past may no longer be legitimate in the present. This may result in a
disparity or legitimacy gap between the public expectations about how organisations should behave and the
perception on how organisations do act. In order to be legitimate, organisations will try to reduce the gap by
changing the public perceptions through social and environmental disclosures. Changing regulation is an
expression of changing public expectations, where according to legitimacy theory, companies will behave in
accordance with the regulation and will communicate to the public how they conform to the regulations to
remain legitimate. When they fail to meet the new regulation, companies may face a legitimacy gap which in
turn may affect their access to the resources needed.
A study by Choi et al (2013) comparing disclosures before and after issuance of mandatory reporting
regulation, showed significant increase in disclosure practices in Australia after the issuance of the mandatory
policy. They reported that the overall carbon disclosure score had increased significantly. Among 100 large
companies in their study, 42% were reported providing information on environmental factors including carbon
emissions in 2006 and the percentage increased to 67% in 2008. The study also found that larger firms with
higher visibility tend disclose more comprehensive information. They confirm that this increase relates to the
legislation of the National Greenhouse and Energy Reporting Act (the NGER Act) in 2007 and that this was
consistent with legitimacy theory.
Approaches for reporting environmental disclosure have been championed by the Global Reporting
Initiative (GRI), a non-profit organization that promotes economic sustainability (GRI, 2011). It produces one
of the world's most prevalent standards for sustainability reporting also known as ecological footprint reporting,
environmental social governance (ESG) reporting, triple bottom line (TBL) reporting, and corporate social
responsibility (CSR) reporting (GRI, 2013a). GRI seeks to make sustainability reporting by all organizations as
routine as, and comparable to, financial reporting (Dragonmir, 2009).
Environmental disclosure in Indonesia has been studied by a number of researchers when the policy had
a voluntarily basis. In their study, Djajadikerta and Triresaksani (2012) said that the practice of Corporate
Social Environmental Disclosure (CDES) in Indonesia is still at an early stage. It seems that most of the
companies still have a lack of understanding about CSED and the main reason for their disclosure is to gain
societal recognition of the adequacy of their social behavior. Bachtiar et al’s (2010) investigation on the effect
of CSR reporting on firm future performance, showed that there was little evidence of positive impact of CSR
on future performance. Having a changed regulation context, the issuance of mandatory disclosure regulation
of PP 47 year 2012 may affect companies in disclosing their environmental related activities.
Research Method
A purposive sampling method was applied to investigate the extent to which the new regulation affects
environmental disclosure practices. Based on this method, a set of criteria to select the sample was used: (1)
companies listed in Indonesian capital market; (2) categorised under non-financial and services sectors eg.
diunduh
dari: real estate and building
agriculture; mining; basic industry; miscellaneous; consumer good;
property,
www.multiparadigma.lecture.ub.ac.id
construction; and infrastructure, utilities & transportation; (3) publishing annual reports in 2011 and 2012; (4)
disclosing environmental information in their annual reports or stand-alone environmental/ sustainability report
during 2011-2012. There were 269 companies listed in Indonesian capital market and categorised under nonfinancial and services sectors. About 204 of them published annual reports in 2011 and 2012 and 32 companies
were found Disclosing social and environmental information.
Information disclosure is categorised under two reporting classifications: Global Reporting Initiative
(GRI) and Carbon Emission. GRI is used as it covers a wide elements of environmental aspects, meanwhile,
Carbon Emission is used as it focuses on the greenhouse gas. Table 1 provides summary of variables used to
represent the degree of environmental information disclosure. These variables were then analysed by using
paired sample t-test to see whether there is a significant difference in company disclosure practices before and
after the issuance PP 47 year 2012. For all variables, it is hypothesised that there is a significant difference that
more information is disclosed after the issuance of the mandatory regulation.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Table 1: Variables used to represent the degree of environmental information disclosure
Reporting
method
Detailed variable
GRI index
Global
Reporting
Initiative (GRI)
Carbon
Emission (CE)
GRI number of
words
GRI percentage to
total disclosure
CE number of
words
CE percentage to
total disclosure
Measurement
Ratio of the sum of index covered by the report to total
sum of index in the GRI reporting method
Number of words used to report environmental
information based on GRI.
Percentage of words used to report environmental
information based on GRI as to the total words in
company report.
Number of words used to report environmental
information based on CE.
Percentage of words used to report environmental
information based on CE as to the total words in company
report.
Additional analysis was undertaken to see in which types of company the new regulation worked well to
improve their environmental information disclosures. This was based on previous studies which found that
types of ownership (private or government ownership) and types of industry were significantly affect the
degree of company environmental information disclosure.
Findings
Table 2 shows the percentage of companies disclosing GRI and Carbon Emission in 2011 and 2012. It is shown
that more companies follow GRI reporting method than CE in both years. For GRI reporting method, there
were 32 out of 269 companies (11,90%) meanwhile for CE only 23 (8.55%). Based on GRI approach, the Table
shows that mining was the industry with the highest percentage of companies disclosing environmental
information (38.71%) followed by agriculture (27.78%), and the lowest percentage of companies disclosing
environmental were miscellaneous, consumer goods and property.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Table 2: Percentage of companies disclosing GRI and Carbon Emission
in 2011 and 2012
No.
1
2
3
4
5
6
7
Sector
Agriculture
Mining
Basic Industry
Miscellaneous
Consumer
Goods
Property, Real
Estate and
Building
Construction
Infrastructure,
Utilities &
Transportation
TOTAL
Total
population
Number of
companies
disclosing
GRI 2011
and 2012
%
of
companies
disclosing
GRI 2011
and 2012
18
31
61
40
5
12
8
1
27,78%
38,71%
13,11%
2,50%
Number of
companies
disclosing
Carbon
Emission
2011 and
2012
2
10
8
0
33
1
3,03%
1
47
0
0,00%
39
269
5
32
12,82%
11,90%
% of
companies
disclosing
Carbon
Emission
2011 and
2012
11,11%
32,26%
13,11%
0,00%
3,03%
0,00%
2
23
5,13%
8,55%
These 32 companies were classified further based on their type of ownerships and characteristics of carbon
emission. Among the 32 companies, seven companies were classified as state owned companies (PT.
Perusahaan Gas Negara, PT. Batubara Bukit Asam, PT. Antam, PT. Timah, PT Garuda Indonesia, PT. Semen
Gresik dan PT. Telkom) and the rests were private owned companies. Based on their characteristics of carbon
emission, six companies were classified as potensial high carbon emission. These companies comes from those
under agriculture sector and telecommunication subsector. Meanwhile, other companies were classified as
highest carbon emission. Table 3 shows means for level of disclosures between 2011, the year before the
mandatory regulation, and 2012 the year when the mandatory disclosure regulation was imposed. For the 32
companies in this study, environmental disclosures increased in all indicators.
Table 3: Mean for level of environmental disclosure year 2011 and 2012
Indicators for
level of
disclosure
Mean for
Mean
For 32
for 7
companies
companies
Year
disclosing
owned by
environmental Indonesian
report
Government
GRI index
2011
2012
.54
.60
.83
.89
Mean
Mean
for 6
Mean
for 26
companies
for 25
companies
under
companies
under
industry
owned by
industry with
with
private
highest
potential
sector
carbon
high carbon
emission
emission
.46
.47
.56
diunduh dari:
.52
.47
.63
www.multiparadigma.lecture.ub.ac.id
Indicators for
level of
disclosure
GRI number of
words
GRI
percentage to
total disclosure
CE number of
words
CE percentage
to total
disclosure
Mean for
Mean
For 32
for 7
companies
companies
Year
disclosing
owned by
environmental Indonesian
report
Government
Mean
for 25
companies
owned by
private
sector
Mean
Mean
for 6
for 26
companies
companies
under
under
industry
industry with
with
highest
potential
carbon
high carbon
emission
emission
1174.50
1820.73
1166.17
2110.04
5.00
8.48
2011
2012
2011
1699.56
1933.06
7.83
2777.86
3564.00
8.14
1397.64
1476.40
7.74
2012
8.54
11.86
7.61
7.00
8.90
2011
2012
2011
462.38
616.47
2.06
1036.14
1330.71
3.06
301.72
416.48
1.78
377.33
250.50
1.73
482.00
700.92
2.13
2012
2.74
4.71
2.19
1.40
3.05
This pattern is quite similar with the means for companies owned by Indonesian Government and
companies under industries with the highest carbon emission. On the other hand, different pattern appeared in
the group of companies owned by private sector and the group of companies under industries with potential
high carbon emission. Under the group of companies owned by private sector, there was a decrease in the
percentage of GRI based disclosures to total company’s disclosure. Meanwhile within companies under
industries with potential high carbon emission, decreases occurred in three indicators (GRI number of words,
CE number of words and CE percentage to total disclosure).
Table 4 shows paired sample t-test for level of environmental disclosure in the year before mandatory
regulation and in the year when mandatory regulation was imposed. For the 32 companies in this study, one
indicator (CE number of words) was significantly different at 5% and the indicator of CE percentage to total
disclosure was significantly different at 10%. Based on ownership classification, in the group of companies
owned by Indonesian Goverment and three indicators (GRI number of words, GRI percentage to total
disclosure and CE number of words) were significantly different at 10%. For the group of companies owned by
private sector, no indicator was significantly different. In terms of industrial classification, in the group of
companies under industries with the highest carbon emission, two indicators (CE number of words and CE
percentage to total disclosure) were significantly different at 5% and one (GRI index) was significantly
different at 10%. In contrast, no significant difference in all indicators for companies under industries with
potential high carbon emission.
Table 4: Paired sample t-test for level of environmental disclosure year 2011 and 2012
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Indicators for level
of disclosure
GRI index
GRI number of words
GRI percentage to
total disclosure
CE number of words
CE percentage to total
disclosure
Sig. (2-tailed)
For 32
companies
disclosing
environmental
report
.201
.230
.547
.040**
.095*
Sig. (2tailed)
for 7
companies
owned by
Indonesian
Government
.586
.054*
.081*
.068*
.586
.262
Sig. (2tailed)
for 6
companies
under
industries
with
potential
high carbon
emission
1.000
.723
.978
.213
.927
.499
.754
.192
.359
.011**
.376
.699
.049**
Sig. (2tailed)
For 25
companies
owned by
private
sector
Sig. (2tailed)
for 26
companies
under
industries
with the
highest
carbon
emission
.093*
This indicates that PP no 47 year 2012 has increased the practice of environmental disclosure in Indonesia in its
first year of issuance. This can be seen from the increase of means in all investigated indicators (Table 5).
However, the effect varies among the groups of companies. Consistent increases are shown by group of
companies owned by the Government and the group of companies under industries with the highest carbon
emission. Within these groups, more environmental indicators are significantly increased than in other groups
of companies. This finding supports legitimacy theory of disclosures where public expectations on companies
change through the issuance of mandatory policy to perform and to disclose its environmental responsibility,
the company will take it into consideration by disclosing more information to remain legitimate. In this case,
companies owned by government and companies under industries with the highest carbon emission were more
responsive.
Conclusion, limitations and suggestions for future research
This study supports legitimacy theory of disclosures where public expectations on companies change
through the issuance of mandatory policy to perform and to disclose its environmental responsibility, the
company will take it into consideration by disclosing more information to remain legitimate. In this case,
companies owned by government and companies with companies under industries with the highest carbon
emission were more responsive.
There are several limitations in this study. First, the scope and number of sample firms were limited to only
32 companies listed on the Indonesian stock exchanges. Therefore, the result of this study is limited to the
Indonesian context and cannot be generalised into other context. Second, it only covers two years (2011 and
2012) before and after adopting PP 47/2012. Pertaining to the limitations explained above, this study suggests
several considerations to be taken for future research: first, the same research should be repeated in future
years, so that longer time series analysis can be used and longer-term effects from the new policy can be
observed; second, to use variety of alternative reporting media used by e.g., a company’s webpage, a corporate
brochure, a conference call, or a press release, and third conducting interviews with relevant respondents.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
References
Choi B., Lee D. and Psaros J., (2013). An analysis of Australian company carbon emission disclosure. Pasific
Accounting review, Vol 25 No. 1, pp. 58-79.
Choi E., Heshmati A, and Cho Y. (2010). An empirical study of the relationships between CO2 emissions,
economics growth and openness. IZA Discussion Paper No. 5304.
Deegan, C. (2002), The legitimising effect of social and environmental disclosures: a theoretical foundation,
Accounting, Auditing & Accountability Journal, Vol. 15 No. 3, pp. 282-311.
Djajadikerta G.H., and Trireksani T. (2012). Corporate social and environmental disclosure by indonesian
listed companies on their corporate web sites. Journal of Applied Accounting Research Vol. 13 No. 1
pp. 21-26.
Dragomir VD., (2010). Environmental sensitive disclosure and financial performance in a European setting.
Journal of accounting and organization change Vol. 6 No. 3, pp 359-388.
Global Reporting Initiative (2011). Sustainability reporting guidelines version 3.1. World commissions on
environment development our common future. Oxford; Oxford University Press. United Kingdom.
Global Reporting Initiative (2013). Maps of Global Industry Clasification Standard (GICS) to proposed GRI
Business Activity Groups. URL: http://www.globalreporting.org/reporting/sector-guidance/topic
research/pages/defoult.aspx. Accessed: 06 Jan 2014.
Gray, R., Kouhy, R. and Lavers, S. (1995), Corporate social and environmental reporting, Accounting,
Auditing & Accountability Journal, Vol. 8 No. 2, pp. 47-77.
Guthrie, J. and Parker, L.D. (1989), Corporate social reporting: a rebuttal of legitimacy theory, Accounting &
Business Research, Vol. 9 No. 76, pp. 343-352.
Intergovernmental Panel on Climate Change (IPCC), (2013). Introduction. United Kingdom. Cambridge
University Press. Cambridge.
Kolk, A. and Pinkse, J. (2009). Business and climate change: key challenges in the face of policy uncertainty
and economic recession, Management Online Review, May, pp. 1-9.
Lindblom, C.K. (1994), The implications of organizational legitimacy for corporate social performance and
disclosure, Paper presented at the Critical Perspectives on Accounting Conference, New York.
Mathews, M.R. (1993), Socially Responsible Accounting. Chapman & Hall, London.
Siregar V.S and Bachtiar Y., (2010). Corporate social reporting: empirical evidence from Indonesia Stock
Exchange. International Journal of Islamic and Middle Eastren Finance and Management Vol. 3 No. 3
pp 241-252.
United Nations Research Institute for Social Development (UNRISD) (1994). Environmental Degradation and
Social Integration. Word Summit for Social Development. UNRISD
Briefing
diunduh
dari:Paper No. 3.
www.multiparadigma.lecture.ub.ac.id
Withmarsh., L.A., (2005). A study of public understanding of and response to climate change in the south of
England. Dissertation. Department of Psychology, University of Bath.United Kingdom.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Why do board members get excess compensation?
1. Introduction
Director compensation is structured in a way that provides incentives to monitor executives (Andreas et
al., 2012), but excessive compensation may be symptomatic of an environment of cronyism where the board
of directors does not protect shareholder interests (Brick et al., 2006). Directors' compensation rose nearly
45% over the period 1998-2004 for Fortune 500 firms compared to roughly a 16% increase in the consumer
price index (Farrell et al., 2008). This present study's starting point is the observation that firms pay excess
compensation to the boards of directors and supervisors. Using a sample of firms listed on the Taiwan
Weighted Stock Exchange (TWSE) over the period 1999-2008, this paper finds that the mean value of
excess compensation is NT$4.75 million, with 53.21% of the firms paying excess compensation to the
boards. Around 8% of the excess compensation is greater than NT$20 million. This study further notes that
13.72% of the board of directors and supervisors are overpaid by more than 50%. While many market
observers believe that board members entrench themselves and are overpaid, this paper examines what
impact they have on shareholder wealth and whether excess compensation is a totally bad deed.
Murphy (1999) points out that most large firms set compensation by looking at the compensation of
peer group executives. Although compensation is usually set close to the market level, directors may
consider their own interests and not those of the shareholders to whom they are legally bound to represent
(Certo et al., 2008). Jensen (1993) argues that boards of directors often fail to effectively monitor firm
management. The board may not effectively monitor executive performance, because the board culture
inhibits constructive criticism and because informational asymmetry problems exist between management
and the board (Brick et al., 2006). The underlying premise of this study is that firms seek to maximize firm
value, and an optimal board compensation policy is one aspect of this process. Thus, if the directors and
supervisors are selected to solve the agency problem - that is, the agency problem between managers and
shareholders - then a board compensation policy should be designed to reduce the agency costs.
Benchmarking is not only an efficient way to determine the reservation wage (Holmstrom and Kaplan,
2003), but also a required part of the compensation scheme (Bizjak et al., 2008). Firms use benchmarking to
retain valuable human capital (Bizjak et al., 2008). If firms reward the directors and supervisors in order to
retain their valuable human capital, then excess compensation is expected to be positively related to future
firm performance. This paper confirms the conjecture that the board of directors and supervisors is rewarded
for future performance. The results herein show that an increase in NT dollar excess pay by one standard
deviation leads raw stock returns and market-adjusted returns in the next two years to increase by
approximately 2.82% and 0.03%, respectively. If the board is overpaid by 50%, then raw stock returns and
market-adjusted returns in the next two years will increase by approximately 1.29% and 0.01%, respectively.
Additional analyses indicate that the results are quite robust to control variables, excess compensation and
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
performance measures, and outliers. This paper provides a robust positive effect of excess compensation on
future firm performance.
This paper contributes to the current debate on director compensation policy and proves that excess pay
may not be all that bad. A board's compensation may not be structured based on the current contribution of
the directors and supervisors. Contrary to criticism that directors and supervisors with excess compensation
are often passive and ineffective in monitoring executives, this paper links the relationship between board
excess compensation and future firm performance and finds that directors and supervisors are rewarded for
future success.
This paper proceeds as follows. Section 2 develops the hypotheses. Section 3 presents an overview of
the data sources, the excess compensation measures, and descriptive evidence. Section 4 presents
econometric evidence, and Section 5 concludes.
2. Literature review and hypotheses
As delegated monitors of corporate management, board members act as shareholders' agents (Bryan et
al., 2000). Linn and Park (2005) suggest that board compensation policy is designed to: (1) attract
directors whose marginal productivity interacts with the investment opportunities of the firm to produce the
maximal gain, and (2) mitigate agency problems. Crutchley and Minnick (2012) use shareholder lawsuits
against boards of directors as an example of a breakdown in the agency relationship and conclude that high
incentive pay increases the likelihood of a lawsuit. Contrary to their result, Feng et al. (2007) find that
REITs (real estate investment trusts) that pay higher equity-based compensation to their board members are
associated with higher financial performance.
Benchmarking represents an efficient way to determine the reservation wage (Holmstrom and Kaplan,
2003) and is a necessary input to the compensation process (Bizjak et al., 2008). Firms gauge the market
wage for their executives when a CEO's outside opportunities are correlated with market- and industry-wide
factors (Oyer, 2004). Excess compensation may indicate an increasing agency costs. Brick et al. (2006) find
that excessive compensation may be a symptom of an environment of cronyism where board members and
management do not protect shareholder interests. Farrell et al. (2008) argue that the magnitude of
adjustments towards the market wage level is symmetric, however, the timing is not. Bizjak et al. (2008)
suggest that benchmarking is a practical and efficient mechanism used to gauge the market wage necessary
to retain valuable human capital. Thus, excess compensation may reflect the intention of retaining valuable
directors and supervisors. If the board of directors and supervisors is rewarded for future success, then
excess compensation should be positively associated with future firm performance. Therefore, I propose a
hypothesis that if firms reward directors and supervisors for their future performance beforehand in order to
retain their valuable human capital, then board excess compensation is positively associated with future firm
performance.
3. Data and sample
This study's sample construction begins with firms listed on the TWSE over the period 1999-2008. To
test whether the directors and supervisors deserve excess compensation, I collect stock return measures,
including raw returns and market-adjusted returns, compensation, and accounting data from the Taiwan
Economic Journal (TEJ) database and limit the sample to non-financial firms. To better utilize the
econometric methods, observations with missing data on a firm's compensation to directors and supervisors
and stock returns are deleted. Firms with insufficient data to compute board compensation are also excluded.
The final sample comprises 4,965 firm-year observations for 656 firms.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
3.1. Measures of excess compensation
Total Comp is the sum of compensation to the board of directors and supervisors. Table 1 shows that
board size decreases a little by 2.25%, but Total Comp increases by 51.74% from 1999 to 2008. Although
the rapid growth of net profit after tax may explain part of the reason for the increase in Total Comp,
compensation may vary with firm size and other firm performance measures. Therefore, I construct a
measure of excess compensation.
PLACE Table 1 HERE
I measure excess compensation as actual compensation minus expected compensation. The benchmark
model for expected compensation follows prior research in this area (Core et al., 2008, Ryan and Wiggins,
2004, Smith Jr. and Watts, 1992, Murphy, 1999) and is obtained by regressing the natural logarithm of
compensation on proxies for economic determinants of compensation, such as board size, firm size, growth
opportunities, stock return, accounting return, and industry controls:
ln(Total Compit) = a + xttfi + stt,
(1)
where xu consists of ln(board size)tt, ln(total assets)it-i, market-to-booktt-i, market-adjusted returntt1,
market-adjusted returntt-i, ROAtt, ROAtt-i, and industry dummies. I estimate Equation (1) using annual
cross-sectional OLS.
For brevity, Table 2 presents the results of a pooled cross-section, time-series estimation of Equation (1)
including industry dummies and fixed effect for year. Consistent with prior research, the compensation
measure exhibits the expected positive associations with board size, firm size, stock returns, and accounting
returns. The negative coefficient on market-to-book ratio shows that high-valued firms provide higher
compensation to directors and supervisors. Some industries (for example, cement, auto, biotechnology and
medicine, computer and peripherals, communication network, and electronic channel) provide high
compensation, while some industries (for example, plastics, paper, iron and steel, building material and
construction, shipping, and tourism) provide relatively low compensation. The coefficient estimates for the
annual regressions are similar to those reported in Table 2. The adjusted R-square for the annual regression
increased from 36.01% in 1998 to 50.97% in 2008 and reached the peak at 57.49% in 2006. This indicates
that these firm characteristics capture the variation of compensation properly.
PLACE Table 2 HERE
I estimate expected compensation by exponentiating the expected value of Equation (1). I compute
Excess Comp by estimating expected compensation and substracting it from actual compensation:
Excess Compit = Actual compensationit - Expexted compensationit.
(2)
I also compute %Excess Comp as:
%Excess Compit = ln(Actual compensationit)-ln(Expexted compensationit) .
(3)
Excess Comp measures the NT dollar excess pay, while %Excess Comp measures excess pay relative to the
benchmark. For example, if the directors and supervisors have total compensation of NT$22 million and
expected compensation of NT$13 million, the Excess Comp will be NT$9 million and %Excess Comp will
be 52.61%. In other words, the board of directors and supervisors is overpaid by 52.61%.
1
Market-adjusted return is computed as a firm's stock return minus the market return.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Panel B of Table 1 shows the trend in excess compensation. The percentage of positive Excess Comp is
higher than 45% for each sample year. It increased from 45.13% in 1999 to 51.79% in 2008. More than half
of the firms overpay their boards than the benchmark. Specifically, 36% to 41% of the boards are overpaid
by more than 20%, and 16% to 21% of the boards are overpaid by more than 50% during the period of 1999
to 2008.
Figure 1 provides the distribution of excess compensation. It shows that the deviation from expected
compensation is skewed to the positive. About 53.21% of the observations show positive Excess Comp.
Around 8% of Excess Comp is higher than NT$20 million, and 13.72% of the board of directors and
supervisors are overpaid by more than 50%. Figure 2 presents the trend of mean, maximum, and minimum
of the Excess Comp by year and shows that the range of Excess Comp varies. The ranges were relatively
small in 1999, 2000, 2002, and 2005 and were relatively large in 2001, 2003, 2007, and 2008. From the line
of the mean value, Excess Comp moves like a four-year cycle pattern, with valleys in 1999, 2002, and 2005
and peaks in 2001, 2003, and 2007.
PLACE Figures 1 and 2 HERE
3.2. Methods
To test the influence of excess compensation on future firm performance, Equation (4) estimates the
fixed effect regression using excess compensation measures at time t-1 and t-2 as the independent variables,
respectively.
Performanceit = a0 + a1excess compensationit_ + a2 ln(board size)tt
+ a3percentage of independent directorstt + a4ROAit_
(4)
+ a5 ln(assets)it + a6debt ratiotit + a7managerial ownershipit
+ a8growth rate of sales.jt + a9 foreign institutional ownershipit + sit
The model controls factors influencing the performance level, such as current board size, percentage of
independent directors, previous return on assets, firm size, debt ratio, managerial ownership, growth rate of
sales, and foreign institutional ownership.
3.3. Summary statistics
Table 3 presents summary statistics for compensation measures, stock returns, and firm characteristics.
The average stock returns are negative during the study period. The average and median raw returns are
-5.15% and -1.85%, respectively. The mean and median values of market-adjusted returns are -0.01% and
-0.02%, respectively. The mean Total Comp is NT$21.61 million. The mean and median Excess Comp are
NT$4.75 million and NT$427,600, respectively. The value of Excess Comp varies a lot with a high standard
deviation of NT$29.73 million. The mean %Excess Comp is very close to zero, and its median value is 0.04.
PLACE Table 3 HERE
The correlation matrix in Table 4 advances some initial guesses about the correlation between excess
compensation and stock returns. The results barely show any significant correlation between excess
compensation and stock returns. However, the excess compensation measures are positively correlated with
managerial ownership and foreign institutional ownership, and are negatively correlated with the percentage
of independent directors. The absolute values of the correlation coefficients between variables in the
regression model are all smaller than 0.41. Multicollinearity may not be a concern in the multivariate
analysis.
PLACE
Table
4
HERE
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
4. Rewarding future performance
4.1. The effect of excess compensation on future stock returns
Table 5 presents the estimated result of Equation (4). The effect of excess compensation in the past one
year on firm performance is unclear. None of the coefficients on excess compensation measures in year t-1
(models (1), (2), (5), and (6)) are significant. However, I find a convincing positive effect of excess
compensation in the past two years on firm performance. The coefficients on the excess compensation
measures in year t-2 (models (3), (4), (7), and (8)) are significantly positive on stock returns. The result
indicates that the board of directors and supervisors is rewarded for future performance.
PLACE Table 5 HERE
To see the economic significance of the results, an increase in Excess Comp by one standard deviation
(using Table 3, this is an increase in Excess Comp of NT$29,730,950) leads raw stock returns and
market-adjusted returns in the next two years to increase by approximately 2.82% and 0.03%, respectively.
If the board of directors and supervisors is overpaid by 67.58% (the standard deviation of %Excess Comp)
relative to the benchmark, then raw stock returns and market-adjusted returns in the next two years will
increase by approximately 1.75% and 0.02%, respectively. I also add additional control variables - tax rate
and free cash flow - that might be related to stock returns. Adding these variables does not affect the results
and only adds limited explanatory power to the regression. The results support the point that firms reward
directors and supervisors for their future contributions.
4.2. Alternative Performance Measures
Additional robustness checks consider whether the results are sensitive to the stock returns
measures.
First, I estimate Jensen's alpha based on the CAPM as follows:
(5)
r
r
a
(r
r )
S
n - ft = U + PMKTi mt - ft + U
where rit presents the daily returns for firm i at time t, rft is the daily-scaled risk-free rate, rmt shows the
daily
returns of the value-weighted equity market index, and aii is Jensen's alpha for firm i. Second, I estimate the
Fama-French three factor model including market, size, and book-to-market factors as follows:
(6)
where a3i is the three-factor-adjusted return for firm i. Here, ai and a3 are used to re-estimate Equation (4).
Table 6 presents the results using ai and a3 as returns measures, and the results are qualitatively similar
to the previous findings. Excess compensation sustains a positive impact on future stock returns. An
increase
in Excess Comp by one standard deviation leads both Jensen's alpha and three-factor-adjusted returns in the
next two years to increase by approximately 0.01%. I also consider the situation when actual compensation
deviates much from expected compensation. I keep the value of %Excess Comp when it is higher than
100%,
and zero otherwise. Using the new variable instead of %Excess Comp, the result remains the same.
PLACE Table 6 HERE
I already find that excess compensation in the previous one year does not influence the stock return. I
also estimate the effect of excess compensation on the contemporaneous stock returns using raw returns,
market-adjusted returns, Jensen's alpha, and three-factor-adjusted returns. In unreported regressions, the
coefficients on excess compensation are all insignificant. The results confirm that a board of directors and
supervisors is not rewarded for present firm performance, but rather for future firm performance.
4.3.
Outliers
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
To address the problems associated with outliers in the data, I estimate the median regression model
using the least absolute deviation criterion (instead of the least squares used in Table 5 and Table 6), which is
less sensitive to outliers (Coles et al., 2008, Gompers et al., 2003). The coefficients on excess compensation
are still significantly positive. Additional analyses indicate that the results are quite robust to control
variables, performance measures, and the outliers. In sum, the results provide a robust positive relationship
between excess compensation and future firm performance.
4.4. Board risk-taking
To examine whether excess compensation to the directors and supervisors change their risk-taking, this
paper also considers the effect of excess compensation on the volatility of firm performance. Similar to
Adams et al. (2005), I define the within-firm, over-time volatility in stock performance as the standard
deviation of monthly stock returns, market-adjusted monthly stock returns, Jensen's alpha, and
three-factor-adjusted returns over the sample period. I also define the within-firm, over-time volatility in
accounting performance and growth opportunity as the standard deviation of the industry-adjusted return on
assets and market-to-book ratio over the sample period, respectively. This paper follows the model that
(Cheng, 2008) uses to examine the variability of corporate performance, whereby the model controls board
size, percentage of independent directors, return on assets, return on assets in the previous year, firm size,
debt ratio, managerial ownership, firm age, advertisement expenditure to sales, and R&D expenditure to
sales.
Volatilityi =(0 + (1excess compensationi + f32ln(board size)i
+ (3percentage of independent directorst + (4return on assetst
+ (return on assets in the previous yeart + (6ln(assets)i
+ (7debt ratiot + (8managerial ownershipt + (9ln(age)t
^7)
+ p10advertisement expenditure to salesi
+ (nR & D expenditure to salest + si
All independent variables are averaged over the sample period. I estimate the cross-sectional OLS
regression model of the volatility of firm performance as a function of excess compensation. In an
unreported regression, only the coefficient on Excess Comp (-8.84E-08, t = -1.77) is significant at the 10%
level, but the magnitude is relatively small. The results barely show any significant correlation between
%Excess Comp and variability of firm performance. The finding indicates that excess compensation may not
affact the risk-taking of the board of directors and supervisors, and thus shows limited impact on the
volatility of firm performance.
5. Conclusion
This paper uses firm-level panel data of TWSE-listed firms over the period 1999-2008 and measures
excess compensation of the boards of directors and supervisors, denoting the NT dollar excess pay and
excess pay relative to the benchmark. In line with the point of Bizjak et al. (2008), this paper finds a positive
relationship between excess compensation and future firm performance. The result indicates that excess
compensation given to directors and supervisors may not be all that bad. Firms reward directors and
supervisors for their valuable human capital, and the shareholders benefit from such excess compensation as
well.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
References
ADAMS, R. B., ALMEIDA, H. & FERREIRA, D. 2005. Powerful CEOs and Their Impact on Corporate
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Performance. Review of Financial Studies, 18, 1403-1432.
ANDREAS, J. M., RAPP, M. S. & WOLFF, M. 2012. Determinants of director compensation in two-tier
systems: evidence from German panel data. Review of Managerial Science, 6, 33-79.
BIZJAK, J. M., LEMMON, M. L. & NAVEEN, L. 2008. Does the Use of Peer Groups Contribute to Higher
Pay and Less Efficient Compensation? Journal of Financial Economics, 90, 152-168.
BRICK, I. E., PALMON, O. & WALD, J. K. 2006. CEO Compensation, Director Compensation, and Firm
Performance: Evidence of Cronyism? Journal of Corporate Finance, 12, 403-423.
BRYAN, S. H., HWANG, L.-S., KLEIN, A. & LILIEN, S. 2000. Compensation of Outside Directors: An
Empirical Analysis of Economic Determinants. SSRN eLibrary.
CERTO, S. T., DALTON, C. M., DALTON, D. R. & LESTER, R. H. 2008. Boards of Directors' Self
Interest: Expanding for Pay in Corporate Acquisitions? Journal of Business Ethics, 77, 219-230.
CHENG, S. 2008. Board Size and the Variability of Corporate Performance. Journal of Financial
Economics, 87, 157-176.
COLES, J. L., DANIEL, N. D. & NAVEEN, L. 2008. Boards: Does One Size Fit All? Journal of Financial
Economics, 87, 329-356.
CORE, J. E., GUAY, W. & LARCKER, D. F. 2008. The power of the pen and executive compensation.
Journal of Financial Economics, 88, 1-25.
CRUTCHLEY, C. E. & MINNICK, K. 2012. Cash versus incentive compensation: Lawsuits and director
pay. Journal of Business Research, 65, 907-913.
FARRELL, K. A., FRIESEN, G. C. & HERSCH, P. L. 2008. How Do Firms Adjust Director
Compensation? Journal of Corporate Finance, 14, 153-162.
FENG, Z., GHOSH, C. & SIRMANS, C. F. 2007. Director compensation and CEO bargaining power in
REITs. Journal of Real Estate Finance and Economics, 35, 225-251.
GOMPERS, P., ISHII, J. & METRICK, A. 2003. Corporate Governance and Equity Prices. The Quarterly
Journal of Economics, 118, 107-156.
HOLMSTROM, B. & KAPLAN, S. N. 2003. The state of U.S. corporate governance: What's right and
what's wrong? Journal of Applied Corporate Finance, 15, 8-20.
JENSEN, M. C. 1993. The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems.
Journal of Finance, 48, 831-880.
LINN, S. C. & PARK, D. 2005. Outside Director Compensation Policy and the Investment Opportunity Set.
Journal of Corporate Finance, 11, 680-715.
MURPHY, K. J. 1999. Executive compensation. Handbook of Labor Economics 3. Ashenfelter, O., Card, D.
ed. Amsterdam: Elsevier.
OYER, P. 2004. Why Do Firms Use Incentives That Have No Incentive Effects? Journal of Finance, 59,
1619-1650.
RYAN, H. E. & WIGGINS, R. A. 2004. Who is in whose pocket? Director compensation, board
independence, and barriers to effective monitoring. Journal of Financial Economics, 73, 497-524.
SMITH JR., C. W. & WATTS, R. L. 1992. The investment opportunity set and corporate financing,
dividend,
and compensation policies. Journal of Financial Economics, 32, 263-292.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Table 1 Trend in compensation and related firm characteristics
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Panel A: Total compensation and firm characteristics
Board
Total Comp t
size t
Year
N
Value
% Change
Value
1999
2000
2001
390
433
478
14,473
16,761
19,900
2002
2003
2004
541
580
602
2005
2006
2007
622
646
643
2008
392
% Change from
16%
19%
9.84
9.70
9.72
14,624
18,028
20,632
-27%
23%
14%
20,484
29,094
33,892
21,961
51.74%
Net profit t-i
% Change
Value
-1.43%
0.21%
497,041
663,386
1,061,164
33%
60%
9.77
9.77
9.75
0.49%
0.06%
-0.22%
317,582
560,980
1,045,043
-70%
77%
86%
-1%
42%
16%
9.69
9.75
9.75
-0.64%
0.68%
-0.06%
1,542,079
1,223,156
1,429,869
48%
-21%
17%
-35%
9.62
-2.25%
-1.33%
1,953,166
292.96%
37%
1999 to
2008
Panel B: Excess compensation
Positiv
Positive
e
%Excess Comp
Year
Excess Comp t
t
1999
45.13%
56.05%
2000
45.96%
52.93%
2001
48.54%
53.58%
2002
46.21%
51.76%
%Excess Comp t >
20%
41.08%
40.43%
37.64%
36.23%
20.06%
19.95%
20.09%
17.18%
2003
2004
38.26%
40.03%
20.15%
19.42%
49.66%
51.16%
% Change
53.23%
52.92%
%Excess Comp t > 50%
2005
50.16%
51.66%
39.90%
21.03%
2006
52.32%
54.08%
38.72%
21.44%
2007
53.65%
55.29%
38.30%
19.71%
2008
51.79%
53.26%
35.51%
16.19%
The sample contains firms listed on the TWSE over the period 1999-2008. N is the sample size for that year.
Panel
A
shows
the
trend
in
total
compensation and firm characteristics. Total Comp (in NT$1000s) is the sample mean total compensation to
the
board
of
directors
and
supervisors. Board size is the number of directors and supervisors on the board. Net profit t-i (in NT$1000s)
is
the
net
profit
after
tax
for
year
t-1.
% Change is the percentage change of the variable from the previous year. Panel B shows the trend in excess
compensation.
Positive
Excess
Comp t and Positive %Excess Comp t are the percentage of positive Excess Comp and the percentage of
positive
%Excess
Comp
of
the
number
of the firms, respectively. %Excess Comp t > 20% and %Excess Comp t > 50% are the percentage of the
number
of
the
firms
that
overpay
the
board members by 20% and 50%, respectively.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Table 2 Regression for total compensation
Dependent Variable
Constant
Ln(Total Comp t)
Coefficient
t-statistics
1.95
12.81 ***
0.57
0.37
-0.04
15.37 ***
41.49 ***
-2.12 **
Market-adjusted returns t
Market-adjusted returns t-1
ROA t
0.02
0.05
1.65
0.59
1.87 *
7.76 ***
ROA t-1
2.98
14.46 ***
Ln(board size) t
Ln(total assets) t-1
Market-to-book ratio t-1
Industry dummies
Adjusted R-squared
F-statistic
No. of firms
No. of obs.
Included
0.50
118.76 ***
656
4,965
The sample consists of 4,965 observations for firms listed on the TWSE over the period 1999-2008. This table
presents
the
results
of
a
pooled
cross-section, time-series regression including industry dummies and fixed effect for year. The dependent
variable
is
the
natural
logarithm
of
total compensation to the board of directors and supervisors at time t. The independent variables include the
natural
logarithm
of
board
size
at
time t, the natural logarithm of total assets at time t-1, market-to-book ratio at time t-1, market-adjusted
returns
at
time
t
and
t-1,
ROA
at
time
t
and t-1, and industry dummies. Market-adjusted return is computed as a firm's stock return minus the market
return.
Values
of
t-statistics
are
based on White (1980) heteroskedasticity robust standard errors. ***, **, and * indicate statistical
significance
at
the
1%,
5%,
and
10%
levels,
respectively.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Table 3 Summary statistics
Variables
Mean
Total Comp (in NT$1000s)
21,614.35
Expected Comp (in NT$1000s)
Excess Comp (in NT$1000s)
%Excess Comp (in %)
12,583.28
4,752.01
0.00
Median
11,575.0
11,687.40
3
427.60
4.27
Std. dev.
37,384.1
3
2.10
29,730.9
67.585
Min
577.68
243,426.50
-525.42
0.00
Raw returns
-5.15
-1.85
53.28
-286.10
Market-adjusted returns
Jensen's alpha
Three-factor-adjusted returns
-0.01
-0.04
-0.01
-0.02
0.03
0.05
0.46
7.04
7.09
-2.78
-562.08
-562.08
ROA
Market-to-book ratio
Ln(total assets)
0.09
1.32
15.79
0.08
1.07
15.62
0.09
0.89
1.28
-0.92
0.29
12.58
Ln(board size)
Percentage of independent
directors
Managerial ownership
9.74
0.05
0.02
9.00
0.00
0.00
3.20
0.09
0.03
1.00
0.00
0.00
Foreign institutional ownership
Growth rate of sales
Total debt/Assets
0.07
0.36
0.44
0.02
0.21
0.45
0.12
1.17
0.17
0.00
-0.98
0.02
Max Obs
.
753,995.0 5,32
290,154.80 74,98
620,943.34 24,98
217.760 24,96
5
207.94 5,70
1
2.22 5,32
7
7.16 6,39
63.85 26,39
2
0.56 5,32
5
18.56 5,32
20.59 75,32
31.00 75,32
74,75
84,75
0.71 84,68
44.02 44,75
0.99 84,75
8
0.43
0.34
This table shows the summary statistics of the variables. The sample contains firms listed on the TWSE over
the
period
1999-2008.
All
data
are
from Taiwan Economic Journal (TEJ). Total Comp (in NT$1000s) is the sum of compensation to the board
of
directors
and
supervisors.
Expected Comp (in NT$1000s) is the expected compensation obtained by exponentiating the expected value
of
the
model
which
regresses
the
natural logarithm of total compensation to the board of directors and supervisors on proxies for economic
determinants
of
compensation,
such
as
board size, firm size, growth opportunities, stock return, accounting return, and industry controls. Excess
Comp
(in
NT$1000s),
which
measures
the NT dollar excess pay, is computed as the estimatd expected compensation substracted from actual
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
compensation.
%Excess
Comp
(in
%),
which captures excess pay relative to the benchmark, is computed as the natural logarithm of actual
compensation
minus
the
natural
logarithm
of
expected compensation. Market-adjusted return is computed as a firm's stock return minus the market return.
Jensen's
alpha
is
estimated
based
on the CAPM. Three-factor-adjusted return is estimated based on the Fama-French three factor model
including
market,
size,
and
book-to-market
factors.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Table 4 Correlation matrix
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13)
(1) Excess Comp
1.00 ***
(2) %Excess Comp
(3) Raw returns
(4) Market-adjusted returns
0.55 ***
0.02
0.02
0.00
0.00
0.83
(5) Jensen's alpha
(6) Three-factor-adjusted returns
(7) ROA
0.01
0.00
0.07 ***
0.00
-0.01
0.00
0.80
***
0.69
***
0.31
0.96
***
0.83
***
0.29
0.87
***
0.26
***
0.00
0.03 *
***
(8) Ln(board size)
(9) Percentage of independent
directors
(10) Ln(assets)
(11) Total debt/Assets
0.04 ***
***
-0.03 *
0.20 ***
0.00
-0.03 *
0.00
-0.05
***
0.08
0.03 **
0.00
0.01
-0.07 -0.07
(12) Managerial ownership
(13) Growth rate of sales
(14) Foreign institutional
ownership
0.04 ***
0.03 **
0.24 ***
***
-0.01
0.10
***
***
***
0.01
0.09
***
0.02
0.25
***
0.03 * 0.00
-0.02 -0.04
-0.01
-0.06
0.07
***
***
***
0.00
-0.05
-0.02
-0.06
***
***
***
-0.02
0.08
-0.02
0.08
***
***
0.03 * 0.01
-0.03 *
0.08
***
-0.02
***
0.26
0.07
***
-0.33
***
0.12
***
0.18
0.03 **
0.29
-0.10
***
-0.03 ***
-0.05
**
***
-0.01 0.11
0.26 ***
***
0.25
-0.02
0.12
0.05
***
0.09
-0.15 *** -0.10 ***
0.10 *** 0.08 *** 0.02
0.41 *** -0.05 *** -0.06 *** 0.06
***
***
***
***
***
This table reports the matrix of Pearson pairwise correlations between the major variables. Variables are defined in Table 3. Superscripts ***, **,
and
*
indicate
statistical
significance
at
the
1%,
5%, and 10% levels, respectively.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Table 5 The effect of excess compensation on future stock returns
Raw returns t
Constant
(1)
-5.74
(-0.60)
Excess Comp -1
%Excess
Comp t-i
Excess Comp
-2
%Excess
Comp t-2
Market-adjusted returns t
(2)
-8.21
(3)
-8.38
(4)
-14.60
(5)
-0.10
(6)
-0.13
(-0.86)
(-0.78)
(-1.36)
(-1.07)
(-1.33)
3.51E-05
(1.57)
(7)
-0.12
(8)
-0.18 *
(-1.08)
(-1.66)
3.51E-07
(1.57)
0.09
9.16E-04
(0.08)
(0.08)
9.47E-05
9.47E-07 **
(3.38)
(3.38)
0.03
2.59
(2.25)
**
Ln(board size) t
(2.25)
2.00
1.92
(0.90)
-16.65 **
(0.86)
-17.14 **
(0.98)
-16.60 *
(0.92)
-16.80 *
(0.90)
-0.17 **
Return on assets t-i
(-2.06)
-0.82
(-2.12)
-0.09
(-1.77)
9.81
(-1.78)
8.48
Ln(assets) t
(-0.08)
0.95
(-0.01)
1.11 *
(0.89)
0.94
(0.77)
1.34 *
(1.68)
-23.19 ***
(-4.83)
(1.25)
-22.51
(1.80)
-20.96 ***
(-3.85)
Proportion of independent directors
t
Total debt/Assets t
(1.43)
-23.63 ***
(-4.91)
2.37
***
(-4.12)
2.20
**
0.02
0.02
0.02
0.02
(0.86)
-0.17 **
(0.98)
-0.17 *
(0.92)
-0.17 *
(-2.06)
-0.01
(-2.12)
-9.38E-04
(-1.77)
0.10
(-0.08)
0.01
(-0.01)
0.01 *
(0.89)
0.01
(0.77)
0.01 *
(1.43)
-0.24 ***
(-4.91)
(1.68)
-0.23 ***
(-4.83)
(1.25)
-0.23 ***
(-4.12)
(1.80)
-0.21 **
(-3.85)
(-1.78)
0.08
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
-56.13 **
(-2.33)
-51.81 **
(-2.17)
5.06 ***
3.69 ***
3.67 ***
Foreign institutional ownership t
(3.72)
-2.69
(3.69)
-1.18
(2.76)
-3.36
(2.74)
-0.46
Adjusted R-squared
(-0.40)
0.2488
(-0.18)
0.2490
(-0.42)
0.2653
(-0.06)
0.2654
Managerial ownership t
Growth rate of sales t
-39.59 *
(-1.72)
5.11 ***
-37.42
(-1.62)
-0.40 *
(-1.72)
-0.56 **
(-2.33)
-0.52
(-2.17)
0.05 ***
0.04 ***
0.04
(3.72)
-0.03
(3.69)
-0.01
(2.76)
-0.03
(-0.40)
0.1432
(-0.18)
0.1437
(-0.42)
0.1616
(2.74)
-4.58E03
(-0.06)
0.1617
0.05 ***
-0.37
(-1.62)
F-statistic
78.5199
78.3128
77.4692
77.2134
40.1202
40.1512
41.8385 41.6925
No. of firms
620
619
608
607
620
619
608
607
No. of obs.
3,979
3,966
3,390
3,377
3,979
3,966
3,390
3,377
This table reports the estimated fixed effect regression using excess compensation measures at time t-1 and t-2 as the independent variables,
respectively.
The
dependent
variables
are
raw
returns
and market-adjusted returns, respectively. Variables are defined in Table 3. Values of t-statistics based on White (1980) heteroskedasticity
robust
standard
errors
are
reported
in
parentheses.
***,
**, and * indicate statistical significance at the 1%, 5%, and 10% levels, respectively.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Table 6 The effect of excess compensation on Jensen's alpha and
three-factor-adjusted returns
Jensen's alpha t
Three-factor-adjusted returns t
(1)
Constant
Excess Comp -2
Proportion of independent
directors t
Return on assets t-1
(3)
0.05
0.03
(1.25)
3.63E-07
***
(3.33)
(0.71)
%Excess Comp -2
Ln(board size) t
(2)
-0.01
(3.59)
1.98E-07 ***
(4)
0.12 ***
(3.29)
(2.63)
0.01
2.53E03
(0.26)
-0.07 *
(-1.77)
0.13
***
**
0.01
(2.04)
1.84E-03
0.00
(1.30)
0.00
(0.19)
-0.07 *
(-1.78)
(-0.31)
-0.03
(-0.80)
(-0.37)
-0.03
(-0.82)
-0.01
-0.05
-0.05
(-1.16)
-1.90E-03
(-1.27)
-1.07E-03
(-0.75)
-0.07 ***
(-0.43)
-0.06 ***
Total debt/Assets t
(-0.24)
(-0.33)
1.59E3.08E-03
03
(0.54)
(1.05)
-0.08 *** -0.08 ***
Managerial ownership t
(-3.77)
-0.18 *
(-3.54)
-0.16 *
(-3.44)
-0.17 **
(-3.25)
-0.16 *
(-1.87)
(-1.69)
(-2.06)
(-1.95)
0.02 ***
0.01 ***
0.01 ***
(2.83)
-0.02
(2.82)
-3.85E-03
(2.93)
-0.01
(2.91)
-3.85E-03
(-0.50)
0.1632
42.3213
(-0.13)
0.1632
42.1566
(-0.38)
0.0364
9.0109
(-0.14)
0.0354
8.7539
607
608
607
Ln(assets) t
Growth rate of sales t
Foreign institutional ownership
t
Adjusted R-squared
F-statistic
No. of firms
0.02 ***
608
No. of obs.
3,390
3,377
3,390
3,377
This table reports the estimated fixed effect regression using excess compensation
measures
at
time
t-1
and
t-2
as
the independent variables, respectively. The dependent variables are Jensen's alpha, and
three-factor-adjusted
returns, respectively. Variables are defined in Table 3. Values of t-statistics based on
White
(1980)
heteroskedasticity robust standard errors are reported in parentheses. ***, **, and *
indicate
statistical
significance
at
the 1%, 5%, and 10% levels, respectively.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
29.53%
30%
26.94%
25
%
ft
20%
10.12%
3.03%
4.76%
5%
3.37%
QJj
s
S
15%
g
^
10%
2.35%
0%
< -20,000 -20,000 -10,000 -5,000 ~0 ~ 5,000 5,000 ~ 10,000 ~
20,000 ~ ^ 50,000
~-10,000 ~ -5,000 0
10,000 20,000 50,000
Excess compensation (in NT$1000s )
45% -i
39.63%
40%
31.86%
35%
30%
25%
a
20%
a
15%
12.20%
10.67%
Ph
10%
1.37%
5%Figure
1 The
0%
<-150%
2.74%
1.52%
distribution of excess compensation to the boards of directors
and
supervisors:
-150%— -100%—50%
-50%~0%
100%
1999-2008.
0%~50% 50%~100%
^ 100%
The upper figure shows the distribution of %Excess
excess compensation
compensation(in NT$1000s), and the lower figure
shows the distribution of excess compensation relative to the benchmark (in %).
800,000
Excess compensation (in NT$1000s)
8,000
7,000
600,000
6,000
400,000
5,000
4,000
200,000
3,000
0
2,000
-200,000
1,000
-400,000
Maximum
Minimum
diunduh dari:
Mean www.multiparadigma.lecture.ub.ac.id
Figure 2 The maximum, minimum, and mean values of excess compensation (in
NT$1000s) to the boards of directors and supervisors by year.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
THE DESIGN OF SOFTWARE AND WEBSITE BASED FINANCIAL STATEMENT
MODEL TO IMPROVE THE TRANSPARENCY AND ACCOUNTABILITY OF
AMIL ZAKAT INSTITUTION
Imelda Dian Rahmawati.,SE.M.AK.Ak
Drs.Musliki.,MM
Ika Ratna Indra Astutik.,S.Kom.MT
A. INTRODUCTION
The financial statement has essential meaning for all organizations because financial
statement is the main facility to communicate the financial information to external and
internal party. As well as amil zakat institution, financial statement can be made as
responsibility media of amil zakat manager to stakeholder and muzzaki. Amil zakat
institution is also demanded to always improve the transparency and accountability. The
stakeholders of amil zakat institution can use financial statement media to assess a) the
service given by amil zakat institution and their ability to continue to give the service; and b)
the way how amil zakat managers perform their responsibility and management performance
aspect. Government organization, donators, member of organization and community need to
know the fund that has been collected by amil zakat institution. Likewise the administrators
and managers of amil zakat institution must perform the evaluation of organization’s
performance.
The requirement of financial statement of amil zakat institution that can improve
transparency and accountability is very important to keep the trust level of community.
Moreover in the era of openness of information and democracy improvement which occurs
within the community so the financial responsibility becomes very important and becomes an
urgent demand. Furthermore the existing financial statement model of amil zakat institution is
far from transparency and accountability aspects. As financial statement of Amil Zakat Board
of Sidoarjo Regency which only reports the acceptance, output and deposit, in every repot
listed in its bulletin. As well as Amil Zakat Institution of Muhammadiyah Regional Leader of
Sidoarjo that only presents the report of acceptance, output and deposit, given to their
donators. The statement like this clearly does not meet the transparency and accountability
aspects then the change of financial statement is necessary (Hermawan, 2005). The refereed
change is to change the existing responsibility statement format to ideal financial statement
that is able to improve transparency and accountability of amil zakat institution.
B. Theoretical Review
B.1. Management Organization of Zakat Institution
The Law No. 38 year 1999 regarding Chapter III management of article 6 and article 7
that zakat management institution in Indonesia consists of two institution groups, namely
Amil Zakat Board (BAZ) and Amil Zakat Institution (LAZ). BAZ is formed by government,
while LAS is formed by community. LAZ as listed in Law of zakat is zakat institution formed
by community. These institutions have regional and national operational scope. The
institution is generally formed by political organization, mosque takmir, pesantren, mass
media, bank and financial institution and community institution.
B.2 Accounting of Baitul Maal and BAZ
So far there has been no accounting standard of amil zakat. This is due to amil zakat
institutions is a new organization that will continue to experience growth and change. This
statement aims to regulate the recognition, measurement, presentation and disclosure of zakat
transactions and donations/ alms by PSAK 109.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
In general, accounting principles of LAZ Baitul Maal must meet the accounting
standards in general, namely:
1. Accounting means the truth of accountancy must be accountable, because it must be
supported by legal and authoritative evidence.
2. Auditable means accountancy can be easily understood by financial statement users,
easy to traced and matched.
3. Simplicity means the accountancy is adjusted with practicality, simplicity and can be
adjusted with LAZ requirement without changing the principle of financial statement
arrangement.
B.5. The Purpose of Financial Statement
Financial statement purpose of Zakat Management Organization (OPZ) is to provide
information regarding the financial position, performance and financial position changes in
the collection and distribution activity of zakat which is useful in decision making. A
financial statement is useful when the information presented in the financial statements can be
understood, relevant, reliable, and comparable. However, we also need to realize that the
financial statements do not provide all the information that may be required by the parties
concerned with OPZ because in general the financial statements only illustrate the financial
effects of past events and are not required to provide non-financial information. However, in
some cases OPZ needs to provide information that has financial influence in the future.
Referring to these objectives, it can be understood that for LAZ the conformity with
Islamic Shari'ah in carrying out various activities is essential. Thus the position of the Shariah
Board in a LAZ also plays an important role. Ideally, Shari'ah audit should also be carried. It
is an examination conducted by both internal audits (or inspectors commission) and external
auditors, to assess all the LAZ activity towards compliance with the principles and provisions
of Islamic Shari'ah. Especially if audited by an external auditor may be issued "Opinion of
Shari'ah".
Quantitative financial information (accounting information) is a main source of
information in managing the organization, both business organizations and nonprofit
organizations. The objective of financial reporting is as a basis for making this decision must
not conflict with the primary objective of financial reporting (zakat purpose), both in
conceptual terms, as well as in technical terms. Vices, such as greed and selfishness have no
place in Islamic accounting, so the concept of Islamic accounting may avoid damage to the
heavens and the earth from the hands of the irresponsible.
b.6 Various Types of BAZ Financial Statements
According to Widodo & Kustiawan (2001: 91) the principles of recognition,
measurement and assessment of financial statements elements which generally accepted, as
long as not contrary to the purpose of financial reporting according to Islamic concepts,
should still be followed. Conversely, if the principle is contrary to the concept of Islam, then
it should be avoided. In a zakat managing organization, it should draw up some kind of
primary financial statements, among others:
1. Balance Sheet
2. Statements of sources and uses of funds
3. Statements of utilized funds changes
4. Record of the financial statements
.
C.
RESEARCH METHODOLOGY
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Based on the description above, the Flow Diagram of framework in this study appears
in the figure 3.1 below:
Ideal Financial Statements Model of Amil Zakat Institution
Balance Sheet
Report of Source and Use of Funds
IAI
(+)
Recommendatio
n
Statements of utilized funds changes
Record of Financial Statements
Software
and Web
Site Based
(-)
Figure 1. Framework Flow Diagram: Design of Software and Website Based Financial
Statements Model to Improve Transparency and Accountability of Amil Zakat
Institution
Source: IAI 2009 whichExist
modified
Do not
Exist
a.
Research Type
This type of research uses a qualitative approach. The reason for choosing the
Accountability
Increased
qualitative approachTransparency
is in order toand
obtain
a result closer
to reality. In addition, is because
researchers have access to the object of research. Researchers also as a means (instrument) of
research (Moleong, 2000) because it can conduct in-depth interviews with the policy makers
at an object and a full observation. In addition, because this study describes a situation or
event and do not seek to explain the relationship, and not to test hypotheses or make
predictions.
Research Focus
The focus of this study is to identify the types of financial statements produced by an
organization or amil zakat institution in Sidoarjo Regency and formulate initial ideal model of
financial statements to improve transparency and accountability.
b.
Unit Analysis
The unit of analysis of this research is the organization or amil zakat institutions
which prepare financial statements as a form of management responsibility of public funds.
As Basuki (2011), whom states that the unit of analysis is what is being investigated. This
study analyzes the types of financial statements produced by an organization or amil zakat
institution in Sidoarjo.
c.
Key Informants
Key informants required in this study are the Amil Zakat Institution or Board or
Organization chairman and treasurer, and others who understand the management of zakat.
Determination of key informants conducted by researchers and also snowball judgment
(Marshall, 2006). Key informants were determined by the judgment of researchers is the
organization or amil zakat institution chairman or treasurer. Key informant is specified with
snowball are informants who understand the process of preparing the financial statements.
d.
Collecting Data Method
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Collecting data in this study is done by means of surveys, observation, in-depth
interview, for primary data, and documentation used to collect secondary data.
1. Survey and observations made to collect data in order to identify the types of financial
statements which have been produced by the amil zakat organization or institution.
Survey and observation will be carried out to amil zakat institutions that have been based
on a pre-determined categorization.
2. In-depth interviews and documentation undertaken to formulate the initiation of the ideal
models of financial statements that can improve the transparency and accountability of
amil zakat institutions.
e.
Data Analysis
Analysis of the data in this study followed the qualitative data analysis method of
Miles and Huberman (1984), that is doing an analysis during the phase of data collection
process. Data analysis was carried out interactively and performed continuously during the
process and until the research done completely so the context or situation in the phenomenon
is not left behind in the analysis. Data analysis activity during the data collection process
includes data collection, data reduction, data display, and conclusion.
To support the data analysis, the researchers also conducted validity of data during the
data collection process. That is conducted by doing member check to the research subject,
cross check the documentation of data, and perform triangulation test. Triangulation test
means researchers sought to compare different data (qualitative and quantitative) with
different methods (observation and interview) to see the relationships among the data to
assess the reliability and validity of the data (Moleong, 2000: 127)
This Triangulation test is done by the results of the documentation on the financial
accountability procedures will be triangulated with observation and interview to the directly
concerned parties. Similarly, with the interviews results will be cross checked with the data
documentation and observation. Examination of the validity of the data can also be done by
checking members (Moleong, 2000: 181), which is the result of a person interview may be
requested a response from the other person. For example, the interview with the treasurer of
amil zakat institutions should prompt response to the chairman of amil zakat institutions.
D.
RESULTS AND DISCUSSION
a. Types of Financial Statements Generated By Amil Zakat Institution in Sidoarjo
Based on the results of survey research conducted by researchers, amil zakat
organizations or institutions in Sidoarjo Regency can be grouped into two kinds, namely
branch amil zakat institutions and non-branch amil zakat institutions. The branch Amil zakat
institutions means amil zakat institutions domiciled in Sidoarjo but its headquarters is in
another city. Amil zakat institutions in such example is the Al Falah Foundation Social Fund
(YDSF) Surabaya, Infaq Management Institute (LMI), Surabaya, and Rumah Zakat Indonesia
Bandung headquarters. Meanwhile, non-branch amil zakat institutions means amil zakat
institutions established by a group of people of Sidoarjo and officially domiciled in Sidoarjo,
such as Muhammadiyah Regional Leadership LAZISMU Sidoarjo, LAZ Roudlatul Jannah
Pepelegi Waru Sidoarjo, and some amil zakat mosque in Sidoarjo.
Grouping these two amil zakat institutions have consequences on the types of
financial statements that it generates. At amil zakat institutions that already have a branch or
head office, the financial statements produced is better than amil zakat institutions which are
formed by society or non-branch amil zakat institution. It can be seen from the types of
financial statements that it generates. Some documentation has been obtained by researchers
through a website owned by branch amil zakat institutions. However, the financial statements
of branch amil zakat institutions can also be subdivided into two, namely audited financial
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
statements and which have not. Thus there are three types of financial statements, the
financial statements of amil zakat institutions that have been published on the website and
audited on public accounting firms (KAP), the financial statements of amil zakat which has
been published on the website but are not audited or simply include the income and
expenditure statements, and the financial statements of amil zakat institutions that have not
been published on the website, not audited, and only include revenues and expenditures
report.
a. Financial Statements of Amil Zakat which Already Posted on Website and already
audited by KAP
These types of financial reports are produced by amil zakat institutions which already
professionally managed in financial terms. Amil zakat institutions like this have branches
spread all over Indonesia, particularly in Java. Financial reports generated by amil zakat
institutions have been audited by KAP. For instance Al-Falah Social Fund Foundation
(YDSF) Surabaya, its financial statements of 2011 have been audited by KAP Junaedi,
Chaerul, Labib, Subyakto, and Partners, with unqualified (WTP) opinion. Another
example is the Rumah Zakat Indonesia Foundation's financial statements have also been
audited by Kanaka, Puradiredja, and Suhartono, with unqualified (WTP) opinion.
. The SFAS No. 45 requires that nonprofit organizations are required to prepare financial
statements, i.e. statements of financial position, statement of activities, statement of cash
flows, and notes to the financial statements. It looks like the 2011 YDSF financial
statements which have been audited. On the published financial statements for the
statement of financial position and statement of cash flows are the same as in SFAS No.
45, but the change fund for financial statements is not in accordance with SFAS No. 45.
According to SFAS No. 45 that there was no change in the fund's financial statements,
but there are reports of activity. This is the difference of YDSF financial statements
which have audited by KAP with SFAS No. 45.
Meanwhile, the financial statements of "Yayasan Rumah Zakat Indonesia" has also
been audited by Kanaka Puradiredja with the results of the audit (opinion) is unqualified
(WTP). On those statements appears that the financial statements are audited and
published is the statements of financial position and statement of changes in funds.
Statement of financial position is commonly referred to as the balance sheet but in SFAS
No. 45 was not mentioned so or remain with the statement of financial position.
Furthermore, to report a change of funds is also not in accordance with SFAS No. 45
which requires the activity report instead of an income statement that is prevalent in
organizations profit or profit-oriented company.
b. Financial Statements of Amil Zakat which Already Posted on Website, Not audited
by KAP, and only Lists Statements of Revenues and Expenditures of Fund
These types of financial reports as produced by amil zakat institutions which are
already evolving, trying to demonstrate transparency and accountability but not yet able
to make a standardized financial statements. Transparency and accountability are only
shown to have the publication of the Statements of revenues and expenditures in the amil
zakat institutions concerned website. But for this type of published financial statements
still need to change again.
Examples of amil zakat institutions which conducted this thing is Infaq Management
Institute (LMI). This institution is only making statements of cash/bank revenue and
expenditure, as well as displays them on their websites. Such financial statements are
very simple or still far from standard financial statements that should be made. LMI is
supposed to prepare financial statements that have been standardized by IAI. At the time
prior to the implementation of SFAS No. 109, of Accounting for Zakat and Infaq/Charity,
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
LMI can use SFAS No. 45 as well as YDSF and Yayasan Rumah Zakat Indonesia. That
is, LMI in preparing the financial statements that still has to refer to one of the
corresponding SFAS.
Thus the steps to be taken by amil zakat institutions in this group, such as the LMI is to
change the model of financial statements that there has become a financial statements
which has been standardized and recommended by the IAI. The IAI recommendation is
the use of SFAS No. 109 on Accounting for Zakat and Infaq/Charity. Attempts to change
the model of the financial statements must begin with changing the accounting system
used.
Based on the financial report produced by amil zakat institutions such as these can be
certain that the accounting system used is the single entry bookkeeping. This system
records only cash revenues and expenditures without noting another aspect as well as the
system used by the double entry bookkeeping. Need an attempt to change the single entry
bookkeeping system which has been used as double entry bookkeeping system in order to
amil zakat institutions in this group can prepare the standard financial statements that is
SFAS No. 109.
c. Financial Statements of Amil Zakat Which Unpublished on Website, Unaudited,
and Just Make Statements of Funds Revenue and Expenditure
These types of financial reports are as produced by amil zakat institutions which are
established by Sidoarjo local communities. This means that the institution is not affiliated
with other institutions and not a branch of any zakat institutions. Model of financial
statements produced in the form of Statements of Funds revenues and expenditures only.
Such financial statements are still very simple so it certainly can not be audited by KAP.
The resulting financial statements have not been published on the website or magazine or
if it is published only through its own media.
Examples of amil zakat institutions that implement this thing is the Muhammadiyah
Amil Zakat and Infaq Institute of Muhammadiyah Regional Leadership (LAZISMuh
PDM) Sidoarjo. Although there LAZISMuh in PP Muhammadiyah but it seems there is
no synchronization or consolidation which then generate centralized financial statements
as well as YDSF and Rumah Zakat Indonesia Foundation. So the use of LAZISMuh
name exists in every PDM but has no obligation to report or consolidate it to LAZISMuh
Center.
4.2.2.
Initial formulation Ideal Financial Statements Model to Improve
Transparency and Accountability of Amil Zakat Institution
Based on the results of research and discussion about the kind of financial
statement generated by amil zakat institutions in Sidoarjo it can be concluded that no one
has to prepare financial statements in accordance with accounting standards established
by the IAI. As IAI recommendation that the financial statements for amil zakat institution
should be prepared by reference to PSAK No. 109. Some amil zakat institution have
prepared financial statements based on the provisions of PSAK No. 45. This must be
changed based on the provisions of PSAK No. 109. The use of PSAK No. 45 at that time
can be understood as not effective valid yet of PSAK No. 109. However, as effective
applicability of PSAK No. 109, amil zakat institutions must prepare financial statements
based on the PSAK.
PSAK No.109 on Accounting for Zakat, Infak / Alms are intended for amil zakat
institutions. This PSAK requires amil zakat institutions to prepare financial statements,
that is balance sheets, statements of sources and uses of funds, statement of changes in
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
funds utilized, and notes of the financial statements. The following are presented format
of financial statements.
1. Balance
Description
ASSET
current assets
Cash
and
cash
equivalents
financial instrument
claim
1.
Amil Zakat Institutions "ABC"
Balance
December 31, 20xx
Rp
Description
LIABILITIES
xxx
Short-term liabilities
xxx
The costs still be paid
xxx
Long-term liabilities
Long-term work benefits
Non Current Assets
Fixed Assets
(Non
Current
Account)
xxx
xxx
Total Asset
XXX
Total liabilities
Fund balance
Fund of zakat
Fund of donation / charity
Fund of amil
Fun of non-halal
Total fund
Total liabilities and
Fund balance
Rp
xxx
xxx
xxx
xxx
xxx
XXX
Report of Sources and Uses of Funds
Amil Zakat Institution "ABC"
Zakat fund
Reports Sources and Uses of Funds
Year Ended December 31 2XX2
Description
FUND ZAKAT
Income
Income Acceptance of muzakki
muzakki entities
individual muzakki
placement results
total income of zakat fund
Part amil zakat on income of funds
Total revenue fund after part of amil zakat
distribution
Fakir-miskin
Riqab
gharim
muallaf
Sabili'llah
Ibn sabil
Total disbursement of zakat
Surplus (deficit)
initial balance
Rp.
XXX
XXX
XXX
XXX
XXX
XXX
XXX
(XXX)
(XXX)
(XXX)
(XXX)
(XXX)
(XXX)
(XXX)
(XXX)
(XXX)
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
final balance
DANA infak / ALMS
Income
Donation / alms bound or muqayyadah
Donation / charity is not bound or mutlaqah
Amil part on receipt of funds donation / charity
results management
The amount of the receipt of funds donation / charity
Distribution
Donation / alms bound or muqayyamah
Donation / charity is not bound or mutlaqah
Allocation utilization of assets under management
(eg depreciation and allowance)
Total disbursements donation / charity
Surplus (deficit)
initial balance
final Balance
DANA AMIL
Income
Part amil zakat fund
Amil part of the donation fund / charity
other receipts
The amount of the receipt of funds amil
Use
Emlpoyee expense
depreciation expense
General and administrative expenses Other
Total use of funds amil
Surplus (deficit)
initial balance
final balance
The balance amount of zakat, donation fund / charity,
funds of amil
2.
(XXX)
XXX
XXX
(XXX)
XXX
XXX
(XXX)
(XXX)
(XXX)
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
(XXX)
(XXX)
(XXX)
XXX
XXX
XXX
XXX
XXX
Statement of Changes in utilized Fund
Amil Zakat Institution"ABC"
Zakat Fund
Utilized Fund Reports
Year Ended December 31 2xx2
Initial Additio reducti Allowa Depreciati
balan n
on
nce
on
ce
account
Fund donations /
alms - current assets
under management
(eg
revolving
receivables)
Fund donations /
alms - non-current
XXX
XXX
(XXX)
(XX)
-
Final
Balance
XXX
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
assets
under
management
(eg,
hospitals or schools)
total
3.
XXX
XXX
XXX
XXX
(XXX)
XXX
XXX
XXX
XXX
XXX
(XXX)
XXX
Notes to the Financial Statements
This report contains details of activities of organizations that work provides an
explanation of this keuangan.Laporan report can be either qualitative or quantitative.
Details of record generally contains about:
a. General information about the condition of the organization
b. The accounting policies used as a basis for the preparation of financial statements
c. Explanation of any accounts that still requires explanation
d. Events subsequent to the balance sheet date
e. Other additional information deemed important
4.
CONCLUSIONS AND RECOMMENDATIONS
Amil zakat institutions in Sidoarjo can be classified into two kinds, namely:
institutions zakat zakat branch and non-branch agencies. Examples amil zakat institutions
are branches of Al Falah Foundation Social Fund (YDSF) Surabaya, Infaq Management
Institute (LMI), Surabaya, and Rumah Zakat Indonesia Bandung Central Office. While
the non-branch institution is zakat zakat institution founded by a group of people of
Sidoarjo and office domiciled in Sidoarjo, such as Muhammadiyah Regional Leadership
LAZISMU Sidoarjo, LAZ Roudlatul Jannah Pepelegi Waru Sidoarjo, and some amil
zakat mosque in Sidoarjo.
Grouping these two amil zakat institutions have consequences on the types of
financial statements that it generates. The consequence is that there are three types of
financial statements, the financial statements amil zakat institutions that have been
published on the website and the audited public accounting firms (KAP), the financial
statements of zakat which has been published on the website but are not audited or
simply include the income and expenditure statements, and reports amil zakat financial
institutions that have not been published on the website, are not audited, and only include
revenues and expenditures report.
Suggestion
a.
All amil zakat institutions should create standardized financial statements in
accordance with SFAS 109 for purposes of transparency and accountability to
stakeholders.
b.
The use of various media publications to present its financial statements as a
useful performance report form weeks to increase confidence muzakki (donors)
to deposit funds ZISnya.
c.
To add to the transparency of the financial statements produced by LAZ, the
financial statements should be audited by an independent KAP.
REFERENCES
Accounting Principles Board (APB). 1987. Basic Concept and Accounting Principles
Underlying Financial Statament of Business Enterprises. APB No. 4. New York.
Freeman, Robert. J. dan Croug. D. Shoulders. 1999. Governmental and Non Profit
Accounting Theory and Practice. 6th edition. Prentice Hall Inc. New Jersey. USA.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Henke, Emerson, E. 1992. Introduction to Non Profit Organisation Accounting. Fourth
Edition. South Western Publishing Co. Cincinati
Hermawan, Sigit. 2005. Perubahan Laporan Keuangan Organisasi Nirlaba Menuju
Akuntabilitas Publik. Jurnal BETA – Bisnis, Ekonomi dan Akuntansi, Maret, Volume 3,
No 2, Fakultas Ekonomi Universitas Muhammadiyah Gresik
_____. 2007. Reformasi Sektor Publik dalam New Public Management (Kajian
Pengembangan Model Anggaran dan Laporan Keuangan). Jurnal BETA – Bisnis,
Ekonomi dan Akuntansi, September, Volume 6, No 1, Fakultas Ekonomi Universitas
Muhammadiyah Gresik
Ikatan Akuntan Indonesia (IAI). 2004. Pernyataan Standar Akuntansi Keuangan. PT.
Salemba Empat. Jakarta
Kaufman, R. 1998. What Can Business Learn from Education ? Who Should be Bechmarking
Whom ? International Journal of Education Reform, 7 (1), 13 – 18
Locklear, Alesa. 1997. What's The Impact of SFAS 116 and 117 on Non-Profit
Organizations? (Statement of Financial Accounting Standards). Fund Raising
Management, April 1997 v28 n2 p18(3)
Mardiasmo. 2002. Otonomi Daerah Sebagai Upaya Memperkokoh Basis Perekonomian
Daerah. Jurnal Ekonomi Rakyat. Thn 1, No. 4 Jakarta
Moleong, Lexy J. 2000. Metodologi Penelitian Kualitatif. PT. Remaja Rosda Karya. Bandung
Mulyadi. 2001. Sistem Informasi Akuntansi. Penerbit Salemba Empat Jakarta
Oneto, Erima dan Sudarma S. 2008. Joomla! Cara Cepat & Mudah Membuat Website.
Mediakita. Jakarta
Peltrey, Sandra. 1993. SFAS No. 117 and It’s Impact on Not For Profit Colleges and
Universities. The Journal CPA Online November 1993. New York State Society of
Certified Public Accountant. New York
Rosjidi. 2001. Akuntansi Sektor Publik : Sebuah Pengantar. Penerbit Aksara Satu. Surabaya
Sabeni, Arifin dan Imam Ghozali. 1997. Pokok Akuntansi Pemerintahan. Edisi Keempat.
BPFE. Yogyakarta
Syakhroza, Akhmad. 2003. Best Practices Corporate Governance dalam Konteks Kondisi
Lokal Perbankan Indonesia. Manajemen Usahawan. No. 06 Th. XXXII. Juni.
A Retrograde Movement of Institutional Theory:
The Story Behind the Establishment of the First Islamic Bank in Indonesia
Noval Adib
Mohamad Achsien
Aulia Fuad Rahman
Background
Phenomena of Islamic bank are always interesting to explore considering the
attractiveness of its development. Islamic bank had existed more than twenty years ago in
Indonesia. During that time, Indonesian Islamic banks had experienced many events shaping
their history such as big crises in 1997 and 2008. Various regulations guiding and facilitating
the operation of Islamic banks in Indonesia had also been issued. These facts show the
workability as well as the resilience of Islamic bank.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Currently the total assets of the Islamic finance industry are around $2.1 trillion
worldwide (World’s Islamic Finance Market Place, 2014). In Indonesia, shariah banking has
grown rapidly, from just one bank that used shariah as its operational basis in 1992, it has
since been followed by many other banks. Some banks entirely reformed their operational
basis before emerging with a new name and identity. As at the end of 2014, the assets of
Islamic banks in Indonesia totaled 260.366 trillion rupiahs or 20 billion US dollars (Otoritas
Jasa Keuangan, 2015). It is equal to 5% of total asset of the entire banks in Indonesia.
Besides the success story of the Indonesian Islamic bank, the story behind their birth is
also interesting to be explored. Established firstly in the early of 1990s, some issues arise such
as “Why Indonesian Islamic bank established firstly in the early of 1990s and not before or
after that years?”, or “How came the Indonesian Islamic bank were successfully established in
a such capitalistic environment like in Indonesia?” Such questions are interesting to explore
further to understand the underlying foundation of Islamic bank in Indonesia.
Theoretical Framework
Institutional theory is used to provide a theoretical framework for analyzing
interaction between organizations with its environment. It considers the processes by which
structures, including schemas, rules, norms, and routines, become established as authoritative
guidelines for social behavior. It enquiries into how these elements are created, diffused,
adopted, and adapted over space and time; and how they fall into decline and disuse (Scott,
2004).
According to DiMaggio and Powell (1983, p. 150), “Organizations compete not just
for resources and customers, but for political power and institutional legitimacy, for social as
well as economic fitness”. Organizations were established by copying the environment,
adapting the environment, or warding off the environment (Scott, 1983). Brignall and Modell
(2000) state that institutional theory assumes that a primary determinant of organizational
structure is the pressure exerted by external and internal constituencies on the organization to
conform with a set of expectations to gain legitimacy so as to secure access to vital resources
and ensure long-term survival.
The Research Question
The research question formulated in this research is:
How was the dynamics of the establishment of the first Indonesian Islamic bank and what
forces shaping and influencing the establishment?
The Research Objective
The research objectives of this research are:
1. To understand the dynamics of the establishment of the first Indonesian Islamic bank.
2. To understand forces that shape and influence the establishment of the first Indonesian
Islamic bank.
Contributions of the Study
This study seeks provide a new understanding about the dynamics takes place in the
process of the establishment of the first Indonesian Islamic bank. As such this study is
expected to contribute of the insight about the context of the first Indonesian Islamic bank
established.
Another contribution of this study is the view of Islamic bank from different
perspective, i.e. institutional perspective, rather than conventional perspective that views
Islamic bank as a rational institution. From conventional perspective, the existence of Islamic
bank typically pivoting around three E’s those are economy, efficiency and effectiveness.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
However, under institutional perspective the existence of Islamic bank comes from gaining
legitimacy from constituencies of organization.
From practical view, this research is hoped bring new insight to managements about
the relationship between company with its environment or its stakeholders, so that they can
manage their environment as well as their stakeholders better.
Research Methods: Case Study
In accounting research, case study has been acknowledged as a powerful method to
gain a better understanding of accounting practices within organization. Case study method in
accounting research is relatively new phenomena. From the 650 articles published in
accounting journal during 1976-1979 reviewed by Tomkins and Groves (1983), only seven
used case study approach. The awareness of field study in accounting emerged only from the
early of 1980s. Hopwood (1983, 302) commented "how little was known of the accounting
endeavour." One year later, Kaplan (1984, 415) commented on researchers' "reluctance to get
involved in actual organizations and to muck around with messy data and relationships."
Consequently, more case studies in accounting proliferate since 1980s. Ferreira and Merchant
(1992) reviewed 82 published case studies in the field of accounting during period 19851992.
Case study is viewed as the suitable and appropriate method to gather and generate
data in this research. As Chua (1986, p. 615) concludes, case studies is one of the appropriate
way beside ethnographic and participant observation, in collecting data of research.
Yin (2003) defined case study as a research strategy that is used in many situations,
“…including organizational and management studies…and the conduct of dissertations and
theses in the social sciences…such as business administration, management science, and
social work”. Eisenhardt (1989) depicted case study as a research strategy which focuses on
understanding the dynamic present within single settings.
Cooper and Morgan (2008) explained that case study approach is useful for research
investigating: 1) Complex and dynamic phenomena where many factors (including factors
that are not quantifiable) are involved; 2) Actual practices, including the details of significant
activities that may be ordinary, unusual, or infrequent (e.g., changes in accounting
regulation); and 3) Phenomena in which the context is crucial because the context affects the
phenomena being studied (and where the phenomena may also interact with and influence its
context). Eisenhardt (1989) further stated that case studies can be used for various purposes
i.e. to provide description, to test theory, or to generate theory. Scapens (2004) classified
accounting case study as:
 Descriptive case study, where accounting systems, techniques and procedures used in
practice are described.
 Illustrative case study, where new and possibly innovative practices developed by
companies are illustrated.
 Experimental case study, where accounting researchers develops new accounting
procedures and techniques.
 Exploratory case study, which is undertaken to investigate phenomena in the first
time. The result of exploratory case study need to be tested empirically at a later stage.
 Explanatory case study, which explaining the reasons for observed accounting
practices.
In the context of this research, case study is an explanatory case study that will explain
Data Generation
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Data generation for case studies were taken from many sources of evidence. Yin
(2003) named six sources of evidence i.e. documentation, archival records, interviews, direct
observation, participant-observation, and physical artifacts. Eisenhardt (1989) stated that case
study usually combine data collection methods such as archive, interviews, questionnaires,
and observations. The evidences of case study can be qualitative (e.g. words), quantitative
(e.g. numbers), or both (Eisenhardt, 1989). The capacity of case studies to capture much
information from various data sources create a rich understanding of organizational
phenomena than research analysis generated by statistical methods.
Data Analysis
Huberman and Miles (2000) explain that qualitative data analysis encompasses data
reduction, data display, and conclusion drawing/verification. The first step of data analysis is
data reduction which is aimed to reduce the potential universe of data in an anticipatory way
as the researcher choose a conceptual framework, research questions, cases, and instruments.
Data display is the second part of analysis that defined as an organized, compressed assembly
of information that permits conclusion drawing and/or action taking. Finally, conclusion
drawing and verification involve the researcher in interpretation of displayed data. The ways
to conclude include comparison/contrast, noting of patterns and themes, clustering, and use of
metaphors.
Findings
The establishment of Islamic bank in Indonesia is a part of Islamic revival in
Indonesia. The relationship between Islam and the state in Indonesia fluctuates during
Indonesia modern history. Soon after Indonesia gained independence, Islam was adopted as a
foundation of the state. But it was applied only in one day due to a protest from the eastern
province of Indonesia which is a non-Muslim majority area. Since then, the role of Islam in
Indonesia has been marginalized over the decades.
In the early 1990s, the political pendulum swung to Islamic side when Muslim
intellectuals from various professions established The Indonesian Muslim Intellectual
Association (Ikatan Cendekiawan Muslim Indonesia, ICMI) which was endorsed by the
Indonesia government at that time. The birth of ICMI then was proven to be very influential
for the next Islamic revival in Indonesia. In 1993, the chairman of ICMI i.e. B.J. Habibie was
elected as a vice president of Indonesia. Furthermore, the majority of the cabinet was held by
Muslim Intellectuals who are from the ICMI-base background.
The establishment of Islamic bank in 1992 is another evidence of Islamic revival in
Indonesia. The Islamic bank aimed to make available a distribution channel of interest-free
financial transaction for some people who have reservations due to religious reason, to engage
with conventional banks. This is completely different with the 70s which Islamic bank was
hindered from being established, not because of economical reason, but because there was
political stigma about Islam (Effendy, 2000).
The antecedents of Islamic bank in Indonesia exist ten years or more before its
establishment in the early 1990s. An Indonesian Muslim scholar, Imaduddin Abdurrahim,
represent the earliest awareness of Islamic banking idea in Indonesia when he attended a talk
on Islamic bank that was held in Kuala Lumpur in 1973. The speaker was Dr. Ahmad Najab,
an economist from Egypt who was invited by Tengku Abdurrahman, the Prime Minister of
Malaysia at that time. Dr. Najab argued that Islamic finance institution is the only way to
enhance economical and social life of the ummah that is marginalized for a long time (Ecip et
al., 2002, p. 10).
Soon after Imaduddin came back to Indonesia (previously he was a lecturer at one of
universities in Malaysia), he discussed the idea with several Indonesian Muslim scholars. He
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
also disseminated the idea of Islamic banking through extra-curricular lecturing in campus. In
1979, he went back abroad due to his conflict with the government. However, in the same
year a cooperative that was managed by his students was found, that was called Koperasi
Kesejahteraan Mahasiswa Bandung. One year later, his colleagues established another
cooperative, Koperasi Jasa Keahlian Teknosa. Both cooperatives were noted as the pioneer of
Islamic Financial Institution (IFI) in Indonesia.
Soon after the establishment of those IFIs, discourse of Islamic economics flourished
in Indonesia. In 1983, the Koperasi Jasa Keahlian Teknosa, in conjunction with Universitas
Islam Bandung (Bandung Islamic University) held a seminar on Islamic economics. The
seminar was attended by many prominent scholars and the minister of religious affair as the
keynote speaker. Following up the seminar, management of Teknosa visited Malaysia to do a
comparative study about Islamic banking. Malaysia has established its first Islamic bank nine
years earlier in 1983.
From the Malaysia visit, the team gained new insights about Islamic banking. They
then prepared a feasibility study for establishing an IFI. As the result, in March 1984 Islamic
financing was born named Baitul Mal wat Tamwil (BMT). Since it was not possible to
establish an Islamic bank at that time in Indonesia, the BMT legal status was as a cooperative
organization. The best achievement of the BMT was the value of its total asset reached 1.5
billion rupiahs. However, problems rose among the management in 1988 which had lead
decline of the BMT. However, the existence of the BMT proved that the concept of IFI can
work well in Indonesia.
The success of the BMT then became a motivation to establish ‘a real’ Islamic bank.
The experience in operating the BMT gave a sufficient picture how to operate an IFI.
However, the initiators of Islamic bank establishment in Indonesia were very aware that,
under prevailing political and economical view, extra efforts were needed to establish an
Islamic bank. Merely economical approach is not sufficient in establishing Islamic bank in
Indonesia. Political supports from the various interest groups were needed. Therefore, the
initiators approached and involved many parties such as the government, scholars, and
potential investors. Last but not least, they also contacted Islamic Development Bank (IDB) in
Jeddah, Saudi Arabia. Most of the meetings were facilitated by Indonesia Council of Ulema
(Majelis Ulama Indonesia, MUI).
Several meetings with those parties (government, scholars, and potential investors)
were held in order to convince the stakeholders. The purpose is to explain the feasibility of
Islamic banking establishment, both legally and economically. The responses from those
parties were very satisfying, especially after the government was convinced. “Take a note that
I am as one of founders and shareholders of this bank, in order to my ministers are not
reluctant to be shareholder as well”, the president Soeharto said to the initiators (Ecip et al.
2002, pp.98). “I will also invite entrepreneurs to Bogor Palace to gather funds from them”.
On 3rd of November 1991, a gathering to obtain funding was held in Bogor Palace,
the official residence of the President. The President of Republic of Indonesia as a promoter
and endorser at the agenda. Approximately 4000 people attended (Ecip et al. 2002, pp. 104).
The participants consist of ministers, entrepreneurs, ulamas, the initiators of the bank, and the
general public. The result, 110 billion rupiahs, equivalent of USD 44 million (based on
exchange rate of dollar to rupiah at that time) was obtained on the day. Not so long after that,
a new Islamic bank operates in Indonesia, to be exact on 1st May 1992.
Analysis of the Findings
Islamic bank in Indonesia was born in the right time and the right context. It arose
when there was change of power domination from secularist to Islamist group. Many parties
with many roles were involved within the process of Islamic bank establishment. Those
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
parties are the government, Indonesia Ulama Council, Islamic scholars, Islamic organization
and entrepreneurs. Prior to that, the circumstance was not fertile for any Islamic idea in
Indonesia. The pressures from institutional forces were too strong to be borne by any Islamic
movement since they were occupied by non-Muslim or secularist group (Effendy 2000).
The very early role constituting the first Islamic bank in Indonesia is the scholars’
role. They raised the issue of the possibility of Islamic bank operation in Indonesia. Many
discussions as well as trial and error of Islamic financial institution implementation were held.
The result is the idea of Islamic bank became popular and attracted many more parties.
Coincidently, in the same time some prominent Muslim scholars undertook meetings to
discuss the future of Islam in Indonesia. The significant result of the meetings was the
establishment of the Indonesian Muslim Scholars Association (Ikatan Cendekiawan Muslim
Indonesia, ICMI). ICMI was established in 1990 in Brawijaya University, Malang, East Java.
Many prominent Muslim scholars as well as bureaucrats joined the ICMI. Even more,
President Soeharto himself was appointed as the trustee of the ICMI with the executive
director was held by B.J. Habibie that further became the next president of Republic of
Indonesia after Soeharto. Consequently, ICMI was very powerful in influencing government
policy.
There is something interesting with the phenomena of the research if they are viewed
from institutional theory. Traditional understanding of institutional theory states that an
organization gets pressures from its institutional environment. Thus, in order to survive an
organization should adapt the pressures of its environment. There are two ways of
organization in facing any pressures from the environment (DiMaggio and Powell 1991).
Firstly, an organization attempts to refute such pressures, if it is possible. This way is called
decoupling. On the other hand, if it is impossible for an organization to refute pressure(s)
from its environment, so it has to accept such pressures. This second way is called
isomorphism.
However, the phenomenon of the birth of Islamic bank in Indonesia is a unique one.
Instead of received pressures from its environment, the establishment of the first Islamic bank
in Indonesia was fully supported by its environment. There was a ‘retrograde movement’ of
institutional theory in the process of the birth of Islamic bank in Indonesia. Majority of the
main institutional powers that exist in the environment such as the government, scholars,
ulema and the public supported the process of the establishment of the first Islamic bank.
This condition is the result of Islamic revival in Indonesia at that time. Pioneered by
students and some Islamic scholars, Islamic revival gained its right moment when the
president of Republic of Indonesia fully supported the Islamic revival process in Indonesia.
As the president was very influencing and Indonesia was a centralized country at that time,
the support of the president to the Islamic bank establishment was quickly followed by his
ministers as well as his colleagues.
The ministry of finance and the governor of Indonesian central bank (Bank Indonesia),
both of them were Christian, gave green light for the establishment of Islamic bank in
Indonesia. They said there was no problem with the regulation that would be underlying the
establishment of Islamic bank since the regulation allowed the operation of bank with zero
per cent of interest rate. However, the minister of finance asked, “if the Islamic banks don’t
take profit from interest, then how come they get the profit?” one of scholars then answered,
“Islamic bank takes profit from profit-loss sharing scheme” (Utomo, 2014).
Moreover, as mentioned above, the president initiatively gathered his colleagues to
collect support for the establishment of the first Islamic bank in Indonesia. Interestingly, the
minister of finance was one of the first customers of the first Islamic bank.
The phenomenon above is somewhat similar with Hambrick et al (2005) finding.
Hambrick et al. (2005) found an interesting fact in that isomorphism works in reverse. By still
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
admitting the truth of logic underlying DiMaggio and Powell’s (1983) isomorphism,
Hambrick et al. (2005) stated that DiMaggio and Powell failed to predict the retrograde
movement of institutional forces. They argued that between 1980 and 2000 several macro
social factors in the US all moved in the direction that, according to DiMaggio and Powell’s
(1983) theory, diminished the isomorphism pressures on the firm, i.e. goal ambiguity
diminished, industries became less structured, the role of the state was diminished,
organizations broadened resource dependence, alternative legitimate models proliferated, and
managerial background became more diverse. While in the case of the birth of the first
Indonesian Islamic bank, the common spirit of Islamic revival among actors within
institutional environment made them gave full support for the establishment of the first
Islamic bank instead of gave pressures.
Conclusion
The establishment of Islamic bank in Indonesia brought interesting phenomena if it is
viewed from institutional theory. According to institutional theory, an organization receives
pressures from external forces within its institutional environment. Consequently, the
organization should respond the pressures properly. The response could be resisting the
pressures or accepting them. However, instead of giving any coercion, the institutional forces
at the time of the first Indonesian Islamic bank establishment fully supported the
establishment of the first Islamic bank in Indonesia. Such support is the effect of the wave of
Islamic realization that changed the political constellation in Indonesia.
References
Brignall, S., & Modell, S. (2000). An institutional perspective on performance measurement
and management in the ‘new public sector’. Management Accounting Research, 11, 281-306.
Chua, W. F. (1986). Radical Development in Accounting Thought. The Accounting Review,
LXI(4), 601-632.
Cooper, D. J., & Morgan, W. (2008). Case Study Research in Accounting. Accounting
Horizons, 22(2), 159-178.
DiMaggio, P. J., & Powell, W. W. (1983). The Iron Cage Revisited: Institutional
Isomorphism and Collective Rationality in Organizational Fields. American
SociologicalReview, 48, 147-160.
Eisenhardt, K. M. (1989). Building Theories from Case Study Research. The Academy of
Management Review, 14(4), 532-550.
Ferreira, L. D., & Merchant, K. A. (1992). Field Research in Management Accounting and
Control: A Review and Evaluation. Accounting, Auditing & Accountability Journal, 5(4), 334.
Hambrick, D. C., Finkelstein, S., Cho, T. S., & Jackson, E. M. (2005). Isomorphism In
Reverse: Institutional Theory As An Explanation For Recent Increases In Intraindustry
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Heterogeneity And Managerial Discretion. Research in Organizational Behavior, Volume 26,
307–350, 26, 307-350.
Hopper, T., & Powell, A. (1985). Making Sense of Research into The Organizational and
Social Aspects of Management Accounting: A Review of Its Underlying Assumptions.
Journal of Management Studies, 22(5), 429-465.
Hopwood, A. (1983). On Trying to Study Accounting in the Contexts in Which It Operates.
Accounting, Organizations and Society, 8(2-3), 287-305.
Huberman, A. M. and M. B. Miles (2000). Data Management and Analysis Methods.
Handbook of Qualitative Research. N. K. Denzin and Y. S. Lincoln, Thousand Oaks: Sage
Publications: 428-444.
Kaplan, R. S. (1984). The Evolution of Management Accounting. The Accounting Review,
LIX(3).
Otoritas Jasa Keuangan, 2015. Siaran Pers OJK dan Perbankan Syariah Gelar Expo IB
Vaganza 2015.
Ryan, B., Scapens, R. W., & Theobold, M. (2002). Research Method and Methodology in
Finance and Accounting (2nd ed.): Thomson.
Scapens, R. W. (2004). Doing Case Study Research. In C. Humphrey & B. Lee (Eds.), The
Real Liffe Guide to Accounting Research: A Behind-the-Scenes View of Using Qualitative
Research Methods (1st ed.): Elsevier Ltd.
Scott, W. R. (2004). Institutional Theory: Contributing to A Theoretical Research Program. In
K. G. Smith & M. A. Hitt (Eds.), Great Minds in Management: The Process of Theory
Development: Oxford University Press.
Scott, W. R. (1983). Introduction: From Technology to Environment. In J. W. Meyer & W. R.
Scott (Eds.), Organizational Environment: Ritual and Rationality (pp. 13-17). Beverly Hills,
California: Sage Publications.
Tomkins, C., & Groves, R. (1983). The Everyday Accountants and Researching His Reality.
Accounting, Organizations and Society, 8(4), 361-174.
Utomo, A. P., G. Subagja, I. Kushartanto and A. I. Zulkarnain (2014). Dua Dekade Ekonomi
Syariah: Menuju Kiblat Ekonomi Islam. Gres Publishindo.
World’s Islamic Finance Market Place, 2014. 2014 - A Landmark Year for Global Islamic
Finance Industry.
Yin, R. K. (2003). Case Study Research: Design and Methods (3rd ed.): Sage Publications.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
THE INFLUENCE ACCOUNTING METHOD CHOICE AND
FINANCIAL PERFORMANCE ON INVESTMENT OPPORTUNITY SET
Pristiana Widyastuti
Lecture of Bachelor Degree
Faculty of Economics and Business
University of 17 Agustus 1945 Jakarta, 14350, Indonesia
E-mail: [email protected]
I. Introduction
Accounting method will determine the amount of numbers that will be presented in
the financial statements of a company. Management can determine the accounting method
that best suits for his company. Accounting method can not be separated by the agency
theory
in which the principal of the company has different interest with the agent as a management
or executive of the company. The management needs to determine and apply the most
appropriate accounting methods to answer any related interest between principal and agent.
One method used in recording financial statements of the company is conservative
accounting methods.
Conservative accounting method is prudent reaction method for accounting managers
to present a statement of revenue and assets of the company, the precautionary principle
suggests that managers have to consider the risks and threats that may occur. Weygandt et al.,
(2005) mentions, the application of the application of conservatism is the use of the lower of
cost or market for supplies. Managers of the company will choose the method that does not
present too high values of assets and inventories. Watts (2002) describe, conservative
accounting is how to solve the problem about asymmetric information in the company.
Although the principal and agent separated from financial reporting, this problem will still be
occur during the accounting report is to provide information to investors about the managerial
performance. This is supported by the result's studies of Lara et al., (2010), method of
conservatism, through the recognition of losses in the income statement, is expected to
improve the efficiency of investment companies through three main channels through which
to mitigate the adverse effects of information asymmetry between shareholders and
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
managers, facilitate monitoring of managerial investment decisions, improve managerial
incentives to improve poor performance the previous project and reduce its negative impacts,
as well as facilitating access to external financing at a lower cost. The accounting method can
not be separated from the interests of investors to assess the performance of a company. The
first purpose of this study aims to examine the relationship between conservatism accounting
method on investment opportunity set.
Based on accounting form of financial statements, investors can assess the financial
performance of the company. This assessment will be used as a material consideration
investors investment opportunities. Conservatism will reduce the asymmetry of payments
that
may be experienced investors. Watts (2003) in Sari (2004) stated that conservatism was
instrumental in presenting conservative earnings and assets. Conservatism will limit
opportunistic behavior manager (for example, creating distortions in the profits) in presenting
the financial statements. The second purpose of this study aims to examine the relationship
between conservatism accounting method on financial performance.
The financial statements will be used by managers and investors to measure the
performance of the company, measuring the returns of each asset and the company's profits.
Mohammadi (2014) states, the company's financial performance goals to assess how well the
company is able to use the assets to generate revenue. Financial performance is also used as a
general measure the overall financial health of the company over a period of time, and can be
used to compare similar companies in the same industry or to compare between
industries.Thus, the third purpose of this study aims to examine the relationship between
financial performance on investment opportunity set.
Bank in Indonesia plays an important role as country's economy support. Indonesian
banks regulated by Bank Indonesia acts as a regulator of the monetary system policy in
Indonesia. Banking development are in tandem with the development of the investment
climate. Janati et al., (2014) described four important role of bank in Indonesia. First, bank
has dominant position in economy system as the economic growth machine. Second, bank
shares main for source of company defrayal in the underdeveloped country capital market.
Third, bank is fundamental institution in national deposit mobilization. Fourth, banking
system liberalization either through privatization or economy deregulation causes bank
manager haves larger ones facility in running bank operation. The banking industry is unique
compared with other industries. The company's growth is largely determined by internal and
external parties such as creditors and investors. So the assessment of the investment
opportunities are expected not only to management but the shareholder.
II. Literature Review and Hypothesis
A. Relationship between investment opportunity set and conservatism accounting
method
Investment opportunity set (IOS) show an opportunity for a company's investment in
the future with regard owned assets. The common assumption of investment opportunity set
is making a capital expenditure to produce a new product or expand an existing production
line (Kallapur and Trombley, 2001). Capital expenditure of a company is very depend on the
amount of internal funds owned by the company as well as external funding in forms of
debt. The value of investment opportunities depends on future discretionary investments
whereas the value of assets in place does not, (Adam and Goyal, 2007). IOS measurement
should be connected to the proxy that is associated with other variables in the company, such
as value-based growth companies, the amount of investment companies or variant-based. In
this study, IOS is proxied by value-based growth companies. This proxy is based on the
assumption that the company's growth prospects partially expressed in the price of stocks, the
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
growing company will has a higher market value relative to assets owned (assets in
place) than companies that does not.
The ratio used market to book value of assets (MVA / BVA) and market to book
value of equity (MVE / BVE). Based on Adam and Goyal (2007), the book value of assets is
a proxy for the assets in place, whereas the market value of assets is a proxy for both the
assets in place and investment opportunities. Thus, a high (MBA / BVA) ratio indicates that a
company has many investment opportunities relative to its assets in place. While (MVE /
BVE) reflect the market assess the return on investment companies in the future will be
greater than the expected equity returns. Adam and Goyal (2007), the market value of equity
measures the present value of all future cash flows to equity holders, from both assets in
place and future investment opportunities, whereas the book value of equity represents the
accumulated value generated from existing assets only . Therefore, the MBE ratio measures
the mix of cash flows from assets in place and future investment opportunities.
Roychowdhury and Watts (2006) provides an overview of the relationship
between Investment Opportunity Set (IOS) and accounting conservatism. Accounting
traditionally do not respond to changes in the value of growth and intangible assets of the
company. Acquisitions and changes in value due to impairment of assets are usually not
recorded unless externally obtained and can be verified (such as managers and
acquisition goodwill). Consequently, if a decline in the value of assets that are not accounted
for, then the company can not admit it. This led the company at a low level of conservatism,
especially when the value of the company is affected by the value of the growth and value of
intangible assets of the company.
The company's growth is unobservable because its depend on investment
opportunities in the future. Giving incentive as bonus plan in the form of ownership of assets
to the manager will provide motivation to the manager to choose accounting procedures that
will enhance the company's revenue. Skinner (1993), In fact the case in general, and if the
contractual terms of bonus plans provide managers with incentives to make incomeincreasing accounting procedure choices, then I expect that firms with more assets-in-place
are more likely to use accounting-based bonus plans, so that their managers are more likely to
select income-increasing accounting procedures ex post.
Lafond and Roychowdhury (2007) stated that the investment opportunity set (IOS) is
a common factor that affects the relationship between managerial ownership and assymetric
timeliness of earnings as a proxy of conservatism. Conservatism is one of the efforts made
to reduce the agency conflict between managers and shareholders of potential affected by
investment decisions. The role of managers in an effort to address the agency problem
between managers and shareholders will be influenced by variations managers in setting
(IOS) is a constant.
Garcia and Garcia (2010), accounting conservatism, through the timelier recognition
of losses in the income statement, is expected to increase firm investment efficiency through
three main channels: (1) by decreasing the adverse effects of information asymmetries and
facilitating the monitoring of investment decisions; (2) by increasing managerial incentives to
abandon poorly performing projects earlier and undertake fewer negative net present-value
investments; and (3) by facilitating access to external financing at lower cost. The result
results suggest that conservatism improves investment efficiency in firms facing financing
constraints, reducing under-investment, and also among firms with high free cash flows and
low leveraged firms, reducing over-investment.
Based on explanation above report of managerial accounting parties will affect the
information to be received by shareholders and investors, the less asymetri information that
may arise will increase the chances to make investment decisions. Information on the
proportion of shareholding clarity will reduce the information asymmetry between
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
shareholders and managers, recording the amount of assets to facilitate monitoring of
managerial investment decisions, and the amount of debt information to facilitate access to
external financing at a lower cost. In line to Skinner (1993), these results confirm extant
results in the literature, that is, they are consistent with the size, debt/equity, and bonus plan
hypotheses. Importantly, the evidence indicates that these relations are robust to including
measures of the ios and/or accounting performance (ROA) in accounting choice regressions
H1: Accounting conservatism variables has significant and positive effect on
the investment opportunity set
B. The relationship between conservatism accounting method and financial
performance
The final products of accounting procedure as the financial statements are presented both
for financial managers and shareholders. Accounting conservatism is considered to be a
quality of the accounting information that makes the financial statements are useful for its
consumers. Kordlouie et al., (2014), the main goal of financial reporting is effective
depicting
economic occurrences on the situation and performance of the business firms for the sake of
outsider consumers in the way to help them make-economic decisions. Financial managers
use financial statements to analyze performance of the company, while the shareholders use
financial statements to analyze the firm value for their welfare. Fridson and
Alvarez (2002) described, in the primary goal of financial reporting is the dissemination of
financial statements that accurately measure the profitability and financial condition of
a company. Park and Chen (2006) explained , financial reports are a means that managers use
to communicate operating results and financial conditions of the firm to interested parties
external to the firm. This information is used to evaluate the performance and financial
condition of the firm for investment decisions, fiduciary purposes, or other uses. Propose a
theoretical of firm valuation model suggesting that accounting conservatism plays important
roles in firm valuations. In its conceptual framework conservatism as one of the constraints
on information usefulness
Accounting reports produced by the conservative method is biased and does not
reflect reality (Supriyanto and Kiryanto, 2006). This opinion was triggered by the definition
of conservative accounting, which recognizes the disadvantages of this method is faster than
revenues. Monahan (1999) states that the more conservative accounting, the book value of
equity are reported to be increasingly biased. Such conditions indicate that those statements
are completely useless because it can not reflect the real value of the company. Beaver
(2005), explained conservative behavior lead to choosing smaller and bigger costs when
present financial reporting. In addition, this method dictates the choice of losses not gained
while undermining the profits not made.
However, there are also arguments in favor of the application of this method. The use
of conservative accounting method will be able to produce financial statements that
pessimistic. It is necessary to counteract excessive optimistic attitude of managers and
owners of that company does not always get the same advantages. Thus, in this study will
examine the relationship between accounting conservatism in financial statements which are
valued at the company's financial performance.
Analyze financial statements can be done by calculating financial ratios. Brigham and
Houston (2004) said that the financial ratios are designed to help one evaluate a financial
statement. Financial ratio analysis selects the relevant information in financial statement data
and evaluates it.In this research use profitability ratio such as return on assets (ROA), return
on equity (ROE) and net income margin (NIM). Fridson and Alvarez (2002) described is
used to measures a firm's productivity of equity and therefore provides an indication of its
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
ability to attract a form of capital that provides an important cushion for the debt holders.
ROA is used to evaluate how good the firm uses its assets in its operations. According to
Brealey et al. (2011), return on assets measures the income available to debt and equity
investors per dollar of the firm's total assets that calculated by after tax interest plus net
income per total assets Net profit margin (NPM) shows how much profit of company makes
for every dollar it generates in revenue or sales. According to Pandey (2005), net profit
margin is formulated by profit after taxes divided by sales.
H2: Accounting conservatism has significant and positive effect on the financial
performance
C. The relationship between financial performance and investment opportunity set
Assessment of financial performance required by financial managers and the shareholders
of the company to measure how well the company's financial condition. Profitability ratios
are calculated in financial performance will show a growth rate of company's profits. High
profitability ratio indicates the company will have the opportunity to grow larger in the
future, while the growth of the company is directly related to the investment opportunities
that benefit companies. This is supported by the opinion of Myers (1977) which states that
the value of the company as a combination of income generating assets-in-place and growth
opportunities. High profitability signaled the company's growth in the future.
H3: Financial performance has significant and positive effect on investment
opportunity set
The figure bellow is research hypothesis model:
Figure 1. Research Hypothesis Model
I. Methodology
This research uses explanatory research typewhich attempts to explain the
relationship between variables through hypothesis testing, whereas the data used generally in
the form of numerical values calculated through statistical tests. Reseacher use secondary
data for the sample research, there are 41 banking companies in period of 2009-2013 that
listed in the Indonesia Stock Exchange (IDX). There are some criteria to selecting sample,
banking companies that resulted financial report and published and reported the positive
profit year by year in Indonesia Stock Exchange (IDX) period of 2009-2013 continuosly. The
form of the data is gotten from Indonesia Stock Exchange website (www.idx.co.id), the data
source
includes
anual
report
and
financial
report.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
There are three variables in this research, two of independent variables and one of
dependent variable. The independent variable is a conservatism accounting method which
has
indicators as bonus plan (proxied by shareholder structure), debt covenant (proxied by debt
to equity ratio), political hypothesis (proxied by firm size). Whereas, there are two dependent
variables namely financial performance (Y1) and investment opportunity set (Y2). The
indicators of financial ferformance (Y1) are return on asset (ROA), return on equity (ROE)
and net income margin (NIM), then, the indicators of investment opportunity set (Y2)
includes market to book value of asset (MVA/BVA) and market to book value of equity
(MVE/BVE). For more details about the relationship of these variables, this is table of
operational variable as follows:
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Table 1. Operational Variable
Variable
Concervatism
Accounting
Method
Choice
(X)
Financial
Performance
(Y1)
Definition
Conservative accounting
method is prudent reaction
method for accounting
managers to present a
statement of revenue and
assets of the company is
the use of the lower of
cost or market for
supplies. Weygandt et al.,
(2005)
Indicator
1) Firm Size
Outstanding share x share price
2) Bonus Plan
Shareholder structure
3) Debt to Equity Ratio (DER)
DER= J°tal --------- Shareholder Equity
Financial
performance 1) Return On Asset (ROA)
analysis is one of the
many tools useful in
Net Income
valuation because it helps ROA = --------the financial analyst gauge
Total Asset
returns and risks. (Fabozzi
and Peterson, 2003)
2) Return On Equity (ROE)
_ _ _ Net Income
ROE= -------------- —
Shareholder Equity
Investment
Opportunity
Set (Y2)
Data Processed
3) Net Income Margin (NIM)
assumption
1) Market to book value of asset
The common
of investment opportunity
(MVA/BVA))
Net Income
set is making a capital NIM = ----- ---Market Sales
Price per Share
expenditure to produce a
Book Value per Share
new product or expand an
2) Market to book value of equity
existing production line
(Kallapur and Trombley,
(MVE/BVE)
2001)
Market Price per Share
PER = ------ : ---- £— --Earning per Share
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
The research's statistical techniques is using partial least square (PLS) data analysis,
Smart PLS version 3.0 is used application for running the data. PLS can be used to analyze
the variety of independent variable and create it as a variable called latent variables. This
study uses a partial least square path modelling approach as a model of data analysis.
According to Hair et al., (2011), PLS-SEM is a causal modeling approach aimed to
maximizing the explained variance of the dependent latent constructs. PLS-PM is claimed to
explain at the best residual variance of the latent variables and potentially. The construct is
performed by formative indicator. Vinzi et.al., (2010) explain, "The formative modelling
objective is to obtain weights that create the best variety score or construct such that it
maximally correlates with the neighboring constructs". Formative indicator model assumes
that each measurement is bound affect the latent constructs. Construct is determined by
measuring indicators, so that the whole meaning of the composite latent constructs derived
from measurement indicators.
There are two hypothesis testing using PLS, the outer model and inner model. Outer
model measure the relation among indicator and latent variable, Sarstedt et al., (2014), outer
model test facilitate the immediate testing of the weights' significance based on the normal
distribution instead to running a bootstrapping routine, the bootstraping result will show the
significance of the weights may be determined to make the following decisions. Then, inner
model measure relationship among latent variable based on subtantive theory. According to
Hair et al., (2011) structural model typically referred to as the inner model in the PLS-SEM
context which shows the relationships (paths) between the latent constructs.
1) Basic equation model of Outer Model can be written as follows:
Model I (Conservatism Accounting)
^ = n^Firm Size+ n^Bonus Plan+ n^DER+ Sx ............(1)
Model II (Financial Performance)
n 1= n ROA+ n ROE+ n NIM+ Sy1 .........................(2)
Model III (Investment Opportunity Set)
n 2= nn MVA/BVA + n MVE/BVE + 5y2 ................(3)
2) Inner Model basic equation model can be written as follows:
Financial Performance
n Conservatism Accounting ^ + Sx ..........................................................
(4)
Investment Opportunity Set
n Conservatism Accounting ^ + Sx + n Financial Performance + sy .............. (5)
II. Empirical Result
There are empirical result studies discussion, table 2 provide the result of outer
model. The outer model showed the indicators which has been proved as indicators of
latent variable. The first stage is seeing the result of outer weight, the term of approval
indicator if the T-statistic is more than 1.96 (P-Value < 0.05)
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Indicators
Firm Size
Bonus Plan
DER
ROA
ROE
NIM
MVA/BVA
MVE/BVE
Data Processed
Table 2 Test of Out ter Weights
Original
Sample Standart
Sample
Mean
Eror
T-Statistic
P-Values
0.890
0.050
0.308
-3.190
3.249
0.525
0.622
0.690
2.714
0.089
1.307
1.244
1.368
1.138
1.220
1.917
0.007
0.929
0.191
0.214
0.171
0.255
0.223
0.055
0.660
0.144
0.139
-1.206
1.413
0.294
0.497
0.556
0.328
0.557
0.235
2.564
2.375
0.462
0.510
0.360
Table 2 showed that firm size has path coeficient 0.890, t-statistic more than 1.96
which are significant level 2.714 (p-value < 0.5), it indicates firm size has valid and
significant as indicator of conservatism accounting. Thus, bonus plan and DER has path
coeficient 0.050 and 0.308, t-statistic less than 1.96 which are insignificant level 0.089 and
1.307 (p-value < 0.5). If these two indicators has t-statistic less than 1.96, for the next step is
seeing the result of outer loading. Based on table 3, bonus plan and DER has path coeficient
0.154 and 0.47, the value is less than 0.5. Hairs (2013), the value of outer loading it should
be more than 0.5 for measuring indicators which built the construct of latent variable. So that,
bonus plan and DER has to be dropped from this model.
The path coeficient of ROA and ROE are -3.190 and 3.249, t-statistic 1.244 and 1.369
less than 1.96 (p-value < 0.5). Then, in table 3, the outer loading 0.015 and 0.186 which are
less than 0.5. It indicated ROA and ROE has been not valid and insignificant in measuring
financial performance. These indicators has to be drooped out of analysis. Whereas, NIM has
path coeficient 0.525, value of t-statistic is 1.138 less than 1.96 (p-value < 0.5), the outer
loading 0.659 more than 0.5, these indicators has not able to dropped from the model.
While, MVA/BVA and MVE/BVE has path coeficient 0.622 and 0.690, the value of
t-statistic are 1.220 and 1.917 less than 1.96 (p-value < 0.5). Then, in table 3, the outer
loading 0.733 and 0.789 which are more than 0.5, the outer loading 0.659 more than 0.5,
these indicators has not able to dropped from the model.
Table 3 Test of Outer Loadings
Indicators
Firm Size
Bonus Plan
DER
ROA
ROE
NIM
MVA/BVA
MVE/BVE
Data Processed
Original Sample
0.951
0.154
0.473
-0.015
0.186
0.659
0.733
0.789
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Table 3 showed the value of firm size, NIM, MVA/BVA and MVE/BVE has more
than 0.5, there are 0.951, 0.659, 0.733 and 0.789, it means that indicators can be accepted.
Thus, Bonus plan, DER, ROA and ROE has less than 0.5, there are 0.154, 0.473, -0.015
and
0.186, it means that indicators should be dropped from the model.
The acceptance indicators has to be tested for finding the fit model of outer loading.
There are result of fit model after testing bellow:
Table 4 Fit Model of Outer Mot El
Indicators
Original
Sample Standart
T-Statistic
P-Values
Sample
Mean
Eror
Firm Size
1.000
1.000
0.000
1.000
0.000
NIM
1.000
1.000
0.000
1.000
0.000
MVA/BVA
0.830
0.782
0.218
3.802
0.000
MVE/BVE
0.683
0.676
0.206
3.309
0.001
Data Processed
Firm size has path coeficient 1,000 and t-statistic 0,000, it means that firm size has been
single indicator in measuring conservatism accounting. NIM has path coeficient 1,000 and tstatistic 0,000, it means that NIM has been single indicator in measuring financial
performance. MVA/BVA and MVE/BVE has path coeficient 0.830 and 0683, t-statistic
greater than 1,96 with significant level 3.802 and 3.309 (p-value < 0.5). It indicated that
MVA/BVA and MVE/BVE has been valid and significant in measuring investment
opportunity set.
Ta jle 5 Hypothesis Testing of Inner Model
Original
Sample Standart
T-Statistic
Sample
Mean
Eror
Conservatism -> IOS 0.370
0.368
0.129
2.873
Conservatism -> FP
-0.052
-0.051
0.110
0.471
FP ^ IOS
-0.142
-0.142
0.140
1.015
Data Processed
Indicators
P-Values
0.004
0.638
0.310
Table 5 showed the result of hypothesis testing from this research. The result revealed
statistically positive and significant influence between the proxy of conservatism accounting
on investment opportunity set. Based on PLS analysis has been known that path coefficient
0.370 and t-statistic 2.873 (p-value < 0.5). This result confirm that conservatism is the efforts
to reduce the agency conflict which potential affect investment decisions. Conservatism
which proxied by political hypothesis showed how large the firm size by own assets affect
investment decission. In line to Skinner (1993), the amount of assets is used to facilitate
monitoring of managerial investment decisions.
The result revealed statistically negative and insignificant influence among the proxy
of conservatism accounting on financial performance. Based on PLS analysis has been
known that path coefficient -0.052 and t-statistic 0.471 (p-value < 0.5). Conservatism is
proxied by firm size have no affect on financial performance. It means the growth of net
income margin of the company has not significant affected by assets in place. This result is
opposite to Park and Chen (2006) who revealed that conservatism accounting plays important
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
roles in firm valuation to evaluate the performance and financial condition of the firm for
investment
decisions.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Thus, the result also revealed statistically negative and insignificant influence among
the proxy of financial performance on investment opportunity set. Based on PLS analysis has
been known that path coefficient -0.142 and t-statistic 1.015 (p-value < 0.5). Net income
margin as profitability ratio which measure financial performance is not continually affect
investment decission. However, there are other indicators that are seen by managers and
shareholders to determine investment opportunity set.
Conclusion
Overall, IOS is proxied on the basis of the company's growth assume that the
company's growth prospects partially expressed in the prices of stocks, and companies that
grow will have a higher market value relative to assets owned. The result of this study
revealed statistically significant positive influence between the proxy of accounting
conservatism on the investment opportunity set. Accounting conservatism proof how large
the firm size by own assets affect investment decission. The selection of the method of
accounting used in a positive conservatism will increase investment opportunity set. It
receives research Skinner (1993) which states that, bonus plan, debt covenants and firm size
effect on corporate investment decision. The banking size on assets in place is expected can
improve investment opportunity in the future. The size of company can be seen by investor as
height return to the investment. The other hypothesis showed negatif and insignificant
relationship, it indicates that acoounting reporting based on conservatism method not
continually increasing financial performance of the company, especially profitability ratio.
Whereas, investment opportunity sets are influenced by other factors side.
Refferences
Adam, Tim and Vidhan K. Goyal. 2007. The Investment Opportunity Set And Its Proxy
Variables. Hong Kong Research Grant Council
Beaver, W. H., & Ryan, S. G. 2005. Conditional and unconditional conservatism: concepts
and modeling. Review of Accounting Studies, 10(2-3), 269-309
Brealey, Richard et al,. 2011. Principle of Corporate Finance. Tenth Edition.The MacGrawHill. New York
Brigham, Eugene F., and Joel F Houston. 2004. Fundamentals of Financial Management.
Tenth Edition. Mason. Ohio
Fridson, Martin., and Fernando Alvarez. 2002. Financial Statement Analysis. Third
Edition.Wiley & Son Ltd. New Jersey
Garcia, Beatriz, Juan Manuel Garcia and Fernando Penalva. 2010. Departament d'Economia
de l'Empresa, 1988-7736
Garcia Lara, J., Garcia Osma, B., Penalva, F., 2011. Conditional conservatism and cost of
capital. Review of Accounting Studies 16, 247-271
Hair, Joe F. et al., 2011. PLS-SEM: Indeed a Silver Bullet. Journal of Marketing Theory and
Practice, vol. 19, no. 2
Jannati T et al., 2014. Investment opportunity set: evidence from Indonesian Banking
International Journal of Business and Management Invention ISSN (Online): 2319 8028. www.ijbmi.org Volume 3 Issue
Kallapur and Trombley. 2001. The Investment Opportunity Set, Determinants, Consequences
and Measurement. ManagerialFianance, Vol. 27, No.3, pp 3-15
Kiryanto dan Suprianto,Edy. 2006. Pengaruh Moderasi Size Terhadap Hubungan Laba
Konservatisma Dengan Neraca Konservatisma. SNA IX : Ikatan Akuntan Indonesia
Lafond, Ryan dan Sugata, Roychowdhury. 2007. Managerial Ownership and Accounting
Conservatism.www.ssrn.com.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Lafond, Ryan dan Watts, Ross L. 2007. The Information Role of
Conservatism.www.^^rw.cow.
Mohammadi, Vahid. 2014. The Relationship Between Conservative Politics And Financial
Performance At Companies Listed On The Tehran Stock Exchange. International
Journal of Accounting Research Vol. 1, No. 7
Monahan, Steve, 1999. Conservatism, Growth And The Role Of Accounting Numbers In The
Equity Valuation Process. (http://www.ssrn.com.), Maret 2012
Park, Yonpae and Kung H Chen. 2006. The Effect Of Accounting Conservatism And LifeCycle Stages On Firm Valuation. Journal of Applied Business Research .Volume
22.Number 3
Roychowdhury, S. dan Watts, R. 2006. Asymmetric Timeliness of Earnings, Market-to-Book
and Conservatism in Financial Reporting. Journal of Accounting and Economic.
Sari, Dahlia. 2004. Hubungan Antara Konservatisme Akuntansi Dengan Konflik
Bondholders-Shareholders Seputar Kebijakan Dividen Dan Peringkat Obligasi. Jurnal
Akuntansi dan Keuangan Indonesia Vol. 1, No. 2, pp 63-88
Sarstedt et al., 2014. Partial least squares structural equation modeling (PLS-SEM). Journal
of Family Business Strategy
Smith, Clifford W. Jr. and Ross L. Watts. 1992 The investment opportunity set and corporate
financing, dividend, and compensation policies. Journal of Financtal Economics 32
(1991)263-192
Skinner, Douglas J. 1993. The investment opportunity set and accounting procedure choice.
Journal of Accounting and Economics 16 (1993) 407-445
Vinzi, V Esposito et al,. 2010. Handbook Partial Least Square: Concept, Methods and
Applications. Springer Heidelberg Dordrecht.London and New York.
Watts, Ross L. 2002. Conservatism in Accounting. The Bradley Policy Research Center
Financial Research and Policy Working Paper, FR 02-21
Weygandt, Jerry J., Donald E. Kieso and Paul D. Kimmel. 2008. Accounting principle. 7th
Edition. Jakarta : Salemba Empat
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Apendix
Figure 2. Result of Outer Weight
Figure 3. Result of Outer Weight After Fit Model
Figure 4. Result of Path Coeficient
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
THE INFLUENCE OF INFORMATION ASYMMETRY, LEVERAGE AND CHIEF
EXECUTIVE OFFICER TURNOVER ON THE EARNINGS MANAGEMENT PRACTICES
YuraKarlindaWiasaPutri1
A.A.G.P. Widanaputra2
1
Faculty of Economics and Business, University of Udayana (Unud), Bali, Indonesia
e-mail: [email protected] / tel: +6287861156513
2
Faculty of Economics and Business, University of Udayana (Unud), Bali, Indonesia
INTRODUCTION
Information on corporate profits can help the owner or another party in assessing the
performance of the company and the strength of corporate profits in the future. This is in line with
the Statement of Financial Accounting Concepts (SFAC) No.1 (1987) (Belkoui, 1993 in
Widyaningdyah, 2001), which states that the earnings information becomes the main concern to
estimate the performance or accountability of management to the company's financial statements.
Information in accounting earnings changes could give a positive signal (good news), and negative
signals (bad news) for users of financial statements, especially the investors.
Earnings management is a management intervention in the process of preparing the external
financial reporting, so as to raise or lower the accounting profit in accordance with the interests of
the implementation of the earnings management (Schipper, 1989 in Beneish, 2001).Earnings
management actions undertaken by management by affecting the numbers in the financial
statements are intended to show the performance of the company in a good shape. Earnings
management practices lead to profits reported in the financial statements do not reflect the true state
of the company. The information contained in the financial statements are to be biased and can not
be used as a basis for decision making for the company's stakeholders.
Earnings management is an agency problem that is often triggered by the separation of the role
or the difference between the interests of the shareholders with the company management. Based on
agency theory, the management and the principal companies have different interests due to
differences in objectives, which is referred to as conflict of agency / agency problem (Fama and
Jensen, 1983). The principals are motivated to made contract for the welfare of themselves with
ever-increasing profitability while from the agent is motivated to maximize the economic needs and
psychological, among others, in terms of obtaining an investment, loan, or contractual
compensation (Salno and Baridwan, 2000).
Earnings management practices lead to profits reported in the financial statements do not reflect
the true state of the company. The information contained in the financial statements are biased and
can not be used as a basis for decision making for the company's stakeholders. Earnings
management practices that gave rise to the case of the accounting reporting scandals have been a lot
going on in Indonesia as was the case at PT. Lippo Tbk. and PT. Kimia Farma Tbk.that is involving
financial reporting that begins with the detection of manipulation practices (Gideon, 2005).
The occurrence of earnings management can be influenced by several factors. One of the factors
that influence earnings management is information asymmetry. Information asymmetry is a
situation where the manager has access to information on the prospects of companies that are not
owned by the parties outside the company. More and more internal information management
company owned by the management as compared to the shareholders the more opportunity of the
management to manage earnings. These conditions provide an opportunity for the management to
use the information he knew to manipulate its finances in an effort to maximize their own welfare
(Rahmawati, et al 2006).The more company’s internal information owned by the management
compare to the shareholders’ the more opportunity of management to manage earnings.
One of the other factors causing profit management is the leverage. Leverage as one of the
efforts in the improvement of corporate profits can be measured in seeing the behavior of managers
in earnings management activities. High company’s leverage will be the consideration of
management to manage earnings because the company is threatened by default, which is not be able
to meet paying debt obligations on time (J.C. Shanti and C.Bintang HariYudhanti, 2007). When
threatened by default the manager can perform earnings management,
that the performance of
diunduhsodari:
www.multiparadigma.lecture.ub.ac.id
the company will look good in the eyes of the shareholders (principals) and the public even in a
state that the company threatened by default.
Other factors that influence earnings management is the change of the chief executive officer
(CEO). CEO's performance is said to be successful if it has a good record every year and can
achieve a common goal between the principal and the agent. Kaplan and Minton (2006) in the Yasa
and Novialy (2010) states that the CEO whohave a risk of losing a job is increasing. The risk arises
when the company's profit in one period is not consistent with the objectives of the principal so that
the CEO should be responsible for the results obtained. Hazarika et al. (2009) in his study about
earnings management that is motivated by the CEO turnover showed evidence that the CEO who
will be replaced isproved performing earnings management by income increasing patterns. Income
increasing was made by the CEO at the time before the turnover to obtain a great bonus before
being replaced. Earnings management is done by the new CEO to earn the trust of the principal in
managing the company owned by the principal.
In the previous research there has been lot of researchesdone to examine some factors that
influence the earnings management practices. As the research conducted by Desmiyawati, et al
(2009) who studied the effect of asymmetry of information and the size of the company to the
earnings management practices in manufacture companies listed in Indonesia Stock Exchange of
2005-2006 period. The research results prove that the asymmetry of information and the size of
company has a significant and positive effect on earnings management. Research conducted by
Agnes Utari Widyaningdyah (2001) concluded that leverage has a significant effect on earnings
management. It is similar to research conducted by J.C. Shanti and C.Bintang HariYudhanti (2007)
which resulted in financial leverage that is positively related to the level of discretionary accruals
(earnings management). Other research conducted by Bengsston et al. (2006) proved that earnings
management occurs at the time of the replacement of the CEO and in the years thereafter.
Hypothesis formulation obtained based on these descriptions include:
H1 : Information Asymmetry has positive effect on earnings management practices.
H2 : Leverage haspositive effect on earnings management practices.
H3 : Turnover of CEO has negative effect on earnings management practices.
RESEARCH METHODS
This study was performed on manufacture companies listed in the Indonesia Stock Exchange
(BEI) in the period of 2010 to 2013 which can be accessed via www.idx.co.id. The object of this
research is the asymmetry of information, leverage, CEO turnover and earnings management of
manufacture companies listed in Indonesia Stock Exchange in 2010-2013.
The population in this study are all manufacture companies listed on the Indonesia Stock
Exchange in 2010-2013, amounting to 128 companies observed.To get a research sample, the
technique used is the purposive sampling (Sugiyono,2012:68). Considerations that are used in this
sample is the manufacture companies listed in Indonesia Stock Exchange during 2010-2013, which
published annual financial report in full during the year of 2010-2013, the company has the data
related to the variables used in this study, the companies reported information that is in monetary in
units of rupiah currency.
Based on the criteria set out above, it is found that the number of manufacture companies that
meet the criteria are 56 manufacture companies with four years of observation, so the samples in
this study are 56 manufacture companies listed in Indonesia Stock Exchange in 2010-2013.
Earnings management proxiedby discretionary accruals using Jones model modified by Dechow
et.al (1995) with the following steps:
Calculate the actual total accrual with the formula:
Calculate total accrual estimated with the OLS (Ordinary Least Square) regression equation with
the formula:
Calculate non-accrual discretionary with the formula:
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Calculate Discretionare total accrual with the formula:
Asymmetry in this study will be measured using the Bid-Ask Spread which is the difference in
price to buy and sell shares at any given time. Generally, Bid-ask spread is calculated by using the
formula of:
The leverage showsto which extent the level of assets financed by debt. Degree of leverage can
be found out by comparing the total debt to total assets.
Substitution of chief executive officer (CEO) of the company can occur due to a decision of the
general assembly of shareholders (AGM) or due to a resignation. This variable is measured by a
comparison between the CEO of previous period and the CEO of current period. The scale of data
measurement using a nominal scale with the criteria, if the change of CEO occur then it is given a
value of 1, whereas if there is no change of CEO then it will be rated by 0.
RESULTS AND DISCUSSION
Results of descriptive statistical tests used in this study is to provide information about the
characteristics of proxy of research variables.Results of descriptive statistics can be seen in Table 1
as follows.
Table 1.
Results of Descriptive Statistics Descriptive Statistics
N
Information
214
Asymmetry
214
Leverage
214
Substitution of CEO 214
Earnings
214
Management
Valid N (listwise)
Source: Data processed, 2015
Minimum
Maximum
Mean
,14
,08
,00
-,13
,98
,90
1,00
,34
,6183
,4286
,2617
,0702
Std.
Deviation
,20352
,19173
,44058
,07933
Residual normality test goal is to test the distribution whether it is normal or not to the regression
model between the free variable and its independent. To test it the Kolmogorov - Smirnov test is
used. A model is said to be normal when the residual significance is greater than 0,05. Normal test
results of this study, it can be seen that the normality test results showed that regression model has
normal distribution is seen from the Asymp.Sig value = 0,317 greater than 0,05. KolmogorovSmirnov test results can be seen in Table 2 as the following.
Tabel 2.
Nilai Kolmogorov Smirnov
N
Normal Parameters
a,b
Mean
Unstandardized Residual
214
,0000000
diunduh
dari:
www.multiparadigma.lecture.ub.ac.id
Std.
Deviation
Most Extreme
Differences
,02141293
,340
,223
-,340
,967
,317
Absolute
Positive
Negative
Kolmogorov-Smirnov Z
Asymp. Sig. (2-tailed)
Source: Data processed, 2015
Multikoliniearitas test goal is to test whether in the regression model it is found a correlation
between independent variables. The method used to detect the presence of multicollinearityis by
using the tolerance value and the VIF (Variance Inflation Factor) value.
Table 3.
Results of Multicollinearity Test
Collinearity Statistics
Model
Tolerance
VIF
1 Asymmetry of
,970
1,031
Information
,975
1,025
Leverage
,995
1,006
Substitution of CEO
a. Dependent Variable: Earnings Management
Source: Data processed, 2015
Table 3 shows that there is no independent variable which the tolerance value is less than 0,1 or
VIF less than 10, so it is concluded that there is no multicollinearity between the independent
variables in the regression model.
Heteroskidastitytest is done by using the Glejser test. If Asymp. Sig (p value)> 0,05, it can be
concluded that there is no heteroskidastityoccur.
Table 4.
Results of Heteroskidastity Test
Unstandardized
Coefficients
Model
B
Std.
Error
1
(Constant)
,011
,004
Information Asymmetry
,000
,004
Leverage
-,016
,017
Substitution of CEO
,016
,013
a. Dependent Variable: Abres
Source: Data processed, 2015
Standardiz
ed
Coefficien
ts
Beta
,007
-,155
,354
t
Sig.
2,839
,108
-,960
1,232
,005
,914
,617
,143
Based on Table 4 it can be seen that all variables have Asymp.Sig (p value)> 0,05, which mean
that there is no heteroskidastity inregression model.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
The purpose of the autocorrelation test is to examine the intruder error in period t with intruder
error in period t-1 (previous) in the regression model. Those errors are called the autocorrelation
problem. If the significance value is greater than 0,05 then the model is said to be free of
autocorrelation. This test is done by using the Langrange Multiplier test.
Table 5.
Autocorrelation Test Results
Model
R
R
Square
1
,859
Adjusted
R Square
,857
Std. Error
of
The
Estimate
,02157
DurbinWatson
2,010
a. Predictors: (Constant), Substitution of CEO, Leverage, Information Asymmetry
b. Dependent Variable: Earnings Management
Source: Data processed, 2015
Autocorrelation test results of this study showed that the regression model performed in this
study escapes from the autocorrelation test viewed from the position of du<d<4-du.
Table 6.
Result of Multiple Linear Regression Analysis
Variable
Unstandardized
Coefficients
B
0,027
0,072
(Constant)
Asymmetry of
information
Leverage
0,065
Substitution of CEO
-0,079
R2
= 0,859
Fcount= 427,900
Sig Fcount= 0,000
Source: Data processed, 2015
Standardized
Coefficients
t
Sig.
0,362
0,000
0,000
0,002
Std. Error
0,028
0,004
Beta
0,426
0,914
16,219
0,008
0,003
0,220
-0,745
8,375
-20,269
Regression equations for earnings management practices that performing the turnover of CEO is
as the following.
Y=
+
+
+
+e
Y = 0,027 + 0,072 Information Asymmetry + 0,065 Leverage – 0,079 (1) + e
Y = -0,052 + 0,072 Information Asymmetry + 0,065 Leverage + e
Constant value of earnings management practices which performing the turnover of CEO is of 0,052 which means that if the variable of information asymmetry diunduh
and leverage
dari: is considered as zero
www.multiparadigma.lecture.ub.ac.id
(fixed or no change), then the earnings management practices if of -0,052.The coefficient value of
information asymmetry value is of 0,072 which means that if the value of the information
asymmetry variable increasesby one unit then the earnings management practices increased by
0,072 by assuming that the leverage variables remain constant. Coefficientvalue of leverage is of
0,065 which means that if the value of the leverage variable increased by one unit then the earnings
management practices increased by 0,065 with assumption that information asymmetry variables
remain constant.
Regression equations for earnings management practices that do not perform the turnover of
CEO, is as the following.
Y=
+
+
+
+e
Y = 0,027 + 0,072 Information Asymmetry + 0,065 Leverage – 0,079 (0) + e
Y = 0,027 + 0,072 Information Asymmetry + 0,065 Leverage + e
Constanta value of earnings management practices that do not perform the turnover of CEO is of
0,027 which means that if the variable of information asymmetry and leverage is considered to be
zero (fixed or no change), then the earnings management practices amounted to be
0,027.Coefficientvalue of information asymmetry is of 0,072 which means that if the value of the
information asymmetry variable increases by one unit then the earnings management practices
increased by 0,072 with the assupmtion that the leverage variables remain constant. Leverage
coefficient value is of 0,065 which means that if the value of variable leverage increased by one unit
then the earnings management practices increased by 0,065 with the assumption that the
information asymmetry variables remain constant.
The value of R2 is 0,859. This means that 85,9 percent of the indication variance of earnings
management practices in manufacture companies listed in the Indonesia Stock Exchange 2010-2013
is explained by the variance of information asymmetry, leverage and the CEO turnover, while the
remaining 14,1 percent is influenced by other factors variance which are not included in the study.
The value of sig. Fcount= 0,000 <α = 0,05. This means that the independent variableswhich are the
asymmetry of information, leverage and the turnover of CEO is a statistically significant
explanatory of the indication of the onset of earnings management practices in manufacture
companies listed in Indonesia Stock Exchange in 2010-2013.
Asymmetry of information (X1) statistically has positive and significant effect to the earnings
management practices of the manufacture companies listed on the Indonesia Stock Exchange in
2010-2013. The results of this study are consistent with the previous studies which was the research
conducted by Richardson (1998) which shows the result that there is a correlation between the
information asymmetry which positively and significantlyinfuencethe earnings management.The
managers are more aware of the internal information and future prospects of the company compared
to the shareholders and other stakeholders that can lead to the asymmetry of information; it can
make managers to do things that are useful to improve its utility.Asymmetry of information will
encourage the management to present information that is not true, especially regarding the
management performance measurement.
Leverage (X2) statistically has positive and significant effect to the earnings management
practices of the manufacture companies listed on the Indonesia Stock Exchange in 20102013.Results of this study was supported by a previous study conducted by Widyaningdiah (2001)
which states that the leverage has positive effect to the earnings management.Leverage is one of the
company's efforts to increase its profit.Companies that have a high leverage ratio will tend to
perform earnings management because the company was threatened to fail to meet its debt
agreements (default).
CEO turnover (X3) statistically has negative and significant influence in the earnings
management practices of the manufacture companies listed on the Indonesia Stock Exchange in
2010-2013.Results of this study are supported by previous studies conducted by Bengtsson et al.
(2006), Jin et al. (2010), Feng Yu (2012), Wells (2002) which states that earnings management
occurs at the time of the replacement of the CEO and the year after. Turnover of CEO encourages
the management to perform earnings management practices.This was done as a strategy to be able
to show the performance of the company in a good condition at the
tenuredari:
of the CEO. Companies
diunduh
www.multiparadigma.lecture.ub.ac.id
that do not perform the turnover of CEO tend to do earnings management practices to obtain high
bonuses, while companies that perform the turnover of a new CEO tend to be willing to take action
of taking a bath, with the purpose to gain maximum profit in a particular period.
CONCLUSIONS AND RECOMMENDATIONS
There is a positive and significant impact of information asymmetry (X1) to the earnings
management practices of the manufacture companies listed on the Indonesia Stock Exchange in
2010-2013. This means, if the level of information asymmetry is high, the higher the indication of
earnings management practices, nor vice versa. There is a positive and significant effect of leverage
(X2) on the earnings management practices of the manufacture companies listed on the Indonesia
Stock Exchange in 2010-2013. This means that high leverage ratio is shown to affect the company
to do earnings management, the greater the debt the company the more likely the companies doing
earnings management practices in order to avoid a breach of contract debts all at once to make it
easier for companies to obtain loans from creditors. There is a negative and significant influence of
the CEO turnover (X3) on earnings management practices of the manufacture companies listed on
the Indonesia Stock Exchange in 2010-2013. This means that the companies that experienced CEO
turnover will tend to perform earnings management practices by reducing profit (taking a bath) so
as to maximize profit in future periods while companies that did not change the CEO will tend to
perform earnings management practices by increasing profit to get a bonus at the end of CEO’s
tenure.
Results of research produces the influence of information asymmetry, leverage and turnover of
CEO to the earnings management practices. It is expected that the companies engaged in the
manufacturing sector listed on the Indonesia Stock Exchange need to consider those several factors
in order to minimize the possibility of earnings management practices. It is expected that future
studies will examine other factors that may affect the earnings management practices. In order that
research results can be used generally and broadly, then for future researchers, the research subjects
are not limited only to the company engaged in the manufacturing sector, which is listed on the
Indonesia Stock Exchange.
REFERENCE
Agnes Utari Widyaningdyah, 2001, Analisis Faktor-faktor Yang Berpengaruh Terhadap Earnings
Management Pada Perusahaan Go Public di Indonesia. Jurnal Akuntansi &
Keuangan,November 2002, Vol. 3 No. 2.
Bengtsston, Kristian, Class Bergstrom, dan Max Nilsson. 2006. Earnings Management and CEO
Turnovers. Working Paper, School of Economics, Sweden.
Dechow, P. M., Sloan, R. G., and Sweeney, A. P. 1995. Detecting Earnings Management. The
Accounting Review, 70(2): h:193-225.
Desmiyawati, dkk. 2009. Pengaruh Asimetri Informasi dan Ukuran Perusahaan terhadap
Manajemen Laba pada Perusahaan Manufaktur yang terdaftar di Bursa Efek Indonesia.
Pekbis Jurnal, 1(3): h:180-189.
Fama, Eugene F and Jensen, M.C. 1983. Agency Problems and Residual Claims. Journal of Law &
Economics, Vol. XXVI.
Feng Yu- Chia.2012. CEO Turnover, Earnings Management, and Big Bath.
Gideon S.B., Boediono. 2005. Kualitas Laba: Studi Pengaruh Mekanisme Corporate Governance
dan Dampak Manajemen Laba dengan Menggunakan Analisis Jalur. Majalah SNA VIII
Solo, h:172-194.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Hazarika, Sonalia, Jonathan M. Karpof, dan Rajariishi Nahata. 2009. Internal Corporate
Governance, CEO Turnovers, and Earnings Management. Social Science Research Network.
J.C., Shanti dan C. Bintang Hari Yudhanti. 2007. Pengaruh Set Kesempatan Investasi dan Leverage
Finansial terhadap Manajemen Laba. Jurnal Ekonomi Bisnis dan Akuntansi Ventura Vol 10
No 3 Desember 2007 hal.49-70.
Jin, Lianhua., Jung-Hwa, Lee & Zhi Hua, Zhang. 2010. CEO Behaviour Regarding Pre-Turnover
Earnings Management.
Kaplan, Steven N. dan Bernadette A. Minton 2006. How has CEO Turnover Changed? Increasingly
Performance Sensitive Boards and Increasingly Uneasy CEOs.Working Paper, University of
Chicago.
Rahmawati, dkk.2006. Pengaruh Asimetri Informasi terhadap Praktik Manajemen Laba pada
Perusahaan Perbankan Publik yang terdaftar di Bursa Efek Jakarta.Simposium Nasional
Akuntansi IX., Padang.
Richardson, V.J. 1998. Information Asymmetry and Earnings Management: Some Evidence.
Salno, H.M. dan Baridwan. 2000. “Analisis Perataan Penghasilan (income Smoothing): Faktorfaktor yang Mempengaruhi dan Kaitannya dengan Kinerja Saham Perusahaan Publik di
Indonesia”. Jurnal Riset Akuntansi Indonesia, 3 (1):17-34.
Schipper, K. 1989. Earnings management. Accounting Horizons, 3(4): h:91-102.
Sugiyono. 2012. MetodePenelitianBisnis. Bandung :CV. Alfabeta.
Watts, RL. Dan J.L. Zimmerman. 1986. Positive Accounting Theory. Prentice Hall: NJ.
Widyaningdyah, Agnes Utari. 2001. Analisis Faktor-Faktor yang Berpengaruh Terhadap Earnings
Management pada Perusahaan Go Publik di Indonesia. Jurnal Akuntansi Keuangan Vol. 3,
No. 2, hal. 89-101.
Wells, P. 2002. Earnings Management Surrounding CEO Changes. Accounting and Finances.
Volume 42.
Yasa G.W, Novialy yulia. 2012. Indikasi manajemen laba oleh CEO baru pada perusahaan yang
terdaftar di pasar modal Indonesia. Jurnal Fakultas Ekonomi Universitas Udayana,
Denpasar.
The Relation between Cash Holdings and Earnings Persistence
Yuto Yoshinaga
Hitotsubashi University
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Author Note
Yuto Yoshinaga, Graduate School of Commerce and Management, Hitotsubashi University.
This research is supported by Makoto Nakano and Yusuke Takasu at Hitotsubashi University
and at Yokohama National University. We thank Behnaz Quigley, David Veenman, and
participants at the 26th Asian-Pacific Conference on International Accounting Issues and at the 38th
European Accounting Association Annual Congress 2015 for helpful comments and suggestions.
Correspondence concerning this article should be addressed to Yuto Yoshinaga, Graduate
School of Commerce and Management, Hitotsubashi University.
Contact: [email protected] Relation between Cash Holdings and Earnings
Persistence
In the international studies on accounting and finance, Japanese industrial firms are known as
one of the most “cash-rich” firms in the world (cf. Pinkowitz et al. (2006), Guney et al. (2007), and
Chen (2012)). In addition, corporate cash holdings in Japan have been increasing recently. Though
stockholders can criticize “cash-rich” firms for failing to use investors’ funds efficiently, why are
many Japanese firms are eager to hold so much cash? What are the benefits of this? For the first
question, existing literatures highlight four motives for cash holdings by firms. The second question
is the main focus of this paper. We focus on the effects of cash holdings on earnings persistence in
this study, different from many existing literatures that discuss the effects on corporate behaviors.
Accounting researchers regard earnings persistence as one of the measures of earnings quality
(Dechow et al. (2010)) and practitioners like Chief Financial Officers (CFOs) think that it is one of
the favorable features of earnings (Dichev et al. (2013), Kagaya (2013)). So our research is the
attempt to evaluate whether corporate cash holdings can benefit firms through improving earnings
persistence.
Based on the research design of Dichev and Tang (2009), we investigate the relation between
cash holdings and earnings persistence. The result of our basic test shows that cash holdings has a
positive relation with earnings persistence. Next, we move on to the further analysis. We test
whether this relation holds after controlling for earnings volatility because Dichev and Tang (2009)
find a negative relation between earnings volatility and earnings persistence. We observe the
positive relation between cash holdings and earnings persistence only for firms with high volatility
of earnings. In contrast, the positive relation cannot be seen among firms with stable earnings.
These results suggest that cash holdings benefit firms with volatile earnings.
This study proceeds as follows. In the next section, we outline the trends in the cash holdings
of listed firms in Japan. After that, we review the existing literatures on cash holdings. Next, we
show our research design and the empirical results. In the final section, we conclude this study.
Trends in the cash holdings of Japanese firms
Previous research indicates that Japanese industrial firms have more cash than comparable
firms in other countries. Pinkowitz et al. (2006) point out that Japanese firms are the most “cashrich” out of firms in 35 countries. They find that the cash-to-assets ratio of Japanese firms (16%) is
almost four times higher than that of the U.S. firms (4.4%). Descriptive statistics given by Guney et
al. (2007) also confirm the position of Japanese firms as the “cash-rich” firms comparing the
average cash-to-assets ratio of the firms in five developed countries (Japan, the U.S., the U.K.,
France, and Germany). In their sample, Japanese firms are the richest in cash on average. Chen
(2012) proposes the average cash holdings of firms in 23 countries respectively and shows the same
facts as Pinkowitz et al. (2006) and Guney et al. (2007).
These studies support that Japanese firms hold so much cash. In addition, there is still an
upward trend in the cash holdings of Japanese industrial firms. As we check the trend in our sample
period (from 1995 to 2013), the average cash-to-assets ratio is gradually increasing since 2001, even
though Japanese firms have faced severe economic shocks over this
period.dari:
For example, financial
diunduh
www.multiparadigma.lecture.ub.ac.id
crisis following the collapse of Lehman Brothers strongly hurt many Japanese firms in 2009. In
2011, the Great East Japan Earthquake occurred and many Japanese firms were damaged by the
disaster in direct or indirect ways. Despite these shocks, the average cash-to-assets ratio for
Japanese industrial firms has continued to increase. In 2013, the end of our sample period, the ratio
reached its highest point.
These upward trends in the cash holdings can also be seen in the U.S. firms. Bates et al.
(2009) investigate the average cash-to-assets ratio for the U.S. industrial firms and find that the ratio
approximately doubled from 10.5% in 1980 to 23.2% in 2006. Gao et al. (2013) find a similar trend
using more recent financial data on the U.S. firms. They report that the cash-to-assets ratio
increased from 13.53% in 1995 to 20.45% in 2011.
Prior literatures on cash holdings
Motives for cash holdings
Why do some firms want to hold more cash in reserve instead of investing in projects or
paying dividends? Bates et al. (2009) propose four motives to hold cash, as identified in the existing
literatures. The first motive is the transaction motive. Firms with this motive want to hold cash so
that they are able to pay day-to-day expenses in cash. In short, firms want to use cash as the main
source of capital for ordinary operation such as buying raw materials.
The second motive is the precautionary motive. Firms save cash so as not to run short of
funds to invest in the future. Opler et al. (1999) find that firms with greater difficulty in obtaining
external capital tend to hold more cash as a buffer against a lack of funds. Shinada and Ando (2013)
note that this precautionary motive is supported by pecking order theory. According to this theory,
in the presence of severe asymmetry of information between borrowers and lenders of funds, firms
prefer internal capital to external capital because the agency costs of internal capital are lower than
those of external capital.
The third motive is the tax motive, as explained by Foley et al. (2007). Foreign earnings of
multinational firms located in Japan are taxable in the U.S. or in Japan. However, the tax burdens
against those earnings can be deferred until earnings are repatriated. Thus, multinationals can lower
their effective tax rate by holding cash abroad. Foley et al. (2007) indicate that higher tax costs
promote larger cash holdings in multinational firms.
The fourth motive is the agency motive. When firms lack investment opportunities with a
positive net present value, their managers have an incentive not to return funds to stockholders and
instead to hold cash. Dittmar et al. (2003) observe differences between various countries in cash
holdings. They find that corporations in countries where shareholders rights are less protected hold
more cash than in countries with greater shareholder protections. This occurs because in the latter
countries, shareholders force managers to pay out more cash.
Bates et al. (2009) conclude that the precautionary motive plays an important role in the
increase in cash in the U.S. firms. Shinada and Ando (2013) find a positive effect of the standard
deviation of cash flow on cash holdings and argue that Japanese firms hold much cash due to the
precautionary motive. Their findings are consistent with Bates et al. (2009). Therefore, the
precautionary motive is likely to be the main motive in the U.S. and Japan.
The benefits and problems of cash holdings
Now we will move on to the benefits and problems of cash holdings. First, having ample cash
reserves may encourage firms to spend and invest. These activities will contribute to improving the
firm value if they are appropriate. Thus, prior literatures focus on whether firms use cash to increase
their firm values. Denis and Sibilkov (2010) suggest that cash holdings are valuable for financially
constrained firms because they can use cash to encourage prospective investments. Brown and
Petersen (2011) show that firms likely to face financing frictions can use cash to smooth R&D
expenditures. In addition, Wang and Gu (2012) indicate that R&D has a negative effect on earnings
uncertainty. These studies support that cash holdings will benefit financially constrained firms.
On the other hand, there are researchers and stockholders that criticize “cash-rich” firms for
failing to use investors’ funds efficiently. This criticism is largely due
to agency
diunduh
dari: problems. It can be
www.multiparadigma.lecture.ub.ac.id
supposed that holding too much cash causes excessive investments or overspending. Harford (1999)
and Harford et al. (2008) suggest that cash-rich firms can engage in excessive investments such as
acquisitions and capital investments, and thereby they can reduce their firm values. In Japan,
stockholders of cash-rich firms grow to push for greater payouts. In 2014, the year-over-year
growth of the sum of payouts is expected to be 22%, while that of the net income is anticipated to
be 3% in Japan according to “the Nikkei2”.
As seen above, empirical results on whether cash holdings improve or reduce the firm values
are still mixed. In order to contribute to the discussion of the merits and drawbacks of cash
holdings, we investigate whether and how cash holdings are related with earning persistence.
Earnings persistence is thought to be one of the measures of earnings quality in accounting studies
(Dechow et al. (2010)). In addition, not only the accounting researchers but also CFOs regard
earnings persistence as the favorable features of earnings. Dichev et al. (2013) present results from
a survey of CFOs of public companies in the U.S. which asks about important features of highquality earnings. According to their results, 80.5% of CFOs think that sustainability is an important
feature of high-quality earnings. Kagaya (2013) also sends the same questionnaire survey to CFOs
in Japanese firms. His questionnaire results are consistent with those of Dichev et al. (2013). These
studies show that earnings persistence is thought to be an important earnings quality by both
researchers and business people.
Empirical research
Sample selection
Our sample is obtained from Nikkei NEEDS Financial QUEST 2.0, a database of financial
data of Japanese firms. Our sample period covers from 1995 to 2013. We limit the sample to
Japanese firms that are listed on stock exchanges in Japan and adopt the Japanese Accounting
Standard. We further limit the sample to firms with a fiscal year end of March, which is the most
common fiscal year end for Japanese public firms. Financial firms (e.g. banks, insurance
companies, brokerages, and asset management companies) are excluded because they have financial
data that is qualitatively different from that of industrial firms. The sample is further restricted to
firm/year observations that have non-missing data to construct the variables we use. To diminish the
influence of outliers, we then exclude observations with values in the top and bottom 1% of each
variable described in the descriptive statistics in Table 1. Our final sample comprises the 29,005
firm/year observations meeting all of these requirements.
The definitions of variables in this study are as follows.
is net profit gained
during the period t.
is cash and cash equivalents plus short-term investment securities at the
end of fiscal year t. These two variables are scaled by total assets at the previous fiscal year end (at
the period t-1).
is the standard deviation of net profit deflated by total assets at the
end of the previous year over the recent five years. Descriptive statistics for the full sample are
presented in Table 1. Empirical distributions and pairwise correlations of the variables are shown in
Panel A and B respectively.
Basic analysis
In line with many existing literatures, we define the coefficient in the auto-regressive
regressions of current on lagged earnings (
) as earnings
persistence. If this estimate has a high value, we can regard the earnings of the observation
(
) as highly persistent. Our basic analysis focuses on the link between cash holdings and
earnings persistence. At first, we partition the full sample into quintiles according to
. In
classifying firm/year observations, we subdivide the quintiles by industry because what industry a
firm belongs to can have a large influence on its financial data and its characteristics. To check the
2
The sum of the payouts last year is the highest, 13 trillion yen. Listed firms are utilizing the funds: improving
performances, expanding investments, and raising wages and salaries (in Japanese).
(2015,
April 5). the Nikkei
diunduh
dari:
(Morning Paper), p.1
www.multiparadigma.lecture.ub.ac.id
difference between industries, we calculate the average of cash-to-assets ratio by industry in 2013.
The average cash-to-assets ratio between firms in the electricity supply industry is the lowest
(2.3%) and that in the service sector is the highest (25.7%). Since the difference between the top
and the bottom is substantial (23.4%), we divide the sample in the following way.
We order firm/year observations,
, in each industry according to the value of
. In
our model, is the industry code and
formula below.
is calculated for each firm/year observation from the
We define
as the group composed of firm/year observations
following requirement.
that satisfy the
Here,
is the “Cash holdings Ranking” of the group, where a smaller value
means that the members of the group have relatively more cash. We can then describe
as
follows.
Aggregating the above groups according to
, we form the subgroups,
, that contain all
with the same value of
. In the next stage, we estimate and compare earnings persistence in
every
.
In the basic analysis, we estimate earnings persistence in each of the quintiles formed on the
basis of
in order to identify the relation between corporate cash holdings and the two
characteristics of earnings.
Table 2 shows the results from estimating the auto-regressive for each quintile formed on
. Out of all the groups, for group
is the largest and those for group
is the smallest. In
addition, is decreasing from top quintile to bottom quintile. This gradation of indicates that
there is a positive relation between cash holdings and earnings persistence. Namely, the more cash
firms hold, the more persistent their earnings are. In other words, the earnings of cash-rich firms are
highly persistent.
Further analysis
Dichev and Tang (2009) find a strong negative relation between earnings volatility and
earnings persistence. So, our next question is whether this relation can remain after controlling for
earnings volatility. This section covers the further analysis, which looks at the effects of earnings
volatility on the positive relation between cash holdings and earnings persistence. In this test, we
divide the sample into 25 groups according to cash-to-assets ratio and earnings volatility. We order
firm/year observations,
, in each industry according to the value of
and
independently. In the model, is an industry code.
firm/year observation using the formulas below.
and
are calculated for each
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
We define
following condition:
as the group composed of firm/year observations
that satisfy the
Here,
indicates “Cash holdings Ranking (lower values of
indicate higher
cash holdings)”.
indicates “Volatility of earnings Ranking (lower values of
indicate lower volatility). We can then describe
in the following way. We classify all
observations according to cash-to-assets ratio and earnings volatility by industry.
We then aggregate these groups according to the pairings of
and
.
Through these operations, we make 25 groups. We estimate and compare earnings persistence
in every
.
The results are shown in Table 3. First, let us take a look at each row in Table 3. The two
columns on the right (
) indicate the earnings persistence of the groups composed of
observations with high earnings volatility. In these columns, the top cells ( =1) have the largest
estimated coefficient (earnings persistence) and the bottom cells ( =5) have the smallest values
for the coefficient. In addition, is generally decreasing from the top row to the bottom row. Thus,
we can see that the gradation in can be seen in high earnings volatility groups. In contrast, in the
left two columns (
), such gradation cannot be seen. These results indicate that when
earnings are highly volatile, holding more cash is related with higher earnings persistence. But,
when firms have stable earnings, we cannot observe a positive relation between cash holdings and
earnings persistence.
Now, the coefficients are basically decreasing from left to right in Table 3. These results
confirm the negative relation between earnings persistence and earnings volatility. Therefore, our
results are consistent with those of Dichev and Tang (2009).
Conclusion
This paper investigates the relation of cash holdings with earnings persistence. Our basic
analysis explored this relation and the results show that there is a positive relation between them.
Next, we examine whether this positive relation remains after considering the negative relation
between earnings volatility and earnings persistence. Our results show that the positive relation
between cash holdings and earnings persistence remains only when earnings are highly volatile.
Recently, stockholders criticize Japanese firms for holding too much cash and they require
increasing the amount of payouts. However, our results suggest that cash holdings should not be
quickly regarded as the evidence that the firms do not use their capital
efficiently.
diunduh
dari: Cash holdings
www.multiparadigma.lecture.ub.ac.id
should be assessed together with earnings volatility. For example, stockholders probably should not
require more payouts against the firms whose earnings are highly volatile. If they do not demand
payouts, they will expect more persistent earnings of those firms.
Our study has some limitations. First, there is not a clear explanation as to why there is a
positive relation between cash holdings and earnings volatility if firms gain volatile earnings.
Second, we do not gain enough evidence to prove the causation. It is possible that cash holdings
have a positive effect on earnings persistence of the firms whose earnings are volatile. Cash
holdings can give them the opportunities of valuable investments. But, persistent earnings can make
firms rich in cash. These questions will be addressed in future research.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
References
Bates, T. W., Kahle, K. M., & Stulz, R. M. (2009). Why do US firms hold so much more cash than
they used to?. The Journal of Finance, 64(5), 1985-2021.
Brown, J. R., & Petersen, B. C. (2011). Cash holdings and R&D smoothing. Journal of Corporate
Finance, 17(3), 694-709.
Chen, N. (2012). Corporate Thrift And Economic Growth: A Comparative Study Of Developing
And Developed Countries. Journal of International Development, 24(2), 167-184.
Dechow, P., Ge, W., & Schrand, C. (2010). Understanding earnings quality: A review of the proxies,
their determinants and their consequences. Journal of Accounting and Economics, 50(2), 344401.
Denis, D. J., & Sibilkov, V. (2010). Financial constraints, investment, and the value of cash
holdings. Review of Financial Studies, 23(1), 247-269.
Dichev, I. D., & Tang, V. W. (2009). Earnings volatility and earnings predictability. Journal of
accounting and Economics, 47(1), 160-181.
Dichev, I. D., Graham, J., Harvey, C. R., & Rajgopal, S. (2013). Earnings quality: Evidence from
the field. Journal of Accounting and Economics.56(2-3), Supplement 1, 1-33
Dittmar, A., Mahrt-Smith, J., & Servaes, H. (2003). International corporate governance and
corporate cash holdings. Journal of Financial and Quantitative analysis, 38(1), 111-134.
Foley, C. F., Hartzell, J. C., Titman, S., & Twite, G. (2007). Why do firms hold so much cash? A taxbased explanation. Journal of Financial Economics, 86(3), 579-607.
Gao, H., Harford, J., & Li, K. (2013). Determinants of corporate cash policy: Insights from private
firms. Journal of Financial Economics.109(3), 623-639
Guney, Y., Ozkan, A., & Ozkan, N. (2007). International evidence on the non-linear impact of
leverage on corporate cash holdings. Journal of Multinational financial management, 17(1),
45-60.
Harford, J. (1999). Corporate cash reserves and acquisitions. The Journal of Finance, 54(6), 19691997.
Harford, J., Mansi, S. A., & Maxwell, W. F. (2008). Corporate governance and firm cash holdings in
the US. Journal of Financial Economics, 87, 535-555.
Kagaya, T. (2013) . The exploration of innovation in empirical accounting research. (in Japanese).
Briefing Paper, 72th Conference on Japanese Accounting Association
Opler, T., Pinkowitz, L., Stulz, R. M., Williamson, R., (1999).The determinants and implications of
corporate holdings. Journal of Financial Economics 52(1), 3–46.
Pinkowitz, L., Stulz, R., & Williamson, R. (2006). Does the contribution of corporate cash holdings
and dividends to firm value depend on governance? A cross‐country analysis. The Journal of
Finance, 61(6), 2725-2751.
Shinada, N & Ando, K. (2013). Cash Holdings of Japanese Firms (in Japanese). Securities Analysts
Journal. 51(6), 6-16
Wang, W., & Gu, F. (2012). The Effect of R&D Investment on Future Earnings Uncertainty: New
Evidence. Working Paper.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Table 1. Descriptive statistics
is net profit scaled by total assets.
is cash-to-assets ratio.
and
is the standard deviation of earnings scaled by total assets over the recent
five years.
Panel A: Empirical distributions
Mean
SD
Min
25%
Med
75%
Max
N
0.017
0.044
-0.241
0.004
0.018
0.038 0.171
29,005
0.159
0.120
0.009
0.074
0.127
0.209 0.746
29,005
0.024
0.026
0.002
0.009
0.016
0.030 0.244
29,005
Panel B: Pairwise Pearson (Spearman) correlations below (above) the diagonal
0.271
0.243
-0.200
-0.098
0.123
0.154
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Table 2. Results of the basic analysis.
(earnings persistence) is estimated for the group
and all are significant at
the 1% level. The group
is classified by the value of
(“Cash holdings
Ranking”). Smaller values of
indicate higher cash-to-assets ratio for firm/year
observations in
.
is net profit scaled by total assets.
is cash-toassets ratio.
is the standard deviation of earnings scaled by total
assets over the recent five years.
(Persistence)
Adj R2
N
0.625
0.378
5,890
0.550
0.280
5,871
0.484
0.215
5,876
0.480
0.207
5,871
0.407
0.157
5,886
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Table 3. Results of the further analysis
The value in each of the 25 cells indicates (earnings persistence) estimated for
the group
and all are significant at the 1% level. Adjusted R squared values are
indicated in parentheses. The group
is classified by the value of
(“Cash
holdings Ranking”) and
(“Volatility of earnings Ranking”). Smaller values of
indicate higher cash-to-assets ratio for firm/year observations in
. Smaller
values of
indicate lower earnings volatility for firm/year observations in
.
is net profit scaled by total assets.
is cash-to-assets ratio.
and
is the standard deviation of earnings scaled by total assets over
the recent five years.
0.879
(0.534)
0.878
(0.375)
0.892
(0.328)
0.925
(0.223)
0.929
(0.234)
0.816
(0.488)
0.782
(0.302)
0.816
(0.294)
0.840
(0.333)
0.765
(0.199)
0.794
(0.500)
0.681
(0.342)
0.706
(0.283)
0.663
(0.256)
0.580
(0.201)
0.670
(0.441)
0.641
(0.333)
0.561
(0.255)
0.537
(0.229)
0.471
(0.180)
0.524
(0.299)
0.431
(0.225)
0.350
(0.161)
0.354
(0.154)
0.309
(0.128)
Does Size Affect Loan Portfolio Structure and Performance of Domestic-Owned Banks in
Indonesia?
Apriani D.R Atahau3* and Tom Cronje**
School of Economics and Finance
Curtin Business School
Curtin University, Australia
Introduction
Domestic owned banks (DBs) represent the largest number of banks in the Indonesian banking
industry. Nonetheless, they play insignificant role as financial intermediaries in Indonesia. Data
retrieved from the Bank Indonesia annual reports sourced from the Indonesian Banking Directory
*The author would like to thank Indonesian Government for providing DIKTI Scholarship. Apriani is a PhD Student at School of
Economics and Finance, Curtin University and is based at Satya Wacana Christian University, Salatiga
Corresponding Author: **Tom Cronje, GPO Box U1987 Perth, Western Australia, Tel: +61 8 9266 3416, Fax: +61 8 9266 3026,
Email: [email protected]
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
indicate that although representing almost 40% of the overall number of banks in Indonesia, the
DBs had the lowest market share (25%) in the loan market over the period 2003 to 2011, therefore
DBs in Indonesia were the minor loan providers over this period. The total amount of loans
provided by DBs in 2011 was only one fourth of that of the total industry (Bank Indonesia, 2011).
One of the reasons may their general smaller size compared to government- and foreign-owned
banks.
While previous studies compare DBs with FBs (La-Porta et al. (2002), Barth et al. (2004), Sapienza
(2004), Berger et al. (2005a) and Taboada (2011)), no such research considers the effect of size
differences between DBs on their performance and loan portfolios. The only previous research
which found that bank loan portfolios are determined by bank characteristics, such as ownership
and size, was conducted by De-Haas et al. (2010). They did not specifically refer to DBs but
indicated that large banks in general possess a comparative advantage in lending to large customers
as they are able to exploit economies of scale in evaluating the “hard-information” borrowers. In
contrast, small banks may not be able to lend to large borrowers because of size limitations and
regulatory lending limit constraints, but they are better in dealing with “soft information” borrowers
such as consumers and small and medium size enterprises (SMEs).
The objective of this study is to use bank level information to determine the extent to which large
and small DBs differ in terms of their loan portfolio structures (composition and concentration), risk
and performance.
Findings from this research show that the economic sector (EHHI) loan portfolio concentration of
the large and small DBs differ over the total study period with small DBs being more concentrated.
Small DBs have more focused loan portfolios but experience slightly higher risk and higher return.
These findings support the corporate finance theory, according to which banks should implement
focus strategies to reduce agency problems and exploit their management expertise in certain
sectors. The findings do not support the traditional banking and portfolio theory that banks should
diversify their loan portfolio to reduce risk (Hayden et al., 2006).
Literature Review
Bank loan portfolio diversification strategies are based on the modern portfolio theory of
Markowitz (1952), and largely followed by experts in financial institutions (Winton, 1999).
According to the idiosyncratic risk hypothesis, diversification eliminates the specific (idiosyncratic)
risk which enable banks to reduce their monitoring efforts and therefore lower their operating costs,
which ceteris paribus should lead to higher cost efficiency (Rossi et al., 2009). Furthermore, the
benefit of diversification stems from economies of scope across inter alia economic sectors and
geographic areas (Laeven and Levine, 2007).
Researchers like Hayden et al. (2006), Berger et al.(2010) and Tabak et al. (2011) all indicate that
risk reduction and performance improvement are advantages of diversification whilst agency
problems are common associated disadvantages. Notwithstanding the aforementioned, Tabak et al.
(2011)4 also indicates that diversification increases the risk in the Brazil and Italian banking sectors
and reduces the performance of the banks in China, Germany and small European countries. This
viewpoint, that diversification does not always reduce risks and improve returns, is also supported
by other researchers like Winton (1999) and Acharya (2002).
Some of the regulations governing central banks like maximum lending limits that apply to banks,
promote diversification, whilst other regulations pertaining to aspects like branching, entry, and
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
asset investments often encourage focus strategies (Berger et al., 2010). However, the existence of
regulations that instigate diversification may increase monitoring costs and reduce cost efficiency
due to large numbers of individual customers and industries (Rossi et al., 2009). Furthermore, given
that managers are risk averse, they may incur additional costs in their search for high quality loans
to apply diversification. These factors may reduce diversification risk-return efficiency.
A focus strategy opposed to a loan portfolio diversification strategy is effective when banks face
information asymmetry (Acharya et al., 2002), Kamp et al. (2005),Berger et al. (2010),Tabak et al.
(2011)) and it serves as a contributing determinant of differences between banks in terms of their
loan concentration in sectors (Dell'Ariccia and Marquez, 2004). Re-allocation of loans (commonly
known as flight to captivity) to sectors where greater adverse selection problems exist may happen
when banks face mere intrinsic overall competition from other outside lenders entering the market.
It means that more lenders may target borrowers in the same sectors subject to low information
asymmetries. Therefore, existing informed lenders may have to deal with more captured (but also
higher risk) borrowers that did not previously form part of their market in such sectors (Dell'Ariccia
and Marquez, 2004).5
Bank size can be regarded as another determinant of bank loan portfolio composition. Researchers
such as De-Haas et al. (2010) investigated bank size performance differences. Their findings show
that bank size, bank ownership, and legislation that protect the rights of banks as creditors are
important determinants of the loan portfolio compositions of banks. According to Carter et al.
(2004) the lending performance of small banks may be better than that of large banks due to factors
such as structure performance (SP), information advantage (IA), and relationship development
(RD) theories. The SP theory relates to the industry or market structure in which banks operate.
When operating in smaller markets with a limited number of competitors, small banks may
experience higher interest income (Gilbert, 1984). The IA theory refers to the information
accessibility and organisational structures of banks. Nakamura (1993, 1994) and Mester et al.
(1999) point out that small banks have the advantage of credit information accessibility. Their flat
organisational structures also allow better delegated borrower monitoring (Carter et al., 2004).
Finally, the RD theory contrasts the relationship lending conducted by small banks using “soft
information” about borrowers with arms-length lending by large banks using “hard information of
borrowers (Berger et al., 2005b). Small banks have the advantage of serving the “soft information”
borrowers due to their ability to maintain a close relationship with the borrowers.
Differences in the organisational structures and exposure to asymmetric information between small
and large banks may result in different loan portfolio compositions (Degryse et al., 2012) and
differences in lending technology and innovation capability (Berger et al., 2005a).
In view of the aforementioned characteristic differences between bank sizes that researchers
identified, it is hypothesized that differences exist in the loan portfolio composition and loan
repayment default risk of different sizes of DBs. As a result their returns may also differ.
A Brief History of Domestic-owned Banks in Indonesia
Based on Banking Act No. 14/1967 (Republik Indonesia, 1967), banks in Indonesia were classified
into groups using the ownership and functions of the banks as the primary classification criteria.
Classification based on ownership consisted of the following: national government banks; regional
development banks; private (domestic and foreign) banks; and cooperative banks6.
5
Flight to captivity implies that banks re-allocate their portfolio towards more captive borrowers when shocks to their balance sheet,
or from their competitive environment, force them to alter their lending patterns
6
Local government-owned banks were regional development banks at the provincial level that were established in terms
of Law No.13/1962. Private-domestic banks were banks with shares owned by
Indonesian
diunduh
dari:citizens and/or Indonesian
legal entities, which were owned and governed by Indonesian citizens, based
on Minister of Finance Decree No.
www.multiparadigma.lecture.ub.ac.id
The 1988 package relaxed numerous bank establishment regulations to foster competition in the
banking industry. As a result, the Indonesian banking industry experienced an accelerated increase
in the number of banks. During the 1988-1991 period, 58 new banks were established. The 61
banks that existed in 1988 increased to 119 by 1991. Domestic-owned bank branches increased
dramatically, from 559 in 1988 to 2,639 at the end of 1991 (Pangestu, 2003). These domesticowned banks were able to perform intermediary functions better than government-owned banks.
Government-owned banks no longer dominated the market.
Indonesian banks engaged in risky lending practices following the deregulations. Governmentowned banks provided politically motivated loans, whereas domestic-owned banks engaged in
intra-group lending. In many cases, there were inadequate loan assessments (Bennet, 1999).
Domestic-owned banks primarily made loans to affiliated companies, which led to high-risk
exposure arising from highly correlated risk between the bank and the borrowers, all of which were
in the same corporate groups. These banks used various means to fund affiliated companies in
excess of the lending limit regulations. The types of credit support provided by such domesticowned banks to their affiliates included direct loan guarantees and more sophisticated financial
instruments such as total return swaps and credit default swaps, under which the risks of the loans
were passed from an unrelated third-party lender to the affiliated bank. In many cases, inadequate
loan assessment was conducted (Bennet, 1999).
Banking Act No. 7/1992 limited bank lending activities by imposing new maximum lending limits.
Capital requirements were increased for the establishment of new domestic banks (five times the
original capital requirements) and for joint venture banks (double the original capital requirements)
in October 1992 (Republik Indonesia, 1992) in an effort to temper the increase in bank numbers
(Pangestu, 2003).
Concentration existed in bank sizes. 75% of total bank assets were held by 16 banks, including 10
non-government-owned domestic banks and 6 government-owned banks (Pangestu, 2003). The
ownership concentration for both government-owned and non-government-owned domestic banks
created conflicts between majority shareholders (families or company groups) and minority
shareholders (Pangestu, 2003). In addition, banks did not always provide accurate information
disclosure as required by the supervisor. The problem worsened because of the weak capacity and
capability of supervisors, who engaged in collusive practices and political interference (Pangestu,
2003).
The vulnerability of banks triggered a banking crisis when Indonesia experienced a currency crisis
following the implementation of a free-floating exchange rate for the IDR on August, 14 1997
(Batunanggar, 2002). The condition exerted further pressure on small domestic-owned banks as
customer confidence in the small banks deteriorated. For safety reasons, the customers began to
transfer their deposits from the small domestic-owned banks to government-owned banks and
foreign-owned banks (Batunanggar, 2002).
Sixteen banks were closed in November 1997. On January 27, 1998, in an effort to address the
country’s financial crisis, the government established the Indonesian Banking Restructuring Agency
(IBRA)7, under Presidential Decree No. 27/1998, to supervise the bank restructuring process
Kep/603/M/IV/12/1968. Some of these banks were foreign exchange banks that were allowed to conduct foreignexchange transactions (buying and selling foreign exchange and overseas collection and transfers including letters of
credit (L/C) activities). Privately owned foreign banks were branches of foreign banks or banks of which the shares
were owned jointly by foreign and Indonesian entities, based on Minister of Finance Decree No.
Kep/034/MK/IV/2/1968. Cooperative banks were the banks for which funds originated from cooperative groups, based
on Minister of Finance Decree No. Kep.800/MK/IV/II/1969.
diunduh dari:
7
IBRA then was closed on 27 February 2004 (Alijoyo et al, 2004)
www.multiparadigma.lecture.ub.ac.id
(Alijoyo et al., 2004). The restructuring of the banking sector that followed took the form of bank
liquidations, bank mergers, bank closures, and bank recapitalisation at a substantial cost to the
government (Alijoyo et al. (2004) and Batunanggar (2002)).
Research Methodology
3.1 Sample, Types and Sources of Data
All Indonesian DBs that operated over the 2003 to 2011 period were included in this research. This
constitutes a total observation of 415. The mean of total assets is used as the cut-off point of bank
size which resulted in 69 observations of large DBs and 346 observations of small DBs for 9 years.
This research utilised secondary data from The Indonesian Central Bank Library, Infobank
magazine and the library of The Indonesian Banking Development Institute (LPPI). The central
bank library provides individual bank ownership data and financial statements whereas Infobank
magazine provides loan allocation data based on loan types and economic sectors. Information from
LPPI also supplements loan allocation data and loan interest income not provided by Infobank
magazine.
3.2 Variable Definition and Measurement
Table 3.1 reflects all the variables, their definitions and how they are measured.
Table 3.1 Variables Definition and Measurement
Variable
Definition
1
Loan Portfolio The risk arising from an
Concentration uneven
distribution
of
(CONC)
counterparties in credit or any
other business relationships
or from a concentration in
business
sectors
or
geographical regions which is
capable of generating losses
large enough to jeopardise an
institution’s
solvency
(Deutsche Bundesbank, 2006)
2
Loan Portfolio A different risk inherent to
Payment
each industry, region or
Default Risk
product of a bank(Cronje,
(RISK)
2013)
3
Loan Portfolio The net income obtained
Return
from bank’s loan portfolio
(RETR)
Interest Rate
4
The money paid by a
(INT.RATE)
borrower (debtor) for the use
of money that they borrow
from a lender (creditor)
GDP
5
The market value of all
(GDP)
officially recognized final
goods and services produced
Measurement
Remarks
HHI= Hirschman
Herfindahl Index
Q
= the percentage of
credit to each sector
= 10 for E-HHI and
3 for THHI
(Substandard+
Doubtful+Loss)/
Total Loans
Loan Interest
Income/ Average
Total Loans
1-month SBI
Rate
The end of year SBI
Rate is obtained from
www.bi.go.id
The end of year GDP
is obtained from
www.bi.go.id
diunduh dari:
Constant GDP
www.multiparadigma.lecture.ub.ac.id
6
7
within a country in a year, or
other given period of time
Equity Ratio
Book value of shareholder Total
(EQTY)
funds (Hogan et al., 2004)
Equity/Total
Assets
Liquidity Ratio Ability to convert an assets Total Loans/Total
(LQDT)
into cash readily (Hogan et Deposits
al., 2004)
The dependent variable in this research is the loan portfolio return of DBs measured by the ratio of
loan interest income to average total loans. Three independent variables are used: bank size, loan
portfolio concentration and loan repayment default risk. Interest rate and GDP serve as the
macroeconomic variables. The control variables representing bank-specific characteristics in this
study are: bank equity and bank liquidity. Bank equity is measured by the ratio of Total Equity to
Total Assets and the liqudity is measured by the ratio of Total Loans to Total Deposits. Banks are
categorised into two groups based on size namely large DBs and small DBs. The categories were
established by using the means of all domestic-owned banks as a cut-off point, with dummy
variables (1 for large DBs and 0 otherwise) to identify the two sizes. The loan portfolio
concentration was measured using the Hirschman Herfindahl Index (HHI). It was also used by
Winton (1999), Acharya et al. (2002) and Hayden et al. (2006).8 For this research, two types of
HHI’s are applied, namely Economic Sector HHI (E-HHI) and Loan Type HHI (T-HHI). The loan
repayment default risk is measured by the ratio of non-performing loans (NPLs) to total loans.
3.3 Data Analysis
All research data is numerical, therefore quantitative data analysis was undertaken. Firstly,
descriptive statistics of the variables (means and standard deviations) were calculated to determine
data tendency and deviations. Secondly, univariate statistics in the form of the test of mean were
used to find the differences in loan portfolio composition, risk and return of small and large DBs.
The Mann-Whitney non-parametric test was applied since the data was not normally distributed.
Thirdly, to determine the impact of bank size, loan portfolio composition and loan repayment
default on portfolio returns, the following panel data regression equation was used:
…..…(3.1)
,
8
= loan portfolio return for bank i in year t
= size dummy
= economic sector loan portfolio concentration
= loan type portfolio concentration
= macroeconomic variables year t
= control variables for bank i at year t
= loan portfolio default payment risk for bank i at year t
= regression coefficients; and
= the disturbance term
The Indonesian economic sectors to which banks can lend are 10. Central bank classification as follows: Agriculture, hunting and
agricultural facilities; Mining; Manufacturing; Electricity gas and water; Construction; Trade, restaurants and hotels; Transportation,
warehousing and communications; Business services; Social services; Others. The loan
types aredari:
three, namely: working capital,
diunduh
investment, and consumption.
www.multiparadigma.lecture.ub.ac.id
This was followed by a re-run of the panel data regression to capture the interaction effect of size
and loan portfolio concentration and risk.
This research employed fixed-effect panel data regression since the Breusch & Pagan Lagrangian
Multiplier test showed the rejection of the null hypothesis of pooled OLS. In addition the Hausman
test showed a significant P-value, which means fixed effects should be used instead of the random
effect model (The Hausman test assessed the null hypothesis that the coefficients estimated by the
efficient random effects estimator are the same as the ones estimated by the consistent fixed effects
estimator).
Findings
Descriptive Statistics
Table 4.1 details the summary statistics for the variables in the equation 3.1. The first part presents
the descriptive statistics regarding loan allocation based on economic sectors and loan types. The
variation for loans allocated to each sector (standard deviation of EHHI) is higher than that for loan
types. The standard deviation for loan allocation to each sector is higher than that of loan types. The
average gross NPL percentage of small DBs of 3.65% is slightly higher than the average gross NPL
percentage of large DBs of 3.56%. By analyzing the mean and the standard deviation of HHI as
concentration measure, it can be seen that loan portfolios based on economic sectors are less
concentrated than portfolios based on loan types for both small and large DBs. It cannot be
compared directly since there are only three loan types compared to the ten different identified
economic sectors. However, both measures show that overall the loan portfolios of large DBs seem
to be more diversified than that of the small DBs.
Table 4.1 shows that although small DBs have the highest concentration risk based on sectors and
loan types, they have slightly higher loan repayment default risk and higher returns. Focusing on
specific segments may create concentration risk, as stated by Deutsche Bundesbank (2006). Based
on risk-return relationship, higher risk may result in higher return.
Table 4.1 Descriptive Statistics of Research Variables
Variables
I. LOAN PORTFOLIO STRUCTURE:
COMPOSITION
Based on Economic Sectors:
Agriculture
Mining
Manufacturing
Electricity, Gas and Water
Constructions
Trade, hotel, and restaurants
Transportation and Communication
Business Services
Social Services
Others
Based on Loan Types:
Large DBs
(N=69)
Std.
Mean
Dev
0.0398
0.0103
0.1480
0.0078
0.0608
0.2327
0.0347
0.1529
0.0100
0.3030
0.0409
0.0152
0.0853
0.0216
0.0489
0.1116
0.0234
0.1156
0.0181
0.2409
Small DBs
(N=346)
Std.
Mean
Dev
0.0246
0.0066
0.1361
0.0019
0.0458
0.2990
0.0394
0.1226
0.0381
0.2859
0.0685
0.0237
0.0997
0.0104
0.0661
0.1851
0.0517
0.1121
0.1267
0.2380
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Working Capital
Investment
Consumption
II. LOAN PORTFOLIO STRUCTURE:
CONCENTRATION
By Economic Sector (EHHI)
By Loan Types (THHI)
III. LOAN PORTFOLIO RISK
Payment Default Risk (RISK)
IV. RETURN (RETR)
Gross Interest Income Ratio
V. BANK-SPECIFIC CHARACTERISTICS
Equity Ratio
Liquidity Ratio
0.4479 0.2237
0.2779 0.1862
0.2741 0.2420
0.5901
0.1690
0.2410
0.2581
0.1743
0.2332
0.2944 0.1682
0.4957 0.1581
0.3525
0.5868
0.1619
0.1786
0.0356 0.0359
0.0365
0.0728
0.1270 0.0501
0.1586
0.0552
0.0855 0.0345
0.6888 0.1777
11.4212 61.5573
0.7695 0.2683
Loan Portfolio Concentration and Composition: Small and Large Domestic-owned Banks
Loan Portfolio concentration that represents the extent to which banks apply and focus on loan
diversification is measured by the Herfindahl-Hirschman Index (HHI). The loan portfolio
concentration of small and large DBs based on economic sectors (EHHI) and loan types (THHI) is
graphically depicted in Figures 4.1 and 4.2.
Economic Sector Bank Loan Portfolio Concentration (EHHI)
Differences exist between the EHHI of small and large DBs with small DBs being the most
concentrated and showing a decrease in concentration over the period 2003 to 2011. In contrast, the
EHHI concentration levels of large DBs tend to be more fluctuated over the research period (Figure
4.1).
Figure 4.1 Loan Portfolio Concentration Based on Economic Sectors: Small and Large
Domestic-owned Banks
Loan Type (THHI) Bank Loan Portfolio Concentration
The average loan type concentration levels (THHI) of small and large DBs are depicted in Figure
4.2. From 2003 to 2011, the THHI levels of both small and large DBs show a tendency to increase
diversification.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Figure 4.2 Loan Portfolio Concentration Based on Loan Types: Small and Large Domesticowned Banks
Loan Portfolio Composition: Small and Large Domestic-owned Banks
In terms of loan allocation, small DBs are the major players in providing loans to trade and
unspecified others (last category of the economic sectors that primarily refers to consumers). The
exposures to these sectors are volatile and change significantly from year to year. Loan allocation to
these two sectors dominate the loan portfolio composition of small DBs with exposures ranging
from 25% to 35% for each of the sector.
Figure 4.3 Percentage Loan Portfolio Allocation to Different Economic Sectors for Small vs
Large Domestic-owned Banks
Figure 4.3 provide evidence that both small and large DBs focus on similar sectors but they differ in
tendency. Large DBs focus primarily on the same sectors as small DBs but with a sharp declining
trend for trade sectors and an increasing trend for others. The loans allocated to unspecified others
represent more than 35% of the total loans of large DBs in 2011. Small DBs provide relatively
smaller portions of their loans to other sectors. In this regard the highest loan allocation by the small
DBs is around 30% to the trade sector in 2011.
Figure 4.4 Percentage Loan Portfolio Allocation Based on Loan Types for Small and Large
Domestic-owned Banks
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Both large and small DBs become more involved in short-term financing of different
business sectors with working capital becoming their most prominent type of finance as
confirmed in Figure 4.4. However, small DBs seems to be more concentrated on single types
of loans compared to large DBs. It is evident from Figure 4.4 that large DBs are more
diversified than small DBs with regard to loan types.
Loan Portfolio Performance (Risk and Return) of Large vs Small Domestic-owned
Banks
According to Cronje (2013) loan portfolio risks are classified into two broad categories
namely intrinsic, and concentration risk. Within the context of this study intrinsic risk refers
to the risk inherent to each sector, and each loan type of a bank. Intrinsic risk cannot be
measured in this study since comparative risk information like loan defaults for each sector
and each loan type is not available. Only loan repayment default information, provided in the
form of NPLs for the total loan portfolio is available for individual banks and is used as
proxy of overall bank loan portfolio risk. In this research, the ratio of gross NPLs to Total
Loans (TLs) is used as the proxy for loan repayment default risk (See Figure 4.5). The higher
the NPL percentage, the higher the loan portfolio risk.
Figure 4.5 Loan Repayment Default o Risk of Small and Large Domestic-owned Banks
for the period 2003 to 2011
The NPLs of the small and large DBs differ the most from each other in 2007, but the
differences decrease with minor NPL differences remaining in 2011. The gross NPLs of large
DBs are higher than that of the small DBs in most of the years during the research period. It
is interesting to note that the NPLs of small DBs exceed those of large DBs during the GFC
period (2007-2009). However, small DBs experience a decrease in gross NPLs at the end of
research period in 2011. Overall, the NPLs for both the small and large DBs show a
decreasing trend from 2003 to 2011. It indicates that the overall credit risk of banks decreases
and that the quality of their loan portfolios improved over the nine-year study period.
Figure 4.6 Loan Portfolio Return of Small and Large Domestic-owned Banks
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
To measure the loan portfolio return, the ratio of loan interest income to average total loans is
used in this research since in the broader sense it reflects the comparative pricing applied by
banks.
Figure 4.6 depicts the loan interest income ratios for small and large DBs over the period
2003-2011. In general, both small and large DBs experience a downward trend in their loan
interest income from 2006 to 2011. This is due to changes in the central bank interest rate9
(from 12.75% in 2005 to 6% in 2011). It affects all banks but notwithstanding such changes,
banks still apply different rates based on inter alia their specific market segments and supply
and demand for the loans that they provide. Small DBs show the highest loan interest income
in all years. Considering this situation, small DBs in general have a higher average return
than large DBs over the nine year research period. In addition, the result is in line with the
findings of Carter et al. (2004) that small banks earn higher returns than large banks due to
their performance structure, information advantage and development of relationships with
customers. However, the findings of Carter et al. (2004) is based on the risk adjusted yield
of return whereas this research uses the loan interest income to average total loans ratio.
Differences in the Loan Portfolio Structure and Performance of Small and Large
Domestic-owned Banks
Table 4.2 displays the results of the Mann-Whitney test performed to verify the descriptive
statistics findings presented in the previous section of this paper with regard to the differences
in the loan portfolio structure and performance of small and large DBs.
Table 4.2 Univariate Statistics for the Loan Portfolio Structure and Performance of
Small and Large Domestic-owned Banks
Large
Banks
(n=69)
EHHI
THHI
Risk
Return
9
0.2944
0.4957
0.0356
0.1270
Small
Banks
(n=346)
0.3525
0.5868
0.0365
0.1586
Difference
-0.0581***
-0.0911***
-0.0009***
-0.0316***
Mann-Whitney Test
Z
4.78
3.373
-6.368
3.959
Prob> Z
0.0000
0.0007
0.0000
0.0001
Central bank rate serves as the reference rate since 2005, hence no data available prior to 2005.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Legend: The Mann-Whitney tests are conducted for testing the loan portfolio structure and
performance median differences between the small and large DBs over the nine-year study
period. Statistically significant differences at 1%, 5%, and 10% significance levels are
respectively indicated by ***, **, and *.
The Mann-Whitney test shows that there are statistically significant differences in the EHHI
and THHI loan portfolio concentration and in the loan portfolio performance (risk and return)
of small and large DBs. It therefore confirms that size does matter in explaining the loan
portfolio structures and the performance of DBs in Indonesia.
Empirical Results
Table 4.3 presents the fixed effect panel data regression used to determine the relationship
between DB sizes; their EHHI and THHI loan portfolio concentration levels; and their loan
repayment default risk (loan portfolio risk) and loan portfolio returns.
Table 4.3 Relationship between Bank Size; Loan Portfolio Structures; and Loan Portfolio
Risk with Loan Portfolio Return
Loan Portfolio Return
CONSTANT
Coefficient
t-Statistic
P-value
SIZE
EHHI
Coefficient
0.295
Coefficient
Coefficient
P-value
Coefficient
t-Statistic
P-value
Coefficient
t-Statistic
P-value
GDP
-0.0142
P-value
t-Statistic
INT.RATE
0.000
-1.05
P-value
NPL
8.03
t-Statistic
t-Statistic
THHI
0.2138
Coefficient
t-Statistic
P-value
-0.0789
-2.86
0.004***
0.0814
4.00
0.000***
0.0005
1.60
0.110
0.0000
0.01
0.989
-0.0000
-2.96
0.003***
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
EQUITY
Coefficient
t-Statistic
P-value
LQDT
Coefficient
t-Statistic
P-value
0.0000
0.87
0.387
-0.0004
8.03
0.000***
415
Number of observations
Legend: This table present the fixed effect panel data regression of equation 3.1. The
dependent variable is Loan Portfolio Return (Loan Interest Income - Intinc). The independent
variables are bank sizes (small and large DBs), loan portfolio concentration based on
economic sector (EHHI) and based on loan types (THHI), and loan repayment default (NPL),
interest rate, GDP, equity and liquidity. Definitions of variables are provided in Table 3.1.
***, **, and * respectively correspond to 1%, 5%, and 10% significance levels.
The negative coefficient of the size dummy regressors in Table 4.3 shows that the loan
portfolio returns of large DBs smaller than that of small DBs, however the result is
insignificant. Although the impact of size differences on loan portfolio returns is evident in
the univariate analysis, the multivariate analysis gives evidence that the effect of other
variables such as loan portfolio concentration (EHHI and THHI) are more significant. The
negative coefficient of EHHI contradicts the findings of Hayden et.al (2006) regarding
Germany banks where diversification resulted in lower return. The relationship between bank
liquidity and loan portfolio returns also shows a significant negative relationship in this study.
It means DBs with high liquidity ratios experience lower loan portfolio returns. Finally, the
positive and significant relationship between GDP and loan portfolio return represents the
impact of economic cycles on the portfolio return from market segments that banks conduct
business with.
To further examine the effect of size on the relationship between the independent variables
and the loan portfolio returns, the interaction effect fixed effect panel data regression results
are contained in Table 4.4.
Table 4.4 Relationship between Bank Size; Loan Portfolio Structures; and Loan Portfolio
Risk with Loan Portfolio Return (Interaction Effect)
Loan Portfolio Return
CONSTANT
Coefficient
t-Statistic
P-value
SIZE
EHHI
Coefficient
0.2280
6.24
0.000
-0.0661
t-Statistic
-0.90
P-value
0.369
Coefficient
t-Statistic
P-value
-0.0810
-1.91
0.061*
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
THHI
Coefficient
t-Statistic
P-value
NPL
INT.RATE
GDP
Coefficient
0.469
Coefficient
-0.23
P-value
0.821
Coefficient
Coefficient
0.0000
2.52
-0.0004
Coefficient
Coefficient
-2.37
0.021**
0.0446
0.74
0.461
-0.0232
t-Statistic
-0.36
P-value
0.721
Coefficient
t-Statistic
P-value
Coefficient
t-Statistic
P-value
Coefficient
t-Statistic
SIZE*EQUITY
0.004***
Coefficient
P-value
SIZE*GDP
-3.03
0.015**
t-Statistic
SIZE*INT.RATE
-0.0000
P-value
P-value
SIZE*NPL
-0.0002
t-Statistic
t-Statistic
SIZE*THHI
0.0006
P-value
t-Statistic
SIZE*EHHI
0.021**
-0.73
P-value
LQDT
2.38
t-Statistic
t-Statistic
EQUITY
0.0864
-0.0028
-2.33
0.024**
0.0014
0.65
0.518
0.0000
1.92
P-value
0.060**
Coefficient
-0.5845
t-Statistic
-1.29
P-value
0.202
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
SIZE*LQDT
Number of observations
Coefficient
-0.0002
t-Statistic
-0.27
P-value
0.785
415
Legend: This table present the interaction effect of fixed effect panel data regression in
equation 3.1. The dependent variable is Loan Portfolio Return (Loan Interest Income Intinc). The independent variables are bank sizes (small and large DBs), loan portfolio
concentration based on economic sector (EHHI) and based on loan types (THHI), and loan
repayment default (NPL), interest rate, GDP, equity and liquidity. Definitions of variables
are provided in Table 3.1. ***, **, and * respectively correspond to 1%, 5%, and 10%
significance levels.
Based on the information in Table 4.4, the only significant size interaction effect exists for
NPL; the negative relationship between NPL and loan portfolio returns is more significant for
the small DBs. This result indicates that higher risk loan portfolios provide higher loan
portfolio returns for the small DBs relative to that of the large DBs.
Conclusions
Previous research like that of De-Haas et al. (2010) indicates that bank size is one of the
bank loan portfolio determinants, as it may affect the market segment focus of banks. This
paper attempts to determine whether large and small DBs differ in terms of their loan
portfolio composition, risk and performance.
The findings support the hypotheses that small and large DBs differ with regard to loan
portfolio composition, risk and return. The loan portfolios of small DBs are more
concentrated with focus on trade and the consumer sector whereas large DBs have more
diversified loan portfolios with more exposure to the unspecified others (consumption loans).
The prominent consumption sector exposure of large DBs indicates their intention to enter a
higher priced and safer market segment.
The gross NPLs of large DBs is higher than that of the small DBs during most of the years in
the research period but overall the NPLs of both small and large DBs show a decreasing trend
from 2006 to 2011. Regulation PBI 2/11/PBI/2000 jo PBI 15/2/PBI/2013 of the Central Bank
that implemented a 5% standard for the net NPL ratio of banks may have prompted all DBs
to adjust their credit risk assessment and/ or qualifying criteria for loans. The decrease in the
overall NPLs of Indonesian banks may also result from the prudential regulations like
productive asset quality and loan loss provision (Indonesian Banking Booklet, 2003 and
2011). On the other hand, it may also be complimented by external economic factors not
researched in this study.
Univariate analysis shows differences in the loan portfolio concentration, risk and returns of
small and large DBs. However, multivariate analysis for size effect on loan portfolio returns
does not provide significant results. Other variables such as loan portfolio concentration
(EHHI and THHI) are the variables with significant impact on loan portfolio returns whilst
bank size is insignificant. The negative coefficient of EHHI contradicts the findings of
Hayden et.al (2006) regarding Germany banks where diversification resulted in lower return.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
The multivariate analysis for size interaction effect shows that only NPL relates significantly
with bank sizes. The negative relationship between NPL and loan portfolio returns is more
significant for small DBs. This result indicates that riskier loan portfolios provide higher loan
portfolio returns for small DBS relative to the large DBs. Focusing on trade segments
increase the risk of small DBs loan portfolios but provides small DBs with a better return.
The findings support the corporate finance theory according to which banks should
implement focus strategies to reduce agency problems and exploit their management
expertise in certain sectors. The findings do not support the traditional banking and portfolio
theory according to which banks should diversify their loan portfolio to reduce risk (Hayden
et al., 2006).
The findings reported in this paper may be of considerable interest to Indonesian Central
Banks with regard to the formulation of optimal policies regarding the impact of size
differences of DB on loan portfolio concentration and performance in Indonesia.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
REFERENCES
ACHARYA, V. V., HASAN, I. & SAUNDERS, A. 2002. Should Banks be Diversified?
Evidence From Individual Bank Loan Portfolios. Bank for International Settlements
ALIJOYO, A., BOUMA, E., SUTAWINANGUN, T. M. N. & KUSADRIANTO, M. D.
2004. Corporate Governance in Indonesia. Forum for Corporate Governance Indonesia.
BANK INDONESIA 2011. Direktori Perbankan Indonesia. Jakarta: Bank Indonesia.
BARTH, J. R., CAPRIO, G. G. & LEVINE, R. 2004. Bank Regulation and Supervision:
What Works Best? Journal of Financial Intermediation, 13, 205-248.
BATUNANGGAR, S. 2002. Indonesia's Banking Crisis Resolution: Lessons and The Way
Forward. Bank of England.
BERGER, A. N., CLARKE, G. R. G., CULL, R., KLAPPER, L. & UDELL, G. F. 2005a.
Corporate Governance and Bank Performance: A Joint Analysis of the Static, Selection, and
Dynamic Effects of Domestic, Foreign and State Ownership. World Bank Policy Research
Paper, 3632.
BERGER, A. N., HASAN, I. & ZHOU, M. 2010. The Effects of Focus versus Diversification
on Bank Performance: Evidence from Chinese Banks. Journal of Banking & Finance, 34,
1417-1435.
BERGER, A. N., MILLER, N. H., PETERSEN, M. A. & RAJAN, R. G. S., JEREMY C.
2005b. Does Function follow organizational form? Evidence from the lending practices of
large and small banks. Journal of Financial Economics, 76, 237-269.
CARTER, D. A., MCNULTY, J. E. & VERBRUGGE, J. A. 2004. Do Small Banks Have an
Advantage in Lending? An Examination of Risk-Adjusted Yields on Business Loans at Large
and Small Banks. Journal of Financial Services Research, 25, 233-252.
CRONJE, T. 2013. Bank Lending. Australia: McGraw Hill.
DE-HAAS, R., FERREIRA, D. & TACI, A. 2010. What Determines the Composition of
Bank's Loan Portfolios? Evidence From Transition Countries. Journal of Banking and
Finance.
DEGRYSE, H., HAVRYLCHYK, O., JURZYK, E. & KOZAK, S. 2012. Foreign Bank
Entry, Credit Allocation and Lending Rates in Emerging Markets: Empirical Evidence from
Poland. Journal of Banking and Finance, 36, 2949-2959.
DELL'ARICCIA, G. & MARQUEZ, R. 2004. Information and bank credit allocation.
Journal of Financial Economics, 72, 185-214.
DEUTSCHE BUNDESBANK 2006. Concentration Risk in Credit Portfolios. Germany:
Deutsche Bundesbank.
GILBERT, R. A. 1984. Bank Market Structure and Competition: A Survey. Journal of
Money, Credit and Banking, 16, 617-645.
HAYDEN, E., PORATH, D. & VON WESTERNHAGEN, N. 2006. Does Diversification
Improve the Performance of German Banks? Evidence From Individual Bank Loan
Portfolios. Deustche Bundesbank
HOGAN, W., AVRAM, K. J., BROWN, C., DEGABRIELE, R., RALSTON, D., SKULLY,
M., HEMPEL, G., SIMONSON, D. & SATHYE, M. 2004. Management of Financial
Institutions. Second Edition ed.: John Wiley & Sons Australia, Ltd.
KAMP, A., PFINGSTEN, A. & PORATH, D. 2005. Do banks diversify loan portfolios? A
tentative answer based on individual bank loan portfolios. Deutsche Bundesbank.
LA-PORTA, R., LOPEZ-DE-SILANES, F. & SHLEIFER, A. 2002. Government Ownership
of Banks. Journal of Finance, LVII, 265-301.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
LAEVEN, L. & LEVINE, R. 2007. Is There a Diversification Discount in Financial
Conglomerates? Journal of Financial Economics, 331-367.
MARKOWITZ, H. 1952. Portfolio Selection. The Journal of Finance 7, 77-91.
PANGESTU, M. 2003. The Indonesian Bank Crisis and Restructuring: Lessons and
Implications for other Developing Countries. G-24 Discussion Paper Series. New York and
Geneva: United Nations
REPUBLIK INDONESIA 1967. “Undang-Undang Republik Indonesia Nomor 14 Tahun
1967 (14/1967) Tentang Pokok-Pokok Perbankan”[Indonesian Government Act Number
14/1967 on Banking]. Jakarta, Indonesia.
REPUBLIK INDONESIA 1992. “Undang-Undang Republik Indonesia Nomor 7/1992
Tentang Perbankan” [Indonesian Government Act Number 7/1992 on Commercial Banks].
Jakarta, Indonesia.
ROSSI, S. P. S., SCHWAIGER, M. S. & WINKLER, G. 2009. How Loan Portfolio
Diversification Affects Risk, Efficiency and Capitalization: A Managerial Behavior Model
for Austrian Banks. Journal of Banking and Finance, 33, 2218-2226.
SAPIENZA, P. 2004. The Effects of Government Ownership on Bank Lending. Journal of
Financial Economics, 357-384.
TABAK, B. M., FAZIO, D. M. & CAJUEIRO, D. O. 2011. The Effects of Loan Portfolio
Concentration on Brazilian Banks' Return and Risk. Journal of Banking and Finance, 35,
3065-3076.
TABOADA, A. G. 2011. The Impact of Changes in Bank Ownership Structure on The
Allocation of Capital: International Evidence. Journal of Banking and Finance, 35, 25282543.
WINTON, A. 1999. Don't Put All Your Eggs in One Basket? Diversification and
Specialization in Lending. University of Minnesota.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
THE INFLUENCE OF CORPORATE DEBT
FINANCING ON EARNINGS QUALITY
CHRISTINE LEONARDI
Trisakti School of Management
[email protected]
IRWANTO HANDOJO
Trisakti School of Management
[email protected]
Introduction
As profitable organizations, companies need to sustain in a competitive, rapid technological
change along with the development of business. In this condition, firms should have adequate
financing, which can be obtained from different funding sources. One way to fulfill the needs
is debt financing.
Before granting any loan to a company, creditors need to know the solvency of the company.
In assessing it, creditors need high quality information in the firms’ financial statement.
Sometimes, to convince the creditors, the company deliberately manipulates the financial
statement to conceal its real financial condition. Therefore, the financial statement will not be
fairly presented.
The capital structure of a company may consist of different debt levels, either low or high.
These lead to contrary views about each influence on earnings quality. According to Ghosh
and Moon (2010) as well as Valipour and Moradbeygi (2011), companies with low debt
financing tend to report their earnings transparently because the risk of violating debt
covenants is low. Therefore, managers are likely to present high-quality earnings in order to
reduce the borrowing cost (Diamond, 1991 in Ghosh and Moon, 2010). In this case, low debt
financing is expected to have positive influence on earnings quality.
Boulton et al. (2011), as cited in Sutopo (2012), stated that earnings quality in Indonesia is
still lower than developed countries such as the United States and Australia. One of the most
influencing factors of earnings quality is debt. The usage of corporate debt financing in
Indonesia is increasing year by year, which consequently inflates the principal and interest
payment. The higher the debt financing level, the higher the risk of violating debt covenants
(Valipour and Moradbyegi, 2011). Consequently, creditors may increase the borrowing cost
and ask for rapid payments. Therefore, companies tend to manage their earnings by using
discretionary accruals to convince the creditors in granting loan (Sweeney, 1994). In this
condition, high debt financing is expected to have negative influence on earnings quality
(Ghosh and Moon, 2010).
The motivation of this research is to prove the contrast views about the influence of different
levels of corporate financing on earnings quality in firms listed in Indonesia Stock Exchange.
In addition, the objective of this research is to examine the relationship between variables and
obtain the empirical evidence about the influence of debt (low debt, high debt), operating
cycle, firm size, sales volatility, cash flow volatility, losses, cost of debt, and Z-score on
earnings quality. The development of variable model for this research is a replication of the
research made by Valipour and Moradbeygi (2011). The reason behind the replication is
because earnings quality has not been a common topic in Indonesia, so there are only a few
researches about this. The uniqueness of this research compared with the previous one is
different research object and samples used (non-financial firms excluding service sector listed
in Indonesia Stock Exchange while Valipour and Moradbeygi (2011) used non-financial
firms excluding capital investment sector listed in Tehran Stock Exchange).
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Agency Theory
Agency theory is a contract under which one or more persons (the principal) engage
another person (agent) to perform some service on their behalf which involves delegating
some decision-making authority to the agent. One issue in agency theory is conflict between
debt holders and shareholders, where managers are assumed to act in the best interest of
shareholders’ or become a shareholder himself (Jensen and Meckling, 1976). When a firm
chooses debt as majority for its capital, the owner-manager will have a strong incentive to
engage in high return-high risk investments (Jensen and Meckling, 1976). Debt holders can
limit the managerial behavior by including several covenants in the provisions of indenture
which incur barriers on management’s decisions such as dividends, future debt issues, and
maintenance of working capital or certain financial ratio (Jensen and Meckling 1976).
Information Asymmetry
As agents, managers are more aware of internal information and prospects of the
company in the future than the owners (shareholders). Therefore, the manager is responsible
to provide information about the company’s financial position to the owner. However,
sometimes the information submitted is not fairly stated compared to the actual condition of
the company. This condition is known as information asymmetry between management
(agent) with the owner (principal), which can provide an opportunity for managers to manage
the earnings (Mediaty, 2013).
Pagalung and Sudibdyo (2012) argued that one way to reduce the information asymmetry is
by revealing the qualified information. Ball and Shivakumar (2008) stated that “publiccompany investors, lenders and other financial statement users are at greater “arm’s length”
than in a private company, and consequently demand higher quality reporting to resolve the
information asymmetry”. Chaney and Lewis (1995) in Linck et al. (2013) suggest that
discretionary accruals can be used as a signal includes who show that when there is
information asymmetry between investors and managers, the strategic management of
reported earnings can reveal information about the firm.
Earnings Quality
Earnings quality is a major dimension of the financial reporting quality, as earnings constitute
a premier source of firm-specific information (Francis et al., 2005). Furthermore, Dechow et
al. (2010) stated that “higher quality earnings provide more information about the features of
a firm’s financial performance that are relevant to a specific decision made by a specific
decision maker”. When reported earnings help the users to take better decisions, then the
quality of earnings is better. Obviously, the earnings quality is high when there isn’t any
earnings management (Valipour and Moradbeygi, 2011).
In relation with debt, Watts and Zimmerman (1990) stated that earnings play an important
role in contracting being used in both debt covenants and compensation agreements.
Furthermore, these uses may motivate managers manipulate financial disclosures for reasons
such as avoiding the violation of debt covenants (DeAngelo et al., 1994 and Sweeney, 1994).
This action reflects lower earnings quality since earnings quality is inversely related to
earnings management (Ghosh and Moon, 2010; Kieso et al. 2011, 145–146).
Debt
Debt is an obligation that must be paid when it comes due. Debt includes all borrowing
incurred by a firm, including bonds, and is repaid according to a fixed schedule of payment
(Gitman and Zutter 2011, 266). Debt is as an example of pre-commitment or bonding device
(Valipour and Moradbeygi, 2011). Debt contracts create an incentive for some corporate
managers to manage earnings in order to avoid the violation of these contracts. Because debt
affects managerial incentives and reporting choices, the linkages between debt and earnings
quality depend on accruals quality (Ghosh and Moon, 2010).
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Ha1 : Debt has influence on earnings quality.
Debt holders demand higher quality information, especially earnings, to assess the continued
creditworthiness of borrowers (Grossman and Hart, 1982; Jensen, 1986 in Ghosh and Moon,
2010). For low debt, companies have expected to cut fewer restrictions in order to reduce
violating of debt obligations. Managers are also less likely to manipulate earnings to report
the quality of earnings at low level, when the risk of violating commitment is low. Since debt
reduces various agency conflicts, managers have few reasons to conceal the economic
performance using their accounting discretion (Jensen, 1986; Stulz, 1990 in Ghosh and
Moon, 2010). Thus, debt has a ‘positive influence’ on earnings quality through its effect on
accruals.
H1a Low debt has positive influence on earnings quality.
In contrast, a firm with high level of debt will have ‘negative influence’ on earnings quality.
High levels of or changes in debt ratios may indicate high likelihood of violating debt
covenants and accordingly strong incentives to overstate earnings in order to convince the
creditors (Sweeney, 1994). This will lead the opportunistic managers to use accounting
methods that reduce the likelihood of debt covenant violations (Watts and Zimmerman,
1990). Therefore, accounting numbers may not faithfully represent the future economic
performance because of the aggressive use of accruals to manage earnings in an effort to
avoid covenant violations (Sweeney, 1994; DeFond and Jiambalvo, 1994 in Ghosh and
Moon, 2010).
H1b High debt has negative influence on earnings quality.
Operating Cycle
Gitman and Zutter (2011, 604) defined the operating cycle as the time from beginning of the
production process to collection of cash from the sale of finished product. Dechow (1994)
stated that firms with longer operating cycles are expected to have larger working capital
requirements for a given level of operating activity. Thus, the length of the operating cycle is
an economic determinant of the volatility of working capital. Longer operating cycle lead to
more estimation and error, therefore will result in lower earnings quality.
H2 Operating cycle has influence on earnings quality.
Firm Size
The large companies often offer greater collateral guarantees, and the lower risk, since
they tend to be more diversified (Titman and Wessels, 1988). Large companies have larger
operational activities than small firms, so the needs of large corporate debt will be higher than
smaller companies. Moreover, the larger the firm size, the more transparent the disclosure of
company performance to outsiders, so it will be easier for large companies to get a loan
because creditors put higher trust on them. The operational sustainability in large firms will
improve the financial performance so that companies do not need to manipulate their
earnings (Dira and Astika, 2014).
H3 Firm size has influence on earnings quality.
Sales Volatility
Melumad and Nissim (2009) stated that revenue recognition is particularly vulnerable
to manipulation. They argued that different types of transactions require different revenue
recognition rules, while it is common for firms to use more than one revenue recognition
method. Since management’s discretion varies for each method, the relative magnitude of
revenue recognized may inform about the potential for earnings management. In addition,
Dechow and Dichev (2002) verified that sales volatility indicates a delicate operating
environment and the greater estimations, which will result in lower earnings quality.
H4 Sales volatility has influence on earnings quality.
Cash Flow Volatility
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Dechow and Dichev (2002) argued that the volatility of operations is systematically
related to the propensity to make estimation errors. Theoretically, they stated that “high cash
flow volatility causes low accrual quality because of large forecast errors in volatile
environments, and the effect of this causal variable should not be excluded from the empirical
construct.” Therefore, high cash flows volatility will have lower quality of earnings because
there will be more estimation error regarding high uncertainty.
H5 Cash flow volatility has influence on earnings quality.
Losses
Conservatism holds an important role related with losses (Šodan, 2012). Timely loss
recognition increases efficiency of debt contracting and improves quality of accounting
information that is useful to creditors in context of corporate governance and loan
agreements. Hayn (1995) suggested that firms whose earnings are expected to fall just below
the zero earnings point engage in earnings manipulations to help them cross the ‘red line’ for
the year. In addition, managers of troubled firms that are close to a debt covenant violation
have incentives to conduct income-increasing to avoid or defer the costs of a breach (Watts
and Zimmerman, 1990; Sweeney, 1994). Earnings management such as income-increasing
actions indicates low earnings quality.
H6 Losses have influence on earnings quality.
Cost of Debt
According to Šodan (2012), lenders should offer lower interest rates to those borrowers who
have more conservative financial reporting, for example timely loss recognition. It improves
debt agreement efficiency by sending a timelier signal of default risk to debtholders and by
allowing them to take protective actions. Diamond (1991) in Ghosh and Moon (2010) also
argued that debt holders should offer lower borrowing costs for demanding higher quality
information, especially earnings, to assess the creditworthiness of borrowers. This implies the
negative relationship between cost of debt and earnings quality.
H7 Cost of debt has influence on earnings quality.
Z-score
Altman (1968) found that companies with Z-scores above 3.0 are unlikely to fail, while those
with Z-scores below 1.81 are very likely to fail. Z-scores are used by banks for loan
evaluation. Altman (1968) stated that “insolvency in a bankruptcy sense occurs when the total
liabilities exceed a fair valuation of the firm's assets with value determined by the earning
power of the assets”. In addition, managers of the troubled firms that are close to a debt
covenant violation and default risk have incentives to take income-increasing actions
(DeAngelo et al., 1994). This means that financial distress is declining the earnings quality.
H8 Z-score has influence on earnings quality.
Research Methods
The statistics population of this research is non-financial companies listed in Indonesia Stock
Exchange (IDX) from 2007 to 2013. This research uses purposive sampling method to obtain
the sample that meets the criteria in Table 1. For the purpose of homogeneity of the sample,
companies should not be in service sector (sector 6–9 in IDX Fact Book). Furthermore,
excluding service sector is needed in order to consistently measure the operating cycle of
companies, which require the information about cost of goods sold and inventory.
The type of data used in this research is secondary data, which obtained from publicly
available information. Data needed in this research is provided in financial statement of listed
companies from 2007 to 2013. Data are obtained from the observed company’s website and
Indonesia Stock Exchange website (IDX): http://www.idx.co.id.
Table 1 Sample Selection Procedure
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Criteria Description
Non-financial companies excluding service sector that
consistently listed in Indonesia Stock Exchange from
2007 to 2013
Companies’ financial statement closing date is not
December 31 from 2007 to 2013
Companies’ reporting currency is not in Rupiah from
2007 to 2013
Companies that are not reporting the variables needed
from 2010 to 2013
Total companies that are used as the sample
Number of
Companies
Number of
Data
145
435
(4)
(12)
(31)
(93)
(27)
(81)
83
249
Residuals are measured as a reverse proxy of earnings quality. In measuring earnings quality
as the dependent variable, the Kothari et al. (2005) model is used. This model uses
discretionary accruals. Following the definition of earnings developed by Dechow (1994),
total accruals (TAC) for firm i in year t are calculated as follow:
Where:
TACi,t = total accruals in year t for firm i
NIi,t = net income in year t for firm i
OCFi,t = operating cash flow in year t for firm i
Discretionary accruals are obtained by excluding non-discretionary accruals from total
accruals. Kothari et al. (2005) developed a following model:
Where:
TACi,t
= total accruals in year t for firm i
TAi,t-1
= total assets in year t-1 for firm i
ΔSALESi,t
= revenues in year t less revenues in year t-1 for firm i
ΔARi,t
= accounts receivable in year t less accounts receivable in year t-1
for firm i
PPEi,t
= gross property, plant, and equipment in year t for firm i
ROAi,t
= return on assets in year t for firm i, computed by dividing net income in year
t by total assets in year t
, , ,
= coefficients
= error term
The discretionary accruals are obtained as residuals from the model above. Since earnings
quality is inversely related to discretionary accruals, the higher the residuals, the lower the
earnings quality (Ghosh and Moon, 2010).
Debt (DEBT) is computed by dividing total debt (both short term and long term) by
total assets (Weygandt et al. 2011, 675; Valipour and Moradbeygi, 2011). Debt to total asset
uses ratio scale.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Low debt financing (LOWDEBT) is debt ratio between scopes of 0 to 50 percent,
measured using dummy variable. The value of 0 means the company has high debt ratio
(greater than 0.5), while the value of 1 means that it has low debt ratio (range from 0 to 0.5).
High debt financing (HIGHDEBT) is debt ratio greater than 50 percent, measured
using dummy variable. The value of 0 means the company has low debt ratio (range from 0 to
0.5), while the value of 1 means that it has high debt ratio (greater than 0.5).
Operating cycle (OC) is measured as log of the sum of days of accounts receivable and days
of inventory outstanding (Valipour and Moradbeygi, 2011). Operating cycle uses ratio scale.
OC = log (Days of Accounts Receivable + Days of Inventory Outstanding)
Where:
360 / (
Days of Inventory Outstanding = 360 / (
Firm size (SIZE) is the logarithmic formulation of the average of the beginning and ending
total assets (Valipour and Moradbeygi, 2011). Firm size uses ratio scale.
Sales volatility (SALESσ) is the standard deviation of sales scaled by average total assets
(Valipour and Moradbeygi, 2011). Sales volatility uses ratio scale.
Where:
=
from 2011 to 2013
Cash flow volatility (OCFσ) is the standard deviation of operating cash flow scaled by
average total assets (Valipour and Moradbeygi, 2011). Sales volatility uses ratio scale.
Where:
Standard Deviation of OCF =
from 2011 to 2013
Losses (LOSSES) are proportion of firm-years with negative earnings from year t-4 to year t
(Valipour and Moradbeygi, 2011). Losses use ratio scale.
Where:
t = year 2011, 2012, and 2013
Cost of debt (COD) is interest expense deflated by average total debt (Valipour and
Moradbeygi, 2011). Finance costs are used as a proxy of interest expense (Kieso et al. 2011,
147–148). Cost of debt uses ratio scale.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Where:
Average Total Debt =
2
Z-score (Z-SCORE) is measured as a proxy of financial distress with the following formula
(Valipour and Moradbeygi, 2011):
Where:
WC = Working Capital = Current Assets – Current Liabilities
TA
= Total Assets
RE
= Retained Earnings
EBIT = Earnings before Interest and Taxes
MVE = Market Value of Equity = Market Price per Share  Outstanding Shares
TL
= Total Liabilities
There will be three regression models to test the hypotheses as follows:
Residuals = β0 + β1DEBT + β2OC + β3SIZE + β4SALESσ + β5OCFσ
+ β6LOSSES + β7COD + β8Z-SCORE + ε
(1)
Residuals = β0 + β1LOWDEBT + β2OC + β3SIZE + β4SALESσ + β5OCFσ
+ β6LOSSES + β7COD + β8Z-SCORE + ε
(2)
Residuals = β0 + β1HIGHDEBT + β2OC + β3SIZE + β4SALESσ + β5OCFσ
+ β6LOSSES + β7COD + β8Z-SCORE + ε
(3)
Research Results And Discussions
The result of descriptive statistics tests are shown in the tables below:
Table 2 Descriptive Statistics
Variable
DEBT
LOWDEBT
HIGHDEBT
OC
SIZE
SALESσ
OCFσ
LOSSES
COD
Z-SCORE
Residuals
Minimum
0.000417
0
0
1.686593
10.637239
0.009145
0.003407
0.000000
0.004274
-3.811858
-0.26077
Maximum
Mean
0.915571 0.29044187
1
0.86
1
0.14
2.756778 2.11442188
14.296959 12.22087047
0.782340 0.17510723
0.222615 0.05247470
1.000000 0.13306122
0.479522 0.09003436
19.702951 3.68800948
0.24745
0.0001601
Std.
Deviation
0.191213509
0.351
0.351
0.206392361
0.710740998
0.142965741
0.038428800
0.255610841
0.058713219
4.018897801
0.08182333
Table 3 LOWDEBT Frequency Table
Variable
HIGHDEBT
LOWDEBT
Total
Frequency
35
210
245
Percent
14.3
85.7
100.0
Valid Percent
14.3
85.7
100.0
Cumulative
Percent
14.3
100.0
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Table 4 HIGHDEBT Frequency Table
Variable
LOWDEBT
HIGHDEBT
Total
Frequency
210
35
245
Percent
85.7
14.3
100.0
Valid Percent
85.7
14.3
100.0
Cumulative
Percent
85.7
100.0
The t-test result of model 1, 2 and 3 are shown in the tables below:
Table 5 t Test Result Model 1
Variable
Coefficient
Significance
0.134
0.002
DEBT
0.011
0.704
OC
-0.019
0.039
SIZE
0.005
0.908
SALESσ
-0.240
0.091
OCFσ
-0.067
0.007
LOSSES
0.061
0.517
COD
0.001
0.627
Z-SCORE
2
Adjusted R 0.043, F8.236 2.381, Sig. 0.017
Table 6 t Test Result Model 2
Variable
Coefficient
Significance
-0.054
0.002
DEBT
0.016
0.591
OC
-0.012
0.175
SIZE
0.025
0.553
SALESσ
-0.174
0.209
OCFσ
-0.069
0.007
LOSSES
-0.007
0.935
COD
-0.002
0.198
Z-SCORE
2
Adjusted R 0.042, F8.236 2.322, Sig. 0.020
Table 7 t Test Result Model 3
Variable
Coefficient
Significance
0.054
0.002
DEBT
0.016
0.591
OC
-0.012
0.175
SIZE
0.025
0.553
SALESσ
-0.174
0.209
OCFσ
-0.069
0.007
LOSSES
-0.007
0.935
COD
-0.002
0.198
Z-SCORE
2
Adjusted R 0.042, F8.236 2.322, Sig. 0.020
In model 1, debt has significance level of 0.002, which is below α (0.05). Thus, Ha1 is
accepted, means that debt has influence on earnings quality. This result is consistent with
Ghosh and Moon (2010), and Valipour and Moradbeygi (2011), but is not consistent with the
research from Sutopo (2012) with control variables.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
The result shows that in model 2, low debt has significance level of 0.002, which is below α
(0.05), means that low debt has influence on earnings quality. In addition, low debt has
coefficient value of -0.054, means that each increase of one unit of low debt as the
independent variable will decrease the Residuals as the dependent variable for 0.054,
assuming all remaining independent variables are fixed. Since earnings quality is inversely
related with the Residuals, the low debt has positive influence on earnings quality. Therefore,
H1a is accepted. This result is consistent with the researches of Ghosh and Moon (2010),
Valipour and Moradbeygi (2011), and Sutopo (2012) without control variables.
The result shows that in model 3, high debt has significance level of 0.002, which is below α
(0.05), means that high debt has influence on earnings quality. In addition, high debt has
coefficient value of 0.054, means that each increase of one unit of high debt as the
independent variable will increase the Residuals as the dependent variable for 0.054,
assuming all remaining independent variables are fixed. Since earnings quality is inversely
related with the Residuals, the high debt has negative influence on earnings quality. Thus, H1b
is accepted. This result is consistent with the researches of Ghosh and Moon (2010), Valipour
and Moradbeygi (2011), and Sutopo (2012) without control variables.
Operating cycle variable has significance level of 0.704 in model 1 and 0.591 in both model 2
and 3, which are below α (0.05). Thus, Ha2 is rejected. It means operating cycle has no
influence on earnings quality in all regression models. This result is consistent with Pagalung
and Sudibdyo (2012), but is not consistent with Dechow and Dichev (2002), Francis et al.
(2005), Ghosh and Moon (2010), as well as Valipour and Moradbeygi (2011).
Size variable has significance level of 0.039 in model 1, which is below α (0.05). It means
that size has influence on earnings quality when it is regressed with debt as a whole. This
result is consistent with Dechow and Dichev (2002), Francis et al. (2005), Moses (1987) in
Dechow et al. (2010), Ghosh and Moon (2010), Valipour and Moradbeygi (2011), and
Sutopo (2012).
However, in model 2 and 3, size variable has significance level of 0.175, which is above α
(0.05). It means that size has no influence on earnings quality when it is regressed with both
low and high debt. This result is consistent with Pagalung and Sudibdyo (2012).
Sales volatility variable has significance level of 0.908 in model 1 and 0.553 in both model 2
and 3, which are above α (0.05). Thus, Ha4 is rejected. It means sales volatility has no
influence on earnings quality in all regression models. This result is not consistent with
Dechow and Dichev (2002), Francis et al. (2005), Ghosh and Moon (2010), Valipour and
Moradbeygi (2011), Chang et al. (2012), as well as Pagalung and Sudibdyo (2012).
Cash flow volatility variable has significance level of 0.091 in model 1 and 0.209 in both
model 2 and 3, which are above α (0.05). Thus, Ha5 is rejected. It means cash flow volatility
has no influence on earnings quality in all regression models. This result is not consistent
with Dechow (1994), Dechow et al. (1998), Dechow and Dichev (2002), Francis et al. (2005),
as well as Ghosh and Moon (2010).
Losses variable has significance level of 0.007 in all regression models, which is below α
(0.05). Thus, Ha6 is accepted. It means losses have influence on earnings quality in all
regression models. This result is consistent with Hayn (1995), Dechow and Dichev (2002).
Cost of debt variable has significance level of 0.517 in model 1 and 0.935 in both model 2
and 3, which are above α (0.05). Thus, Ha7 is rejected. It means cost of debt has no influence
on earnings quality in all regression models. This result is consistent with Ghosh and Moon
(2010), but is not consistent with Francis et al. (2005), Liu et al. (2010) in Valipour and
Moradbeygi (2011), and Šodan (2012).
Z-score variable has significance level of 0.627 in model 1 and 0.198 in both model 2 and 3,
which are above α (0.05). Thus, Ha7 is rejected. It means Z-score has no influence on earnings
quality in all regression models. This result is not consistent with Ghosh and Moon (2010),
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Valipour and Moradbeygi (2011), as well as Kim et al. (2011) in Valipour and Moradbeygi
(2011).
Conclusion
Based on the hypothesis testing, debt and losses have influence on earnings quality.
Directionally, low debt has positive influence and high debt has negative influence on
earnings quality. Firm size has influence on earnings quality when it is regressed with whole
debt. Meanwhile, it has no influence when it is regressed with low and high debt. Sales
volatility, cash flows volatility, cost of debt and Z-score have no influence on earnings
quality. This research period is relatively short, which is only three years and the research
sample is focused only on listed non-financial companies excluding service sector, so the
result cannot be generalized for the overall industries. Some recommendations that can be
used for the future research, which are lengthen the period research to get more accurate
result and enlarge the research population.
References:
Altman, Edward I. (1968). Financial Ratios, Discriminant Analysis and the Prediction of
Corporate Bankruptcy. The Journal of Finance vol. 23 no. 4, pg. 589–609.
Ball, Ray and Lakshmanan Shivakumar. (2006). The Role of Accruals in Asymmetrically
Timely Gain and Loss Recognition. Journal of Accounting Research vol. 44 no.2, pg. 207–
242. http://www.jstor.org/stable/3542439 (accessed December 1, 2014)
Burgstahler, David and Ilia D. Dichev. (1997). Earnings Management to Avoid Earnings
Decreases and Losses. Journal of Accounting and Economics vol. 24, pg. 99–126.
Chang, Shen-Ho, Shaio Yan Huang, An-An Chiu, and Mei-Ting Huang. (2012). Construction
of Investment Risk Measure by the Dispersion Degree of Estimation Errors of Working
Capital. Journal of Applied Finance & Banking vol. 2 no. 1, pg. 171–195.
Cheng, C.S. Agnes, Joseph Johnston, and Cathy Zishang Liu. (2013). The Supplemental Role
of Operating Cash Flows in Explaining Share Returns: Effect of Various Measures of
Earnings Quality. International Journal of Accounting and Information Management vol. 21
no. 1, pg. 53–71.
DeAngelo, Harry, Linda DeAngelo, and Douglas J. Skinner. (1994). Accounting Choice in
Troubled Companies. Journal of Accounting and Economics vol. 17, pg. 113–143.
Dechow, Patricia M. (1994). Accounting Earnings and Cash Flows as Measures of Firm
Performance: The Role of Accounting Accruals. Journal of Accounting and Economics vol.
18, pg. 3–42.
———, S. P. Kothari and Ross L. Watts. (1998). The Relation Between Earnings and Cash
Flows. Journal of Accounting and Economics vol. 25, pg. 133–168.
——— and Ilia D. Dichev. (2002). The Quality of Accruals and Earnings: The Role of
Accrual Estimation Errors. The Accounting Review vol. 77, pg. 35–59.
———, Weili Ge, and Catherine Schrand. (2010). Understanding Earnings Quality: A
Review of The Proxies, Their Determinants and Their Consequences. Journal of Accounting
and Economics vol. 50, pg. 344–401.
Dichev, Ilia D., John R. Graham, Campbell R. Harvey, and Shiva Rajgopal. 2013. Earnings
Quality: Evidence from The Field. Journal of Accounting and Economics vol. 56, pg. 1–33.
Dira, Kadek Prawisanti and Ida Bagus Putra Astika. (2014). Pengaruh Struktur Modal,
Likuiditas, Pertumbuhan Laba, dan Ukuran Perusahaan pada Kualitas Laba. E-Jurnal
Akuntansi Universitas Udayana 7.1, pg. 64–78.
Francis, Jennifer, Ryan LaFond, Per Olsson, and Katherine Schipper. (2005). The Market
Pricing of Accruals Quality. Journal of Accounting and Economics vol. 39, pg. 295–327.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Ghosh, Aloke (Al) and Doocheol Moon. (2010). Corporate Debt Financing and Earnings
Quality. Journal of Business Finance and Accounting vol. 37, pg. 538–559.
Ghozali, Imam. (2013). Aplikasi Analisis Multivariate dengan Program IBM SPSS 21, Edisi
7. Semarang: Badan Penerbit Universitas Diponegoro.
Gitman, Lawrence J. and Chad J. Zutter. (2011). Principal of Managerial Finance, 13 th
edition. Boston, MA: Pearson International.
Hair, Joseph F., William C. Black, Barry J. Babin, and Rolph E. Anderson. (2010).
Multivariate Data Analysis, 7th edition. New Jersey: Pearson Education, Inc.
Hayn, Carla. (1995). The Information Content of Losses. Journal of Accounting and
Economics vol. 20, pg. 125–153.
Jensen, Michael C. and William H. Meckling. (1976). Theory of the Firm: Managerial
Behaviour, Agency Cost, and Ownership Structure. Journal of Financial Economics vol. 3
no. 4, pg. 305–360.
Kamel, Hany and Said Elbanna. (2009). Assessing the Perceptions of The Quality of
Reported Earnings in Egypt. Managerial Auditing Journal vol. 25 no. 1, pg. 32–52.
Kieso, Donald E., Jerry J. Weygandt, and Terry D. Warfield. (2011). Intermediate
Accounting vol. 1, IFRS edition. New Jersey: John Wiley & Sons, Inc.
Kothari, S. P., Andrew J. Leone, and Charles E. Wasley. (2005). Performance Matched
Discretionary Accrual Measures. Journal of Accounting and Economics vol. 39, pg. 163–197.
Linck, James S., Jeffry Netter, and Tao Shu. (2013). Can Managers Use Discretionary
Accruals to Ease Financial Constraints? Evidence from Discretionary Accruals Prior to
Investment. The Accounting Review vol. 88 no. 6, pg. 2117–2143.
Mediaty. (2013). The Impact of Information Asymmetry Towards The Quality Of Accrual
Earnings With Good Corporate Governance (GCG) As Moderating Variable. IOSR Journal
of Economics and Finance (IOSR-JEF) vol. 1, issue 4, Sep.–Oct. 2013, pg. 1–51.
Melumad, Nahum D. and Doron Nissim. (2009). Line-Item Analysis of Earnings Quality.
Foundations and Trends in Accounting vol. 3 nos. 2-3, pg. 87–221.
Momenzadeh, Nahid and Mohammad Reza Abbaszadeh. (2013). Comparing the Earning
Quality Methods of The Companies Accepted in Tehran Stock Exchange. Interdisciplinary
Journal of Contemporary Research in Business vol. 5 no. 6, pg. 529–541.
Pagalung, Gagaring and Bambang Sudibdyo. (2012). The Determinant Factors of Earnings
Quality and Economic Consequences. Ekuitas: Jurnal Ekonomi dan Keuangan vol. 16 no. 1,
pg. 105–122.
Šodan, Slavko. (2012). Conditional Conservatism and the Cost of Debt: Evidence from
Central and Eastern Europe. Croatian Operational and Research Review vol 3, pg 245–255.
Sutopo, Bambang. (2012). Utang dan Kualitas Laba. Jurnal Akuntansi dan Manajemen vol.
23 no. 2, pg. 79–86.
Sweeney, A. P. (1994). Debt Covenant Violations and Managers’ Accounting Responses.
Journal of Accounting and Economics vol. 17, pg. 281–308.
Titman, Sheridan and Roberto Wessels. (1988). The Determinant of Capital Structure Choice.
The Journal of Finance vol. 43 no. 1, March 1988, pg. 1–19.
Valipour, Hashem and Medhi Moradbeygi. (2011). Corporate Debt Financing and Earnings
Quality. Journal of Applied Finance and Banking vol.1 no. 3, pg. 139–157.
Watts, Ross L. and Jerold L. Zimmerman. (1990). Positive Accounting Theory: A Ten Year
Perspective. University of Rochester. The Accounting Review vol. 65 no. 1, Januari 1990, pg.
131–156.
Weygandt, Jerry J., Paul D. Kimmel, and Donald E. Kieso. (2011). Financial Accounting,
IFRS Edition. New Jersey: John Wiley & Sons, Inc.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
THE RELEVANT VALUE ACCOUNTING INFORMATION ON THE ADOPTION
OF THE IFRS IN THE CAPITAL MARKET: EVIDENCE IN THE BANKING
INDUSTRY
Ishak Ramli
Management Department, University of Tarumangara
[email protected]
INTRODUCTION
Liberalization is an ideological or philosophical view which is based on the understanding
that liberty and equality are the most important values. In general, liberalization aspire to a
free society and characterized freedom of thought for the individual. Liberalization reject the
restrictions, especially for trade and investment. In recent years, the development of the world
economy connected to liberalization and in the accounting world, this is then closely
connected to the adoption of International Financial Reporting Standards (IFRS) which is a
warm and emerging issues debated in various countries. Financial reporting standard IFRS is
prepared to as a solution due to the different local standards in various countries. The IFRS
accounting standards is a product of the International Accounting Standards Board (IASB),
and the purpose of establishing the IASB is in order to prepare a high quality international
financial reporting standards ( Ball, 2006). This is in line with the mandate of the meeting of
the G-20 summit in London on April 2, 2009, to have a single set of high-quality global
accounting standards in order to provide quality financial information on international capital
markets.
The obligation to use the IFRS for companies listed on the stock exchange (listed companies)
is one of the most significant changes in the history of accounting regulation (Daske et al.,
2008). There has more than one hundred countries have adopted IFRS or decide to use IFRS
as their standard in the future. IFRS was first applied by the European Union countries which
are then followed by Australia, Brazil, Singapore, New Zealand and some countries in the
world including Indonesia. The companies listed on the Stock Exchange Countries in the
European Union began to adopt IFRS for their consolidated financial statements since
January 1, 2005. Australia, Singapore, the Philippines and Hong Kong also adopted IFRS
from January 1, 2005, while New Zealand adopted it since 2007, with the recommended
voluntary adoption since 1 January 2005. Since 2007, the SEC also have to allow the
companies listed on the US exchanges to use the IFRS without reconciling to the US GAAP.
Regulators hope that the use of IFRS may increase the comparability of financial statements,
increasing the transparency of the company, and the quality of financial reporting that
benefits investors.
There is an ongoing debate whether IFRS can improve the quality of accounting information
(Bart et al., 2008; Daske et al., 2008; Karampinis and Hevas, 2011; Alali and Foote, 2012).
There is the argument that IFRS can improve the quality of accounting information for the
use of fair value over the company so it can reflect economic conditions. In addition, the
application of IFRS also hypothesized can limit opportunistic action management (Barth et
al., 2008). According to Van der Meulen (2007) restrictions on managerial discretion in
choosing the method of measurement can reduce the ability of management to be able to
provide more accounting information that can describe the economic condition of the
company. In addition, the flexibility of the principles-based standards may provide greater
opportunities for companies to do earnings management. Several studies show empirical
evidence of the benefits of IFRS in improving the quality of accounting information. Bartov
et al research (2005), Liu and Liu (2007), Barth et al., (2008), and Alali and Foote (2012)
showed that the accounting information that has been prepared in accordance with IFRS is
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
more qualified than the accounting information compiled by previous accounting standards.
Hung and Subramanyan (2007) examined the effects of the adoption of the SAI to the
financial statements of companies in Germany. The results of the study provide evidence that
the relevance of book value of equity is higher than that applying German IAS accounting
standard, and there was no significant difference in revenue and net income are based on the
International Accounting Standards and Accounting Standards Germany. Instead the results
of Van der Meulen (2007); Karampinis and Hevas (2011) show empirical evidence to the
contrary. They showed no significant improvement in the quality of accounting information
after the adoption of IFRS.
One of the financial communication media between the management of a company and the
stakeholders is the financial statements. According to the Financial Accounting Standards
issued by Indonesian Accountant Board (IAI), the purpose of a financial report is to provide
information concerning the financial position, performance and changes in financial position
of an enterprise that is useful for a large number of users in decision making. Suharli and
Rachpriliani (2006) stated that the financial statements are useful to investors and potential
creditors and other users in making investment decisions, credit and similar decisions are
rational. Therefore, the information provided by management should be informative and open
to all the information that is contained in a financial statement. Timeliness of financial
statements is proportional to the relevance and reliability of the financial statements. The
longer a company publishes its financial statements, the more increasingly irrelevant and
unreliable financial statements it would provide. So that the benefits of the financial
statements will be reduced if the report is not available at the time. The Chairman of the
Securities and Exchange Commission Securities and Exchange Commission issued a decision
attachments Decree No. 80 / PM / 1996 which requires each issuer and public companies to
deliver the company's annual financial statements and the independent auditor's report to the
Securities and Exchange Commission not later than 120 days after the date of the annual
company report. However, since September 30, 2003, the Securities and Exchange
Commission regulations tightened with the issuance of Decree attachment Chairman of
Bapepam Number: Kep-36 / PM / 2003 stated that the financial statements accompanied by
the auditor's report with unqualified opinion should be submitted to the Securities and
Exchange Commission no later than the end of the third month (90 days) after the date of the
annual
financial
statements.
Indonesia has made a full adoption of IFRS from 1 January 2012, but the application of IFRS
has started gradually, with the application of SFAS 50 and 55 from 1 January 2010 for the
banking company. IFRS adoption is one of the Indonesian government agreement as a
member of the G-20. As in other countries, are still being debated and important research
question whether the application of IFRS in Indonesia can improve the quality of accounting
information. The findings of previous studies show conflicting evidence whether IFRS
implementation can improve the quality of accounting information. So that the effect of the
application of IFRS in order to improving the quality of accounting information is still an
important research issue. This study aimed to test whether the adoption of IFRS that have
been started in 2010 for the banking company can improve the quality of accounting
information in the Indonesian banking company. For regulators this study can be taken into
consideration when standard setters want to see how far the influence of accounting
information value relevance of financial statements before and after the adoption of IFRS on
stock prices and whether it should be applying IFRS.
The question to be discussed in the study is whether there are any influence and why the
value relevance of accounting information, especially financial statements (book value, net
income, and operating cash flow) on the stock prices of the listed banks in the IDX in the
period before the adoption of the IFRS ( 2007-2009 ), and after the adoption ( 2010-2012 ).
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
LITERATURE REVIEW
1.The IFRS international accounting standards issued by the International Accounting
Standards Board (IASB).
The International Accounting Standards was compiled from the four world's major
organizations : the International Accounting Standards Board (IASB), Commission of the
European Communities (EC), the International Organization Capital Markets (IOSOC), and
the International Accounting Federation (IFAC). International Accounting Standards Board
(IASB), which was formerly the International Accounting Standards Committee (IASC), an
independent agency to develop accounting standards. The organization has a goal to develop
and encourage the use of global accounting standards that are of high quality, understandable
and comparable (Choi et al., 1999). Most of the standards that are part of the previous IFRS
International Accounting Standards are (IAS) (Natawidyana, 2008). IAS published between
1973 to 2001 by the IASC. In April 2001, the IASB adopt all IAS and continued development
of standards is done. International Financial Reporting Standards (IFRS) include:
a. International Financial Reporting Standards (IFRS) - standards issued after 2001.
b. International Accounting Standards (IAS) - standards issued before 2001.
c. Interpretations issued by the International Financial Reporting Interpretations Committee
(IFRIC) - After 2001.
d. Interpretations issued by the Standing Interpretations Committee (SIC) - Before 2001.
International Financial Reporting Standards (IFRS), a single standard accounting reporting
which gives emphasis on assessment (revaluasion) professionals with a clear and transparent
disclosures regarding the economic substance of the transaction, the explanation to reach
certain conclusions. This standard appears due to the demands of globalization, which
requires business people in a country participating in the cross-country business. It required
an international standard that applies equally in all countries to facilitate the reconciliation
process
business.
There are two major differences in national implementation of IFRS with GAAP is the
application of fair value at the national GAAP IFRS while using the historical cost basis.
Historical cost concept that has been widely applied in the financial statements based on
national GAAP has lost its relevance in measuring the economic reality of historical cost
because they only measure the transaction has been completed and did not recognize the real
changes that occur. The use of historical cost accounting practice has been criticized as a
cause of low relevance for reliability-centered. The second difference is conservatism.
Conservatism is the immediate reaction to admit or consider the costs or losses uncertainties
and risks in the accounting recognition but not vice versa. Uncertainty of income or profit
shall be suspended until realized. The asymmetry of this treatment resulted in the balance
sheet figures are often so low that it does not describe the conditions actually means
(Kusuma, 2007). IFRS detected more use will affect the fair value at the balance sheet
reporting. Recognition of fair value will affect the recognition of the unrealized gains and
losses. Thus the concept of conservatism becomes blurred in the accounting recognition. But
behind all of the IFRS also led to fewer income smoothing and IFRS also requested the
inclusion of off-balance-sheet items to balance and ask for more disclosure, especially with
regard to the considerations and assumptions (Pacter, 2005).
The main difference of the IFRS with the applicable standards in Indonesia lies in the
application of the revaluation model, that the possibility of using the fair value valuation of
the assets, so that the financial statements are presented on the basis of 'true and fair'.
Adopting IFRS means using the global financial reporting language, which will make the
company can be understood by the world market (global market). In adopting IFRS, there are
several variations:
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
a. IFRS is used as the national standard, with the addition of a material explanation.
b. IFRS is used as a national standard with the addition of its own national standards with
topics that are not included in the IFRS.
c. National standards of accounting constructed separately, but based and have the same
relevant to IFRS, the national standards generally provide additional explanation of
material.
d. National accounting standards built separately but based and generally equal to the
IFRS in some cases.
e. There are no national standards are set, not officially adopted IFRS but always used.
According to Roberts et al., (2005) the benefits of using an internationally accepted
standards (IFRS):
a. The decrease in costs.
b. Decrease risk of uncertainty and misunderstanding.
c. More effective communication with investors.
d. Comparison with subsidiaries and parent companies in different countries can be
done.
e. Comparison of contractual terms such as lending contracts and bonuses for
performance management.
IFRS supporters claim that by adopting the same international standards expected countries
can lower the cost of information processing and auditing so as to lower the cost of equity
capital (Barth, 2008). The adoption of IFRS is also expected to improve the quality of
financial statements because the IASB restrict the allowed alternative accounting practices
such as in stock assessment, the LIFO method is not allowed. IFRS also provides a consistent
approach to accounting measurement.
2. Theory Agency (Agency Theory)
Agency theory is a form of game theory, which is a contractual model between two people
(party) or more that explains the relationship between the agent (management of a business)
with the principal (owner). Where the difference in interest between the agent and the
principal may spark conflict that can harm both parties. In the case manager as an agent who
holds the power of the principal usually tend to perform behaviors that are not supposed to
(dysfunctional behavior). This was done because of the asymmetry of information in the
financial statements. Scott (2009) states that if several parties involved in the business
transaction has more information than the other party, then the condition is said to be the
asymmetry of information. The existence of information asymmetry is considered as one of
the causes of earnings management. Scott (2009) argues that there is a systematic relationship
between the level of information asymmetry with earnings management. The existence of
information asymmetry will encourage managers to present information that is not true,
especially if the information relates to the measurement of the performance of managers. So
the principal find the value of the financial statements information that is more relevant to
assess the performance of management such notice of cash flow, income, or equity firm.
3. Earning Management
the Explanation of the concept of earnings management using agency theory approach
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
(agency theory) states that earnings management practices are influenced by conflicts of
interest between the agent and the principal that arises when each party seeks to achieve or
maintain a level of prosperity that pleases. In an agency relationship management have
information asymmetry to external parties such as investors and creditors. Asymmetry of
information occurs when the principal as the owner can not directly monitor the daily
management activities to ensure management work in accordance with the wishes of the
owner, or in other words the principal does not have enough information about the
performance of agents. While management as agents have excess capacity and environmental
information about the work of the company as a whole. The assumption that individuals act
to maximize itself, lead management utilizing the asymmetry of information they have to
hide some information that is not known to the owner, especially if the information relates to
the
measurement
of
performance
management.
There are several forms of earnings management that manager can do, among others (Scott,
2009):
a. Taking a bath
Taking a bath is done by acknowledging the existence of costs in future periods and loss for
the period that requires management to impose future cost estimates, resulting in earnings
next
period
will
be
higher.
b. Income minimization
Done when the company experienced a high level of profitability that if profits are expected
to fall sharply next period can be overcome by taking profit of the previous period.
c. Income maximization
Performed at the time of declining profits. Action on income maximization aims to report
higher net income for purposes of the larger bonuses.
d. Income smoothing
It is done by way of leveling the reported earnings so as to reduce too large fluctuations in
earnings since investors generally like a relatively stable earnings.
Schipper (1989) defines earnings management as "Management of disclosure in the sense of
a purposeful intervention in the external financial reporting process, with the intent of
obtaining some private gain". It can be seen as an attempt of manager to taking personal gain.
Earnings management can be done by manipulation of pure accruals that is the discretionary
accrual that has no effect on cash flows directly called accrual manipulation. Accrual
earnings management is done at the end of the period when the manager knows the earnings,
to be engineered in order to achieve profit targets.
4. Relevance of Accounting Information Value of Financial Statements
Literature mentioned (Liu and Liu, 2007; Van der Meulen, 2007; Barth et al, 2008;
Karampinis and Hevas, 2011; Alali and Foote, 2012) the quality of accounting information in
the financial statements proxied by relevance value. Francis and Schipper (1999) defines the
value relevance of accounting information financial statements as the ability of accounting
numbers to summarize the information underlying stock price, so the value relevance
indicated in a statistical relationship between financial information and stock prices or
returns. In line with the Margani Pinasti (2004) the value relevance is the ability to explain
(explanatory power) of accounting information of the financial statements to the stock price
or return. Research on the value relevance is designed to establish the benefits of accounting
values of the financial statements of the company's equity valuation. The relevance of the
value of a reporting accounting numbers that have a prediction model with regard to the
values of the securities market. The concept of relevance value can not be separated from the
relevant criteria of financial accounting standards for a number of accounting numbers would
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
be relevant if the amounts shown reflect the information that is relevant to the valuation of a
company.
Hypothesis 1a: The relevance value of accounting information, especially financial
statements (book value, net income, and operating cash flow) in the period
before the adoption of IFRS affect stock prices.
Hypothesis 1b: The relevance value of accounting information, especially financial
statements (book value, net income, and operating cash flow) in the period after
the adoption of IFRS affect stock prices.
5. The relationship of Accounting Earnings and Book Value Share Price
Annual profit contains information that can lead to changes in investors' reaction to the
distribution of cash flows in the future, which will lead to changes in stock prices. Changes in
stock prices around the announcement date expected to be greater when compared with the
change in stock price beyond the date of the announcement. At Indra research and Fazli
(2004) gives the result that the response coefficient R2 of books value has increased
significantly and positively related to the share price. This indicates that investors use
accounting earnings information to assess the performance of the company during the period
of the observation. Indra and Fazli (2004) concluded accounting earnings information has a
positive influence to the stock price. While Alali and Foote (2012) states that if the company
make losses, the market behaved as if believing in the book value of equity resulting in a
decrease in the slope coefficients are losing profits due to a shift in the value relevance of
accounting earnings to equity book value.
Hypothesis 2a: The relevance value of accounting information of financial statements in
particular (book value) in the period before the adoption of IFRS affect stock
prices.
Hypothesis 2b: The relevance value of accounting information of financial statements in
particular (book value) in the period after the adoption of IFRS affect stock
prices.
Hypothesis 3a: The relevance value of accounting information of financial statements in
particular (net income) in the period before the adoption of IFRS affect stock
prices.
Hypothesis 3b: The relevance value of accounting information of financial statements in
particular (net income) in the period after the adoption of IFRS affect stock
prices.
6. The Relationship Operating Cash Flow and Stock Price.
Cash flow statement information is useful to assess the company's ability to generate cash
and cash equivalents, as well as allowing users to develop models to assess and compare the
present value of future cash flows from a variety of companies. Triyono and Jogiyanto (2000)
states that unexpected cash inflow and cash outflow from operating activities during the
period will affect stock prices through its effect on cash flow. Indra and Fazli (2004) stated
cash flow data outside the accounting profit only provide weak support for investors, this
shows that the data does not have the cash flow information content when viewed influence
on stock prices.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Hypothesis 4a: The relevance of accounting information value of financial statements
particularly (operating cash flow) in the period before the adoption of IFRS
affect stock prices.
Hypothesis 4b: The relevance of accounting information value of financial statements
particularly (operating cash flow) in the period after the adoption of IFRS affect
stock prices.
7. Adoption of IFRS Institutional Environment in Indonesia.
Karampinis and Hevas (2011) hypothesized and provide empirical evidence that it is not
enough to improve the quality of accounting information only by using accounting standards
factor alone (including IFRS). Daske et al., (2008); and Ball et al., (2003) argued that it is the
institutional environment in preparation of financial statements, instead of the standard, that
determines the quality of accounting information. This is an important issue because of the
orientation of IFRS is for institutional environment with a common law tradition. IFRS is
based on a conceptual framework similar to the conceptual framework of accounting
standards common law countries (Barth et al., 2008). Therefore, the benefits of IFRS for
countries with a tradition of law code remains an important research question.
Code law countries generally have a model of a financial system that is more oriented to the
stakeholders (stakeholder-oriented model). Accounting standards prepared by regulatory
agencies controlled by the state through legislation that detail to achieve uniformity. Funding
for the company is very dependent factor on the banking system, capital market became the
second option (Karampinis and Hevas, 2011). The government intervention in the preparation
of accounting standards and the dominance of banks in financing companies cause more
oriented financial reporting (creditors and tax-oriented financial reporting). Instead financial
system common law of the countries tend to be oriented to shareholders (shareholderoriented). Accounting standard setting body handed over to private professionals who are
accepting the practices generally acceptable as the main basis for the standards development
process. The capital market has a major role in financing the company so that public
disclosure is mandatory prerequisite for a financial reporter.
In the international business literature, Indonesian classified in cluster code law countries
(Djankov, 2008). Countries in cluster code law generally have a weak level of investor
protection and the legal system is not running well. Weak protection of investors led to
concentrated ownership (concentrated ownership). This is consistent with the findings of
Siregar and Main (2008) which shows the magnitude of the percentage ownership of the
majority shareholder. Countries in cluster code of law generally has the function of banking
is more dominant than the capital markets in order to meet its financing needs. Various
characteristics of the institutional environment that led to the need for public disclosure
(public disclosure) becomes less important in code law countries than common law. This can
hinder the adoption of IFRS purposes to improve the quality of accounting information.
Karampinis and Hevas (2011) showed that the adoption of IFRS in a less appropriate
institutional environment caused insignificant increase in the quality of accounting
information after the adoption is done. This supports the argument Badshaw and Miller
(2007) and Alali and Foote (2012) that the accounting depends on the specific factors of each
country (country-specific factors).
Hypothesis 5: The relevance of accounting information value of financial statements
particularly (Book value, net income, and operating cash flow) influence on
stock prices bigger in the period after the adoption of IFRS than before.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
8. Researches Accomplished
Research on the value relevance of accounting information financial statements before and
after the adoption of IFRS on stock prices have been carried out by researchers earlier some
of which are: Agoglia et al., (2011) conducted research experiments on the preparation of
financial statements in US, treatment-treated with rule-based and principle-based accounting
standards associated with compliance with accounting and reporting standards for the 20072009 period. Research results showed that treatment-treated preparation of financial
statements show compliance with of the principle-based better than using a rule-based
accounting standards and the results reported that the preparation of financial statements were
more precise.
Hung and Subramanyam (2007) conducted a study comparing the effects of IAS with
German accounting standards for financial reporting period 1998-2006. The research results
showed that the German accounting standards are more emphasis on the principles and
income smoothing, whereas IAS more emphasis on fair value on the balance sheet and
valuation. In addition, IAS significantly increase the book value and also improve the value
relevance of book value itself and to improve the timeliness of accounting information.
Christensen et al. (2008) compared construct accounting quality (level of earnings
management and timely loss recognition) between companies that voluntarily adopt IFRS
prior to 2005 with companies that adopt IFRS is mandatory in 2005 in Germany for the
period 1999-2008. Accounting quality increased only in companies that adopt voluntarily in
the period before when the mandatory adoption of IFRS required, but there was no evidence
of increase in accounting quality in the period after 2005 when the company is required to
adopt IFRS. Companies that voluntarily adopt IFRS had an incentive benefit from the
adoption of IFRS, but it did not happened in the company that was forced to adopt IFRS or
when IFRS has been required.
Daske et al. (2008) conducted a study on the economic consequences of the adoption of IFRS
when IFRS is mandatory in the whole world the 1998-2007 period. Daske observe the impact
of IFRS adoption on market liquidity, cost of capital and assessment of the equity with a
large sample of firms in 26 countries around the world. Research results showed that there
were average increase in market liquidity around the adoption of IFRS, the cost of capital
companies will be lower, and there were evidence an increase in the value of equity.
Capkun et al. (2010) conducted a study with a sample of the whole country from 2002 to
2008 period by differentiating the sample into three groups, early adopters, adopters and late
adopters mandatory. There were an increased accrual earnings management in companies in
countries that do not allow adopting IFRS until the enforced compulsory (mandatory
adopters), but a decline in the company allowed to adopt IFRS before 2005 (early adopters).
Thus there can not be concluded that whether IFRS may increase or decrease the rate of
accrual earnings management in companies regardless of when adopting IFRS.
Carlo and Jarne (2010) identifies the effect of IFRS adoption on earnings management in
particular discretionary accruals on non-financial companies listed on the stock market the
EU 11 for the 2002-2008period. The results showed that increasing discretionary accruals in
the period after the adoption of IFRS by controlling variable firm size, leverage, investor
protection and law enforcement legislation.
Barth et al. (2008) examined the relationship with the IAS accounting quality proxied by the
level of earnings management, relevance and recognition of the value of losses for the
company in Europe the 1999-2008 period. The results show that companies that are adopting
the IAS accounting quality has higher accounting quality than those who did not adopt IAS.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
The level of earnings management in this study was measured by the level of income
smoothing (income smoothing). Bart et al., (2008) argued that a principles-based IFRS
standards could further enhance the value relevance of accounting information. This is due to
the fair value measurement is to describe the position and the company's economic
performance. So as to assist investors in making investment decisions. Nevertheless Barth et
al., (2008) also states competing hypothesis that IFRS can actually decrease the value
relevance of accounting information financial statements. This is due to restrictions on
managerial discretion in the choices of measurement can reduce the ability of management to
describe the economic position of the company. In addition, the influence of the components
of the financial reporting system in addition to its own standards can reduce the quality of
IFRS accounting information. This can happen if the enforcement and litigation of the
application of IFRS is less strong.
Similarly, Barth et al. (2008), Aussenegg et al. (2009) revealed that there is a significant
reduction in the level of earnings management in the companies in France and in Germany
for the 2002-2008 period. He compared when companies adopt a local GAAP with when
adopting IFRS. English and Ireland and Northern European countries have lower levels
earnings management in the period before the adoption of IFRS compared with other
European
countries.
The argument that the IFRS may not necessarily be able to increase the value relevance of
accounting information financial report also stated by Van der Meulen (2007) study for 19982007 period for European companies. Meulen (2007) states that it is still being debated by the
IASB's standard-setting process through due process has not been good. In addition,
enforcement of IFRS is not as restrictive as US GAAP. So that the IASB accounting
standards drafted the general nature and lack of detail is different from the rule-based
standards detailed in the rules of disclosure. Van der Meulen (2007) states it is debatable
whether more stringent rules that can generate accounting information that is more relevant to
the financial statements.
Karamanou and Nishiotis (2009) conducted a study to see the impact of the company's
decision to adopt IAS on firm value. The sample used in the study are of international
companies from 2002 to 2008 period. The results of his research, shows that there is a strong
positive abnormal returns around the announcement of the adoption of IAS and then
continued in the period following the announcement.
Paglietti (2009) conducted a study on the value relevance of accounting information research
on 960 companies in Italy the period 2000-2008 before and after the adoption of IFRS is
mandatory. Research results showed that an increase in the quality of accounting information
after the adoption of IFRS compare to when before the adoption of IFRS.
Gebhardt and Farkas (2011) examines the implications of mandatory IFRS adoption on the
quality of accounting information in the banking industry in the 12 member states of the
European Union from 2002 to 2010 period. Research results showed that significantly
decrease
the
ability
of
the
bank
to
perform
income
smoothing.
In addition there are also researchers from Indonesia, Rahmellia (2009) and Hutagaol (2010)
for the period 2002-2008 Asian company their results also showed a significant difference in
the value relevance of earnings management and earnings before and after the period of
adoption of IFRS. Earnings management after the adoption of the period is lower than the
period before the adoption, and the value relevance of earnings after a period of adoption is
higher than the period before the adoption of IFRS.
Maruli (2010) analyzed the approach of fair value and historical value in the assessment of
biological assets for the company in Indonesia for 2008-2010 periode. The results showed no
significant difference in the value and the volatility of assets, revenues, profits, and income
smoothing ROA index (ISI) between agricultural companies that use the fair value approach
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
and that uses historical value approach, and The study did not found a different effect of the
volatility between the use of fair value approach and the historical value approach.
The description shows that it is still unclear whether the value relevance of accounting
information financial statements give before and after the adoption of IFRS on rise of the
stock prices. Although there is still disagreement on this research, in theory and of some
arguments that are built by previous research IFRS tends considered capable of increasing in
the value relevance of accounting information of financial statements by reducing the accrual
earnings management practices. This can be seen from the purpose of preparing the IASB
IFRS, that was based on the failure of the rule-based standards in the United States to provide
a higher quality of financial reporting. Enron is the biggest case that occurred in the United
States then become the world's attention. Given the United States is the mecca of accounting
standards, the standards of the accounting profession and the world capital markets, they are
not able to maintain the quality of the financial reporting standards that they have (the
Statement of Financial Accounting Standards / SFAS) compiled by the Financial Accounting
Standards Board (FASB).
RESEARCH METHODS
A. Operationalization of Variables
Using the share price data of total of 23 banking companies listed in Indonesia Stock
Exchange (IDX) for the period of January 2007 up to 2012, as proxy of the value relevance to
the financial information of the financial statement, the study test whether the accounting
information of the financial statement ( the book value, earning per share, and the operation
of the company) have a value relevance to the stock price (value of the firm).
Factors that affect the stock price is the book value of the company, earnings per share when
earned income, the level of risk of earnings projections, the proportion of corporate debt to
equity, cash from operating activities, as well as the dividend policy. Other factors that may
affect the stock price movements are external constraints are such economic activities in
general, changes in financial reporting standards, taxes and the state of the stock market.
Stock prices in this study measured by closing price on the day (or after) the financial
statements published each period. The closing price for the period after the price reflects the
company's financial statements have been published. Anggriyani (2011) found that the
performance of the banks that have adopted IFRS better than that have not adopted IFRS
based on the stock price, earnings per share and market capitalization. This is because IFRS
is a high-quality accounting standards for reporting and accounting framework based on
principles that include a strong professional assessment with a clear and transparent
disclosure of the economic substance of the transaction, the explanation to reach certain
conclusions, and accounting related to the transaction. So that users of financial statements
can easily compare the entity's financial information between countries in different parts of
the world.
The predictor variables are:
a. Book value
Book value is proxied of equity book value of net assets (total stockholders' equity) owned by
shareholders per share. The equity book value per share is total equity divided by the number
of
shares
outstanding.
b. Net Income
Net Income is proxied of the value of net income to the number of shares or income earned in
one period for each share outstanding. Income per share is one of the factors that affect stock
price fluctuations. The higher net income / share is generated, the higher the price of the stock
will increase. Having regard to the growth of net income / share, it can be seen in the
company's growth prospects for the future. Barth et al., (2008) found that the net income /
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
share which is positively related to the share price in accordance with the theory that there is
a relationship between changes in income with the changes stock price.
c. Operating Cash Flow
Operating Cash Flow is proxied by the value of operating cash flow in the log. Definition
from operating activities in accordance with SFAS No. 2 are the principal revenue-producing
activities of the company and other activities that are not investing activities rather than
financing activities. SFAS No. 2 states that the amount of cash flows arising from operating
activities is an indicator that determines whether the operation of the company can generate
sufficient cash flows to repay loans, maintain the operating capability of the company, pay
dividends and make new investments without relying on funding sources of the main income
earning
activity
of
the
company.
Using 23 of 33 banking companies listed in Indonesia Stock Exchange (IDX) data for the
period of last six years (2007-2012) prior to the study of which influence the value relevance
of accounting financial statements before and after the adoption of IFRS on stock prices in
the Indonesia Stock Exchange. Secondary data from the annual reports, financial statements
and stock prices were obtained from the official website of the Stock Exchange Indonesia
http // www. Idx.co.id, a data base of capital markets Capital Market Information Center
(PIPM) Faculty of Economics UNTAR Jakarta and the official web site of the company.
The data were analyzed by simple and multiple linear regression for the period before and
after the adoption of IFRS.
1. Research Model
a. Before IFRS adoption period (for the 2007 -2009 period)
Y1 = βo11 + β11X1 + εi1
Y1 = βo12 + β21X2 + εi1
Y1 = βo13 + β31X3 + εi1
Y1 = βo1 + β1X1 + β2X2 + β3X3 + εi1
Which are:
Y1 = Stock Prices
βo1- βo13 = Constant
β1-β3, β11-β31 = Coefficient of regression
X1 = Book value
X2 = Net income
X3 = Operating cash flow
εi1 = error
b. After IFRS adoption period (for the 2010-2012 period)
Y2 = βo21 + β12X1 + εi2
Y2 = βo22 + β22X2 + εi2
Y2 = βo23 + β32X3 + εi2
Y2 = βo2 + β13X1 + β23X2 + β33X3 + εi2
Which are:
Y2 = Stock Prices.
βo2- β23 = Constant
β13-β33, β12-β32 = Coefficient of Regression
X1 = Book value
X2 = Net income
X3 = Operating cash flow
εi2 = error
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
The difference value relevance of accounting information of the financial statements will be
tested by using the data of the sample financial statements and the stock prices of the firms
(consistently over 4 years) in order to control factors that may affect the characteristics of the
company's internal validity of the study results.
Based on the adjusted R square from the model of the book value, the net income and, the
operating cash flow to the stock price on both period, the impact of the book value, the net
income, and the operating cash flow be investigated by single and multiple regression
analysis, in order to have empirical evidence on the impact of the IFRS to the quality of the
accounting information of the financial statements on the stock price.
RESULT AND DISCUSSION
Before the adoption of the IFRS
Based on Table 4.1, the descriptive Statistics Before the adoption of the IFRS period there
were found:
a. The minimum value of the banking company's stock price before the adoption of the
IFRS period was Rp 50.- with the maximum of Rp 6,900. - and the average value of
Rp 1,244.-. The varies value of the banking company's stock price before the adoption
of the IFRS giving information that banking sector in the IDX vary in size and value,
from low, moderate to higher valuable banking company stocks during the crisis
period 2007-2009, before adoption of the IFRS. This may conclude that banking
sector in the IDX needs a quality report. Since they are vary in value, investors have
to have a better look to the report and use more method in order to careful and
appropriate value the stock prices.
b. The minimum banking company’s book value before the adoption of IFRS was
Rp.84.- with the maximum of Rp 2,273.- and the average value of Rp 669.- The varies
value of the banking company's book value before the adoption of IFRS period giving
information that banking sector in the IDX vary in size and value, from low, moderate
to higher valuable banking company’s book value during the crisis period 2007-2009,
before the adoption of IFRS. Since the book value of the bank industry in the IDX
were below the market value, moreover there were zero net income, and negative cash
flow, the quality of the book value report need best inform the value of the bank.
c. The minimum banking company’s net income before the adoption of IFRS was Rp 0,
- with the maximum of Rp 609.- and the average of Rp. 96.- The moderate varies
value of the banking company's net income before the adoption of IFRS period giving
information that banking sector in the IDX was moderate, and vary in net income.
There were from low to moderate banking company’s net income during the crisis
period 2007-2009, before the adoption of IFRS. Since there were zero net income of
the bank industry in the IDX, the investors need to know what exact book value the
bank has, as an alternate method of valuing the stock price. The quality of the report
of the bank industry in the IDX should best inform the book value of the bank.
d. The minimum banking company’s operating cash flow before the adoption of IFRS
period was Rp -7.27 with the maximum of Rp 7.38 and the average value of Rp. -.62
The operating cash flow of the banking company was not vary before the adoption of
IFRS period giving information that banking sector in the IDX was not vary in
operating cash flow during the crisis period 2007-2009, before adoption of IFRS.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Since there were negative cash flow of the bank industry in the IDX, the quality of the
report of the bank industry in the IDX should best inform the book value of the bank.
Table 4.1
Descriptive Statistics of The Stock Prices, The Book Value, The Net Income, and The
Operating Cash Flow Before the Adoption of The IFRS (Period 2007-2009)
N
Stock Price
BV
NI
O.CF
Minimum Maximum
Mean
Deviation
Std.
69
50.0
6900.0
1244.159
1504.7078
69
84.0
2273.0
669.174
626.3252
69
.0
609.0
96.623
136.4255
69 -7.2709208 7.3799620 -.618604339 5.779524484
2
69
Valid N (list
wise)
Source: Data processed by SPSS
The relevant value of the accounting information of the financial statement to the stock price
model ( Table 4.2) :
Y1 = βo + β1X1 + β2X2 + β3X3 + εi
Y1 = 34.686 + 1.240X1 + 3.868X2 – 9.895X3 + εi
a. The constant value of 34.686 state that other factors quite enough predicted the stock
price of the bank industry especially for the stock with minimum stock price. The relevant
accounting information value of the financial statement do impact the stock price of the
stock with minimum stock price but there were some factors predict bigger the stock
price. The investors need more information in order to value the stock for the period
2007-2009, before the adoption of the IFRS.
b. The predicted stock prices are contributed by 1.240 times of the Book Value for the period
2007-2009, before the adoption of the IFRS.
c. The predicted stock prices are contributed by 3.868 times of the Net Income for the period
2007-2009, before the adoption of the IFRS.
d. The predicted stock prices are negatively contributed by 9.895 times of the Operating
cash flow.
Table 4.2
The Relevant Value Of The Accounting Information Of The Financial Statement
To The Stock Price Model before the adoption of the IFRS (period 2007-2009)
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Variable
Reg. coef.
(Constant)
34.686
t Stat
Sig-t
Hypotheses test
BV
1.240
3.244
0.081
Ho accepted
NI
3.868
2.204
0.002
Ho not accepted
O.CF
-9.895
-0.576
0.567
Ho accepted
F Statistic
55.089
Sig F
0.000a
Adj R Square
Ho not accepted
0.705
Dependent Variable : Stock Price
5% error (α= 0.05)
Source: Data process by SPSS
The relevance value of accounting information, especially financial statements (book value,
net income, and operating cash flow) significantly influence on the stock prices, before the
adoption of the IFRS. The IDX is efficiently in weak form react to the bank accounting
information through the changing in the stock prices. The quality of the relevant accounting
information value was quite good, since the stock prices were significantly influenced by the
information given by the financial statements. The investors are still using the financial
statements in order to value the stock prices of the bank listed in the IDX at the time the
financial statements were published.. They value the stock price by the current finance
position of the bank. Moreover the model is quite good fit with 70.5% of adjusted R square.
The net income of the banks positively significant influence on the stock prices, but their
book value positively not significant influence on the stock prices. Before the adoption of the
IFRS the in vestor do not use the book value in order to value banking firm stocks, since the
book value were historical cost value. Though some of the net income of the bank were zero
and negative, the investor did not value the stock prices by the book value of the bank. They
used some other factors in order to value the stock prices. The accounting information then
were not relevant anymore in giving the effective quality report.
The operating cash flow of the listed bank in the IDX negatively not significant influence on
the stock prices. The investors in the period were not buy the stock of the bank based on the
operating cash flow of the bank, since some of the bank’s cash flow were negative.
Table 4.3
The Model Summary of The Before Adoption of The IFRS
Model Summaryb
Model
Adjusted
R Std. Error of DurbinR
R Square Square
the Estimate
Watson
dimension0 1
.847a
.718
.705
817.6920
1.038
a. Predictors: (Constant), O.CF, BV, NI
b. Dependent Variable: Stock Price
The Adjusted R Square of the model (before the adoption of IFRS) was .705 (Table 4.3).
There were 29.5% of the stock prices affected by other factors than book value, net income
and operating cash flow information. Literature mention that the firm size and leverage,
investor protection, the organization of the laws, insider trading, and other economic factors (
Jarne Carlo, 2010), and on top of that ROA and income smoothing index (ISI) ( Maruli,
2010) can affect the stock price
After the adoption of the IFRS
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Based on Table 4.4, the descriptive Statistics Before the adoption of the IFRS period there
were found:
a. The minimum value of the banking company's stock price after the adoption of IFRS
period was Rp 91.- with the maximum of Rp 11,400.- and the average value of Rp
2,184.90.-. The varies value of the banking company's stock price after the adoption
of the IFRS period giving information that banking sector in the IDX still vary in size
and value, from low, moderate to higher valuable banking company stocks during the
period 2010-2012, after the adoption of the IFRS. This may conclude that banking
sector in the IDX needs a quality report. Since they are vary in value, investors have
to have a better look to the report and use more method in order to careful and
appropriate value the stock prices.
b. The minimum banking company’s book value after the adoption of the IFRS period
was Rp.82.- with the maximum of Rp 4,627.- and the average value of Rp 936.64.The varies value of the banking company's book value after the adoption of the IFRS
period giving information that banking sector in the IDX still vary in size and value,
from low, moderate to higher valuable banking company’s book value during the
period 2010-2012, after the adoption of the IFRS. Since the book value of the bank
industry in the IDX were below the market value, moreover there were negative net
income and cash flow, the quality of the book value report need best inform the value
of the bank.
c. The minimum banking company’s net income after the adoption of IFRS was Rp -8.0
with the maximum of Rp 956.- and the average of Rp. 162.61 The moderate varies
value of the banking company's net income after the adoption of the IFRS period
giving information that banking sector in the IDX was moderate, and vary in net
income. There were from negative to positive Rp. 956 the banking company’s net
income during the period 2010-2012, after the adoption of IFRS. Since there were
negative net income of the bank industry in the IDX, the investors need to know what
exact book value the bank has, as an alternate method of valuing the stock price. The
quality of the report of the bank industry in the IDX should best inform the book
value of the bank.
d. The minimum banking company’s operating cash flow after the adoption of the IFRS
period was Rp -7.57 with the maximum of Rp 7.67 and the average value of Rp. 1.31.
The operating cash flow of the banking company was not vary after the adoption of
the IFRS period giving information that banking sector in the IDX was not vary in
operating cash flow during the period 2010-2012, after the adoption of the IFRS.
Since there were negative cash flow of the bank industry in the IDX, the quality of the
report of the bank industry in the IDX should best inform the book value of the bank.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Table 4.4
Descriptive Statistics of The Stock Prices, The Book Value, The Net Income, and The
Operating Cash Flow After the Adoption of The IFRS (Period 2010-2012)
N
Minimum
Maximum
Mean
Stock Price
69
91.0
11400.0
2184.899
BV
69
82.0
4267.0
936.638
NI
69
-8.0
956.0
162.609
O.CF
69
-7.5708760 7.6676180 1.311961064
Valid N (list
69
wise)
Source: Data processed by SPSS
Deviation Std.
2749.9732
946.4518
217.5190
6.0550262868
The relevant value of the accounting information of the financial statement to the stock price
model ( Table 4.5) :
Y2 = βo2 + β12X1 + β22X2 + β32X3 + εi
Y2 = 92.912 + .878X1 + 7.829X2 – 2.549X3 + εi
1. The constant value of 92.912 state that other factors than accounting information quite
enough predicted the stock price of the bank industry especially for the stock with
minimum stock price. The relevant accounting information value of the financial
statement do small impact in predicting the stock price of the stock with minimum stock
price and there were some factors predict bigger the stock price. The investors need more
information in order to value the stock for the period 2010-2012,after the adoption of the
IFRS.
2. The predicted stock prices are contributed by .878 times of the Book Value for the period
2010-2012.
3. The predicted stock prices are contributed by 7.829 times of the Net Income for the period
2010-2012.
4. The predicted stock prices are negatively contributed by 2.549 times of the Operating
cash flow for the period 2010-2012, after the adoption of the IFRS.
Table 4.5
The Relevant Value Of The Accounting Information Of The Financial Statement To
The Stock Price Model
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Variable
Reg. coef.
(Constant)
92.912
t Stat
Sig-t
Hypotheses test
BV
0.878
2.161
0.001
Ho not accepted
NI
7.829
4.406
0.074
Ho Accepted
O.CF
-2.549
-0.105
0.567
Ho Accepted
F Statistic
98.75
Sig F
0.000a
Adj R Square
Ho not Accepted
0.812
Dependent Variable : Stock Price
5% error (α= 0.05)
Source: Data process by SPSS
After the adoption of the IFRS, the relevant value of the accounting information of the
financial statements (book value, net income, and book value) significantly influence on the
stock prices of the bank listed in the IDX. As happened before the adoption of the IFRS the
stock prices of the bank listed in The IDX were affected by the accounting information. But
what interesting happened in the IDX after the adoption of the IFRS, when the investor buy
the stock they value the stock significantly based on the book value. The book value of the
bank has been the fair value since the adoption the IFRS, and the investors used that quality
report in order to value the stocks.
The net income positively not significant influence on the stock prices and the operating cash
flow negatively not significant influence on the stock prices. The investors not significantly
based their stock prices decision on the net income and operating cash flow, since the net
income and the operating cash flow were negative.
Table 4.8
The Model Summary Of The After Adoption of The IFRS
Model Summaryb
Model
R
dimension0 1
.906
a
R Square
Adjusted
Square
.820
.812
R Std. Error of Durbinthe Estimate
Watson
1193.1050
1.231
a. Predictors: (Constant), O.CF, BV, NI
b. Dependent Variable: Stock Price
The Adjusted R Square of the after the adoption of the IFRS model was .812 , better than the
adjusted R Square prior to the adoption of the IFRS. The Adjusted R Square of the model
increase by 10% after the adoption of the IFRS from .705 to .812 . This proof that the
relevance of accounting information value of financial statements particularly (Book value,
net income, and operating cash flow) influence on the stock prices bigger in the period after
the adoption of IFRS than before.
The relevance of accounting information value of financial statements particularly (Book
value, net income, and operating cash flow) influence on stock prices bigger in the period
after the adoption of IFRS than before.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
1. The Effect of The Relevance of Accounting Information Value of The Financial
Statements (Book Value, Net Income, Operating Cash Flow) on the Share Price.
The investors are looking for an appropriate assessment method on valuing the
performance of the management in running the company. Investors' assessment of the
value relevance of financial statement information is inseparable from the existence of
information asymmetry between the principal and the agent. The value relevance of
accounting information in the financial statements is based on the ability of the value
accounting numbers summarize the information underlying the stock price, so the value
relevance indicated with a statistical relationship between accounting or the financial
information and the stock prices or returns. In-depth explanation can be seen from the
direction of movement of the Adjusted R Square showed for the period after the adoption
of IFRS. The adjusted R increased by 10.70% from .705 for the model of the period
before the adoption of IFRS to .812 for the period after the adoption of the IFRS. While
the direction of the movement of the Adjusted R Square for the period of 2007-2008,
2009-2010, and 2011-2012 also increased.
The Adjusted R Square All (book value, net income, and operating cash flow on the stock
prices) in Figure 4.1 were increasing from the first period (2007-2008) 70.9% to 76.3% in
the the second period (2009-2010) to 86.7% in the third period (2011-2012). The
influence of the book value, net income, and operating cash flow on the stock prices
increased after the adoption of the IFRS. It showed that the quality of the accounting
information were increasing. These results contrast with what the Van der Meulen (2007)
did. He states that the preparation of standards by the IASB has not been through the
good due process. In addition, the enforcement of the IFRS is not as restrictive as of the
US GAAP. So that the IASB accounting standards just drafted the general nature and lack
of detail, it is different from the rule-based standards that detailed in the rules of
disclosure. In contrast to Van der Meulen (2007), the results of the study are consistent
with Barth et al., (2008) which states that a principles-based IFRS standards could further
enhance the value relevance of accounting information. This is due to the fair value
measurement could describe the company's position and the economic performance. So
that it could assist the investors in making investment decisions. In addition there are also
researchers from Indonesia, Rahmellia (2009) and Hutagaol (2010) their results also
showed a significant difference in the value relevance of earnings management and
earnings before and after the period of the adoption of IFRS. Earnings management after
the adoption of the period is lower than the period before the adoption, and the value
relevance of earnings after a period of adoption is higher than the period before the
adoption of IFRS. The results of Gebhardt and Farkas (2011) stated that the performance
of the banks that have adopted IFRS better than that have not adopted IFRS in explaining
stock price by using, earnings per share and market capitalization. This is because the
IFRS is a high-quality accounting standards for reporting and accounting framework
based on the principles that include a strong professional assessment with a clear and
transparent disclosure of the economic substance of the transaction, the explanation to
reach certain conclusions, and accounting related to the transaction. So that investors can
easily read and analyze the financial statements, and the information obtained by the
investor is a quality information that could not mislead the subsequent investors in
making decisions on the information that investors get.
Figure 4.1
Adjusted R Square All Graph
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
2. The Effect of Information Value Relevance of Financial Statements (Book Value) on
the
Share
Price.
Based on the results of the tests the book value influence on the stock price after the
period of the adoption of IFRS. The direction of movement of Adjusted R Square of the
book value on the stock prices for the periods 2007-2008, 2009-2010, and 2011-2012
were increasing.
The Adjusted R Square of Book Value on the stock prices were 68.1 % in the first period
(2007-2008) 75.6% in the second period (2009-2010) , and 77.1% in the third period
(2011-2012). The Adjusted R Square of Book Value on the stock prices were increasing
from 68.1%, to 75.6%, to 77.1%. The investors have already noticed that the book value
of the company, the financial statements of accounting information is used to assess the
company's stock price. Book value that is currently the focus on investors' assessment of
the company due to the adoption of new financial reporting standards that are more
stressed IFRS reporting focuses on fair value hedge on increasing the value relevance of
book value information. These results are consistent with the Hung and Subramanyan
(2007) that examined the effects of the adoption of the SAI to the financial statements of
companies in Germany. The results of the study provide evidence that the relevance of
book value of equity is higher on IAS than that applying German accounting standard.
Figure 4.2
The Adjusted R Square Of The Book Value On The Stock Prices.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
3. Effect of Information Value Relevance of Financial Statements (Net Income) on
Share
Price.
Based on the results of the tests the net income does not give effect to the stock price for
the period after the adoption of IFRS. The direction of movement of Adjusted R Square
for the periods 2007-2008, 2009-2010, and 2011-2012 were decreasing.
Figure 4.2
The Adjusted R Square Of The Book Value On The Stock Prices
The Adjusted R Square of Net Income on the stock price were 87.3% in the first period
(2007-2008), 70.1% in the second period (2009-2010), to 66.2% in the third period
(2011-2012). The Adjusted R Square of the net income on the stock price were
decreasing, the investors gradually decrease in using the net income to value the stock
price. The investors has reduced its focus attention on the value of the company's net
income, due to the financial statements of accounting information is often used for
activities of management earnings due to the asymmetry of information. This indicates
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
that the investors are no longer overconfidence on the value relevance of net income
reported by the agent on the financial statements since the agent could do the earnings
management practices in order to get the bonus that based on a certain level of net
income. These results are consistent with the results of Hung and Subramanyan (2007)
that examined the effects of the adoption of the SAI to the financial statements of
companies in Germany. The results of the study provide evidence that the relevance of
net income has no significant differences in income than that are based on the
International Accounting Standards and Accounting Standards Germany.
4.The Effect of Information Value Relevance of Financial Statements (Operating Cash
Flow) on Share Price.
Based on the results of the tests the operating cash flow does not give effect to the stock
price of both the period before the adoption of IFRS and the period after the adoption of
IFRS. The direction of movement of Adjusted R Square for the periods 2007-2008, 20092010, and 2011-2012 had not reached a significant influence on the share price.
Figure 4.3
The Adjusted R Square Of The Operating Cash Flow On The Stock Prices
The Adjusted R Square of the operating cash flow on the share price were -1.9 in the first
period (2007-2008), -2.3 in the second period (2009-2010), and - .6 in the third period
(2011-2012). The Adjusted R Square of the operating cash flow on the stock price
increased to -0.6%. The investors are starting to pay attention to the value of operating
cash flow of the company, but investors are more on net income in the period before the
adoption of IFRS and on the book value during the period after the adoption of IFRS.
These results differ from the results of Triyono and Jogiyanto (2000) that the unexpected
cash inflow and cash outflow from operating activities during the period will affect stock
prices through its effect on cash flow. While the results of the study are consistent with
the results of Indra and Fazli (2004) that the cash flow data outside the accounting profit
just provide weak support for investors.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
REFERENCES
Agoglia, C.P., T.S. Doupnik, and G.T Tsakumis. 2011. Principles-based versus rules-based
accounting standards: The influence of standard precision and audit committee
strength on financial reporting decisions. The Accounting Review.
Alali, F.A., and Foote, P.S. 2012. The Value Relevance Of International Financial Reporting
Standards: Empirical Evidence in an Emerging Market. The International Journal of
Accounting.
Anggrayani, D. P., P. Rukmi., S.R. Handayani., T. Oswari. 2011. Analisis Kinerja Perbankan
yang Mengadopsi IFRS Berdasarkan Harga Saham, Laba Per Saham dan
Kapitalisasi Pasar. Media Akuntansi, Jakarta.
Aussenegg, W., Petra Inwinkl, and Georg Schneider. 2009. Earnings Management and
Accounting Standards in Europe. Proceedings of the 2009 MFA Annual Meeting.
Badshaw and Miller. 2007. Have Financial Statements Lost Their Relevance?. Journal
Accounting Research.
Ball, R. 2006. Internasional Financial Reporting Standards (IFRS): Pros and cons
forinvestors. Accounting & Business Research, International Accounting Policy
Forum.
Ball, R., A. Robin, and J.S Wu, 2003. Incentives versus Standards: Properties of Accounting
in Four East Asian Countries. Journal of Accounting and Economics.
Barth, M.E., W.R. Landsman, and M.H. Lang. 2008. International Accounting Standards and
Accounting Quality. Journal of Accounting Research.
Bartov, E., Goldberg, S. and Kim, M. 2005. Comparative Value Relevance Among German,
U.S. and International Accounting Standards: A German Stock Market Perspective.
Journal of Accounting.
Capkun, V., Daniel W. Collins and Thomas Jeanjean. 2011. Does Adoption of IAS/IFRS
Deter Earnings Management. Finance Working Paper.
Carlo, S., dan Jarne, J. 2010. Have IFRS Affected Earnings Management in The European
Union?. Journal of Accounting in Europe Vol. 7.
Choi and Meek. 2005. International Accounting, Edisi 5. Journal of Accounting.
Choi, F., D.S.Frost, Carol A. and Meek, Gary K. 1999. International Accounting. Prentice
Hall, Upper Saddle River, NY.
Christensen, H.B., M. Walker, and E. Lee. 2008. Incentives or Standards: What Determines
Accounting Quality Changes Around IFRS Adoption?. Working Paper.
Daske, H., L. Hail, C. Leuz, and R. Verdi. 2008. Mandatory IFRS Reporting around the
World: Early Evidence on the Economic Consequences. Journal of Accounting
Research.
Djankov. 2008. Pengaruh Konservatisme Laporan Keuangan Terhadap Earnings Response
Coefficient. Jurnal Riset Akuntansi Indonesia.
Francis, J. and Schipper, K. 1999. Have Financial Statements Lost Their Relevance. Journal
of Accounting Research.
Gebhardt, and Farkas. 2011. Macroeconomic Influences On The Stock Market. Journal of
Economics and Finance.
Ghozali. 2001. Aplikasi Analisis Multivariate dengan Program SPSS, Badan Penerbit
Universitas Diponegoro, Semarang.
Hung, M., and K. Subramanyam. 2007. Financial Statement Effects of Adopting International
Accounting Standards: the case of Germany. Review of Accounting Studies.
Hutagaol, A. 2010. Hubungan Pengadopsian IFRS dengan Kualitas Laba Akuntansi.
Universitas Gadjah Mada.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Indra, and Fazli, 2004. Hubungan Laba Akuntansi, Nilai Buku, Dan Total Arus Kas Dengan
Market Value : Studi Akuntansi Relevansi Nilai, Simposium Nasional Akuntansi VII,
2-3 Desember 2004.
Karamanou. I, and Nishiotis. G.P. 2009. Disclosure and the Cost of Capital: Evidence from
the Market's Reaction to Firm Voluntary Adoption of IAS. Jurnal of Business Finance
& Accounting.
Karampinis, N., and Hevas, D. 2011. Mandating IFRS in an Unfavorable Environment: The
Greek Experience. The International Journal of Accounting.
Kusuma, I.W. 2007. Pengadopsian International Financial Reporting Standards: Implikasi
untuk Indonesia. Universitas Gadjah Mada.
Liu, J., & Liu, C. 2007. Value Relevance Of Accounting Information In Different Stock
Market Segments: The Case of Chinese A-,B- and H-shares. Journal of International
Accounting Research.
Maruli. 2010. Problematika Konvergensi Standar Akuntansi. Media Akuntansi, Jakarta
Natawidyana. 2008. IFRS Hanya untuk Cross Border Listing. Media Akuntansi, Jakarta.
Pacter, P. 2005. What exactly is convergence?. International Journal Accounting, Auditing
and Performance Evaluation.
Paglietti. 2009. Costs of Equity and Earnings Attributes. The Accounting Review.
Pandji, and Piji. 2003. Analisa Harga Saham. Media Akuntansi, Jakarta.
Pinasti, M., 2004. Faktor – Faktor Yang Menjelaskan Variasi Relevansi – Nilai Informasi
Akuntansi : Pengujian Hipotesis Informasi Alternatif. Simposium Nasional Akuntansi
VII, 2-3 Desember 2004.
Prastowo, D. & Rifka. 2002. Analisa Harga Saham. Media Akuntansi, Jakarta.
Rahmellia, A.S. 2009. Earnings Management dan Nilai Relevansi Laba sebelum dan setelah
Pengadopsian IFRS. Universitas Gadjah Mada.
Roberts, D.A., A. Dey, and T.Z. Lys. 2005. Incentives or Standards: What Determines
Accounting Quality Changes Around IFRS Adoption?. Financial Accounting and
Reporting Section (FARS) Paper.
Santoso, S. 2001. Statistik Parametrik dan Nonparametrik, Konsep dan Aplikasi dengan
SPSS. PT. Elex Media Komputindo, Jakarta.
Santoso, S. 2002. Buku Latihan SPSS Statistik Parametrik, (ed 3). PT. Elex Media
Komputindo, Jakarta.
Santoso, S. 2008. Statistik Parametrik dan Nonparametrik, Konsep dan Aplikasi dengan
SPSS, (ed 5). PT. Elex Media Komputindo, Jakarta.
Schipper, K. 1989. Commentary on earnings managements. Accounting Horizons.
Scott, W.R. 2009. Financial Accounting Theory. Fifth Edition. Canada Prentice Hall.
Siregar, and Utama. 2008. The Impact of Mandatory IFRS Adoption on Foreign Mutual Fund
Ownership: The Role of Comparability. Jurnal of Accounting and Economics.
Suharli, and Rachpriliani. 2006. Studi Empiris Faktor yang Berpengaruh Terhadap
Ketepatan Waktu Pelaporan Keuangan. Jurnal Bisnis dan Akuntasi.
Triyono, and Jogiyanto. 2008. Akuntansi Perbankan Transaksi dalam Valuta Rupiah edisi
ketiga.Yogyakarta.
Van der Meulen, S., Gaeremynck, A., and Willekens, M. 2007. Attribute Difference Between
US GAAP and IFRS Earnings: An exploratory studdy. The International Journal of
Accounting.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
THE INFLUENCE OF LIQUIDITY, CAPITAL STRUCTURE,
PROFITABILITY AND CASH FLOWS ON THE
COMPANY’S FINANCIAL DISTRESS
MUHAMMAD REZA FAHLEVI
KAP Osman Bing Satrio dan Eny,
Member of Deloitte Touche Tohmatsu Limited, Indonesia.
[email protected]
AAN MARLINAH
Trisakti School of Management
[email protected]
The Research Background
Europe's economic crisis in 2008 has a comprehensive impact to various sectors until
now. This crisis has globalized to other countries outside the European Union, many
countries are also feeling the significant impact. In Indonesia, the impact is not directly
suffered. The indirect impacts felt through China since China is the largest importer of
Indonesia. Nowadays, the countries around the world are still continuing to improve themself
to recover from the crisis.
The declining confidence level of investment can be seen from the decline in JCI
(Jakarta Composite Index) when the crisis occurs, of positions 2,971 to 2,514. The
Indonesian capital market is depended with foreign investment, thus the global issue will
probably attack economic condition in Indonesia. Likewise, the Indonesian manufacturing
sector has been affected by such condition, considering that the manufacturing sector has a
large portion in the formation of JCI value. This is also reflected from the threat of non-oil
trade deficit, when import is rising day to day and export performance is slacking.
Consequently, the inflation price of raw material due to rupiah weakened is inevitable, from
around 9,300 at the beginning of January and ended around 11,500 at the end of December
2008. This situation is getting worse until 2015 when the foreign exchange hits 13,000 for the
first time in history.
Therefore, it is important for all sectors, especially manufacturing companies, to evaluate
their survival rate at the time of crisis and years after the crisis. The declining profit and
performance suffered by the companies are irresistible results. This issue should be dealt
seriously by stakeholders. Companies that are not able to improve their performance will
experience financial distress and eventually goes to bankruptcy (Hapsari, 2012).
Financial distress can happen either by external factors or internal factors. External
factors, such as global economic crisis, is a major aspect beyond company’s control. Whereas
internal factors such as poor management, unwise business expansion, fierce competition,
high debt financing, and unfavorable contracts are aspects under company’s control (Emery
et al., 2007 in Juniarti, 2013). Accordingly, both internal and external factors will bring out
deterioration in company’s operation.
There are many notions related to financial distress, but financial distress can be
generally stated as unhealthy phased facing by the company. A healthy company should not
have any problems with its activities, especially financial problems. Financial distress can
begin from liquidity problem (short-term) which is the lightest level of financial difficulties,
up to the declaration of bankruptcy which is the most severe difficulties. So that financial
distress can be seen as a long continuum rather than temporary problem (Saleh and Sudiyanto
2013).
Financial distress can be seen as a phase just before the bankruptcy and occur when
the company bears net loss from year to year (Hapsari, 2012). Symptoms of financial distress
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
can begin integrally when there is early impairment of revenue for more than 20%,
deterioration when profit decreased more than 20%, and finally cash flow problem when
operating cash flow becomes negative (Pranowo, 2010). Furthermore, based on Brahmana
(2007) in Hidayat and Meiranto (2014), a company can be categorized into financial distress
condition if has negative operating profit, negative net income, negative book value of equity,
and exercise merger. Therefore, to determine whether a company in the condition of financial
distress or not, it is quite difficult to judge from one perspective. For instance, financial
distress is multidimensional problem and complicated situation.
Financial distress has become a topic that continues to be studied through years. Many
models have been developed to analyze the condition of financial distress. The popular
multivariate model (discriminant analysis) had been developed by Altman (1968). This model
is widely known as Altman Z-score model. Under this method, sets of required financial ratio
is collected to obtain the prediction model. After prediction model is obtained, it is becoming
easy to determine the condition of a company. If the value of Z-score falls under 1.81, then
the company is classified into the distress zone. If the value of Z-score falls over 2.99, then
the company is classified into safe zone. Whereas the value of Z-score falls between 1.81 and
2.99, then the company is classified into grey zone. Altman had discovered several financial
ratios which can be used as indicators of bankruptcy prediction in his model, the ratios are:
working capital to total assets, retained earnings to total assets, earnings before interest and
taxes to total assets, market value of equity to book value of total debt, and sales to total
assets.
Other popular multivariate model is logit model or binary logistic model. This model uses
predictor variable to determine any influence against dependent variable. Based on Kasgari et
al. (2013), logit model is the development of multiple regression in dependent variable where
variables are not linked. Logit model is probable logarithm where the financial distress or
non-financial distress events may happen. The result of logistic regression is the possibility if
predictor variable changes, does it affect the change of dependent variable or not. Ohlson
(1980) had developed this model by using nine independent variables, namely size of
company, total liabilities to total assets, working capital to total assets, current liabilities to
total assets, net income to total assets, operating cash flow to total liabilities, changes in net
income, and two dummy variables.
Although many predictions model have been developed year to year, the main
purpose is to recover the company’s condition immediately. The ultimate benefit in analyzing
company’s financial distress is to take corrective actions to restore company’s going concern.
The early warning system must be developed to identify and restore the company’s condition
(Almilia, 2006). In addition, early warning system facilitates stakeholders to make quick
responses to reduce the cost of bankruptcy (Endri, 2009). The other potential useful of
bankruptcy prediction, besides internal business consideration or credit evaluation, is to
screen out undesirable investment (Altman, 1968).
Hypothesis Development
Analysis of liquidity can be carried out to see the company's ability to survive in the
short term period. Liquidity is the ability to convert assets into cash or to obtain cash to meet
current liabilities (Subramanyam and Wild, 2009, 528). Financial distress is used to reflect
the existence of these liquidity problems. Based on Hapsari (2012), financial distress is a
severe liquidity problem and company cannot solve it, but it does not require changes in
operating size or company’s structure. In other words, the liquidity problem is the initial
estimates to detect the financial distress condition. Therefore, the first hypothesis of this
research can be inferred as follows:
H1 Liquidity can influence the company’s financial distress.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Furthermore, capital structure or financial leverage is another important factor in
assessing the condition of financial distress. When a company is relying more on debtfinancing rather than shares (equity-financing), the risk of repayment difficulties will occur in
the future. This happens because the bankruptcy is usually preceded by the occurrence of
default, so that the greater the amount of debt, the higher the probability of companies
experiencing financial distress (Pasaribu, 2008). Therefore, the second hypothesis of this
research can be inferred as follows:
H2 Financial leverage can influence the company’s financial distress.
Moreover, the settlement of both current and long-term debt can be perceived by how
much profit is generated. The higher the rate of return, will cause the better signal for all
parties. The companies will have more ability to repay their obligations, while investors and
creditors are given a sense of security. Analysts often use profitability base as a reliable test
to measure effectivity of company’s operation (Weygandt et al., 2013). Thus, the profitability
of the company is the next factor which is associated with the company's financial distress.
Therefore, the third hypothesis of this research can be inferred as follows:
H3 Profitability can influence the company’s financial distress.
Finally, the last factor which contributes to detect the company’s financial distress is
cash flow. Cash flow gives a vivid description of the short-term corporate health condition.
Cash flows explain the availability of cash to repay obligations. According to Atieh (2014),
operating cash flow gives a better picture about the quality of the company's profit because it
does not involve revenues and expenses, which calculated on an accrual basis and involved
subjective assumptions. Therefore, operating cash flows has a close relationship in assessing
the condition of financial distress. Therefore, the last hypothesis of this research can be
inferred as follows:
H4 Cash flows can influence the company’s financial distress.
Based on the explanations above, we can conclude that there are four basic elements
which may cause the occurrence of financial distress. Those variables are common elements
in almost journals related to financial distress condition or bankruptcy prediction.
Previous Research
The previous research, which become a cornerstone of this research, had been
predicting financial distress by using 24 financial ratios. The study was carried out by Alkhatib and Al-Horani (2012) using a sample of firms listed on the Amman Stock Exchange
(Jordan) and taking period since 2007 to 2011. The results of this study show that the ratio of
return on assets and return on equity are influential in predicting financial distress. In
addition, this study also compared the discriminant analysis and logistic regression method.
The results suggest that both methods can be used to predict the company's financial distress.
This study is a replication of the previous study by reducing the number of
independent variables and using only single method, logistic regression. There are differences
from previous studies in the addition of two new independent variables. The two new
independent variables are cash flow ratio and operating cash margin (Atieh 2014 and
Pasaribu 2008).
Research Methods
The type of this research is causality research (causal study). The study period is from
2011 to 2013, three years of study periods. The sample is manufacturing companies listed in
Indonesia Stock Exchange since 2009 to 2013 with purposive sampling method as sample
selection technique. The criteria used in the selection of the sample are as follows:
1. The company is listed on the Indonesia Stock Exchange during the period 2009 through
2013.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
2. The financial statements are presented in Rupiah currency.
3. The financial statements have fiscal year at December 31.
The dependent variable in this research is financial distress which is dummy variable. In this
study, financial distress is measured by average earnings per share for three years, or equals
to study periods. Specifically, the companies that are experiencing financial distress if has an
average earnings per share over the last three years is under one. Whereas for a successful
company or non-financial distress if has an average earnings per share over the last three
years is greater than one (Al-khatib and Al-Horani, 2012).
According to Bodroastuti (2009) in Saleh and Sudiyanto (2013), earnings per share is
the most widely ratio used by the shareholders to assess the future prospects of the company
in comparison to other financial ratios. If the earnings per share has a tendency to decrease or
negative from year to year in the study period, it will probably reflect the company's internal
financial problems so that earnings per share is not as big as expected. Thus, average earnings
per share can be a reliable indicator to determine company’s financial distress because of
three years duration to derive this amount, since as stated before, the financial distress can be
seen as a prolonged problem rather than short-term problem (Almilia and Kristijadi, 2003).
The independent variables are encompassed into four aspects. The liquidity aspects
are represented by current ratio and working capital ratio. The capital structure aspects are
represented by debt to asset ratio and current liabilities to assets ratio. For profitability
aspects, the return on assets, return on equity, net profit margin, and the total asset turnover
are used. The last aspects of cash flows are represented by cash flow ratio and operating cash
margin. Thus, this study uses 10 independent variables and single dependent variable which
are explained in the greater detail as follows:
No.
Name
Measurement
Explanation
Dependent variable
If the value is less than
Financial Distress
1
one, the company suffers
(Average EPS)
financial distress.
Independent variables
It measures the net
Working capital
2
liquidity relatives to total
ratio
capitalization
It evaluates the level of
3
Current ratio
liquidity to meets current
liabilities.
It measures how many
debt-financing occurs in
4 Debt to assets ratio
company (financial
leverage)
It measures financial
Current liabilities
5
leverage based on short
to assets ratio
term standpoint
It measures overall
6
Return on assets
profitability relatives to
total assets.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
7
It measures profitability
based on common equity.
Return on equity
8
Net profit margin
9
Total assets
turnover
10
Cash flow ratio
11
Operating cash
margin
It indicates the net
profitability over the sales
for one operation cycle.
It indicates how much
assets can generate sales.
It measures the availability
of operating cashflow to
fulfil short term liabilities.
It measures how much net
operating cashflow can be
generated from its sales.
This research is using logistic regression as analytical method. Logistic regression and
discriminant analysis is actually similar. Both methods are used if we want to test whether the
probability of the dependent variable can be predicted by the independent variables. Logistic
regression analysis does not require the assumption of normality on the variables (Ghozali,
2013). This research also involves several sets of analytical test associated with logistic
regression method which explained later.
Analysis and Results
After the sampling process, the sum of companies that meet the criteria for the study
are 90 companies. The results of the sample selection can be seen in the following table.
No
1
Criteria
Manufacturing companies which
are listed in Indonesian Stock
Exchange from 2009 until 2013.
2 Manufacturing companies which
do not use December 31 as their
fiscal year.
3 Manufacturing companies which
do not use Rupiah as their
original currency.
Total sample selected
Sum of the
companies
116
Sum of the
data
348
(4)
(12)
(22)
(66)
90
270
Descriptive statistics table for the independent variables can be used see the number of
samples, the minimum value, maximum value, average value (mean) and standard deviation.
Descriptive statistical analysis is used to provide an overview and description of the data in
the study. Here is the presentation of the descriptive statistics result with SPSS.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Variable
Working Capital Ratio
Current Ratio
Debt to Total Asset
Current Liabilities to Total
Asset
Return on Asset
Return on Equity
Net Profit Margin
Total Asset Turnover
Cash Flow Ratio
Operating Cash Margin
Total
data
270
270
270
Minimum
Maximum
Mean
-0.7208
0.2130
0.0372
0.8133
247.4441
3.0807
0.208734
3.304404
0.523530
Standard
Deviation
0.2719778
15.07441716
0.4043972
270
0.0025
1.5486
0,336357
0,2136365
270
270
270
270
270
270
-0.7558
-7.6848
-9.3959
0.0150
-2.0369
-4,4232
0.4162
3.2463
0.8187
2.9577
82,4697
0,4635
0.060092
0.078678
-0.033303
1.113190
0.613319
0,008333
0.1216698
0.6345298
0.6819871
0.5622440
5,0321982
0,3661721
Meanwhile, to see the percentage of successful and financial
following table can be used.
No Company’s condition
2011
2012
2013
1 Financial distress
12
12
19
2 Non-financial distress
78
78
71
Total
90
90
90
distress companies, the
Total
43
227
270
Percentage
15.93%
84.07%
100%
¬2 Log Likelohood test is used to determine if the independent variable is added into
the model, does it significantly improve the model fit or not (Ghozali 2013, 341). -2 Log
Likelihood test result is shown below.
-2 Log Likelihood
Block Number: 0
236.757
Block Number: 1
69.588
Based on the table, the magnitude of the difference in -2 log likelihood value in both blocks is
167.169. The declining value that occurred from block number: 0 to block number: 1
indicates that the addition of independent variables in the model will improve the model fit.
Therefore, the logistic regression model is fit for use in further testing.
Nagelkerke R2 analysis is performed to assess the variability of the dependent variable
that can be explained by the independent variables. Nagelkerke R2 analysis results can be
seen by the following SPSS output.
Step -2 Log Likelihood Cox &Snell R Square
Nagelkerke R Square
1
69.588
0.462
0.791
2
Nagelkerke R value is amounting 0.791. This value indicates that the variation in the
dependent variable, the condition of the company's financial distress, which can be explained
by the ten independent variables is 79.1%. The remaining 20.9% is explained by other factors
that are not included in the model.
This test was conducted to test whether the regression model is according to the
observational data. In other words, this test proves that there is no difference between model
and observational data research. The result of Hosmer and Lemeshow Goodness of Fit test
can be seen by the following SPSS output.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Step
Chi-Square
Df
Sig.
1
1.575
8
0.991
Based on the above data, the Sig. amounted to 0.991. Value Sig. is greater than 0.05, which
means that the regression model is acceptable. Thus, the regression model is able for
prediction or in accordance with the value of its observations.
Test of the prediction accuracy level is made to calculate an estimate of the right and
wrong of the variables in the study. The result of the prediction accuracy level can be seen on
the following SPSS output.
Predicted
Financial Distress
NonFinancial
Financial
Percentage
Observed
Distress
Distress
Correct
Step 1 Financial
Non-Financial
220
7
96.9
distress
Distress
Financial
10
33
76.7
Distress
Overall Percentage
93.7
Based on the results of SPSS output, it can be seen that there are 43 data that are experiencing
financial distress. However, the exact prediction by the model only 33 data. The level of
classification accuracy was 76.7%. The remaining 10 data are improperly predicted by the
model. This amount is equivalent to 3.7% and referred as type 1 error.
Similarly, SPSS output result also shows that there are 227 data that are not experiencing
financial distress (successful company). However, the exact prediction by the model is only
220 data. The level of classification accuracy was 96.9%. The remaining 7 companies are
improperly predicted by the model. This amount is equivalent to 2.59% and referred to the
error type 2. Overall, the level of prediction accuracy model is amounting to 93.7%.
Coefficient significance test is conducted to test whether any impact of independent
variables to the dependent variable. In other words, this test represents decision on
acceptance or rejection of Ha. Coefficient significance test results can be seen through the
SPSS output as follows.
Variable
Coefficient (B)
Sig.
Decision
WCR
-4.727
0.064
Ha rejected
CR
0.664
0.007
Ha accepted
DTA
-1.210
0,239
Ha rejected
CLA
0.194
0.940
Ha rejected
ROA
-52.248
0.000
Ha accepted
ROE
-0.951
0.239
Ha rejected
NPM
0,170
0.943
Ha rejected
TATO
-1.671
0.141
Ha rejected
CFR
-1.984
0.007
Ha accepted
OCM
0.277
0.878
Ha rejected
Constant
-0.013
0,991
Based on the above data processing, the logistic regression equation can be formed into:
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Ln (P/1-P) = – 0.013 – 4.727 WCR + 0,664 CR – 1.210 DTA – 52.248 ROA –
0.951 ROE + 0.170 NPM – 1.671 TATO – 1.984 CFR + 0.277 OCM + e
Variable current ratio (CR) with sig. of 0.007 indicates that the current ratio has an effect to
the financial distress. This decision was taken because the sig.value is less than 0.05, so that
Ha is accepted. Positive coefficient value of 0.664 indicates that the current ratio has positive
influence to financial distress. According to the results above, the higher the value of the
current ratio indicates the higher possibility of companies will be experiencing financial
distress. This can happen when a company has much current assets rather than fixed assets.
The quality of current assets is also illiquid. Some illiquid current assets are inventories of
merchandise that is difficult to sold, trade receivables that are difficult to billed, excessive
prepaid expenses, and quickly impaired short-term investments. Therefore, not all current
assets can be converted into cash quickly and will cause the difficulty to meet the demands of
short-term creditors, in other words, the possibility of financial distress will arise if company
has much current assets (Pranowo et al., 2010).
Variable return on assets (ROA) with sig. of 0.000 indicates that the return on assets
has an effect the company's financial distress. This decision was taken because the sig. value
is less than 0.05, so that Ha is accepted. The negative coefficient of 52.248 indicates that the
return on assets has a negative effect on the company's financial distress. According to the
results above, the higher the value of return on assets indicates the lower possibility of
financial distress. This situation happens since the higher return on assets will make the
companies more efficient and effective in managing their assets (Hapsari, 2012). Decision to
spend funds into productive assets will create higher profit for the company. If the company's
management make a decision to spend their fund into non-productive assets, such as
investments in bonds when the company is expanding, it is unwise decision. Whereas, it is
wiser to spend the fund in the form of buildings, equipment, or machinery, in order to support
the development of the company expansion. Proper asset management will cause the
decreasing expense and lead the company to earn a lot of savings. This would make the lower
likelihood of financial distress.
Cash flow ratio (CFR) with sig. 0.007 indicates that the cash flow ratio has an effect
to the company's financial distress. This decision was taken because the sig. value is less than
0.05, so that Ha is accepted. The negative coefficient of 1.984 indicates that the cash flow
ratio has negative effect to the condition of financial distress. According to the results above,
the higher value of the cash flow ratio will cause the company's financial distress is getting
lower. Companies with high cash flow ratio, means that the company has earn positive
operating cash flow to meet its short-term debt. Operating cash flow is cash flow sourced
from the company's daily activities that reflects the availability of daily cash. Positive
operating cash flow reflects the excess operating cash inflow after deducting cash
disbursement. Therefore, the higher operating cash flow indicates the company's ability to
create resources to meet the demands of short-term creditors so that the possibility of
financial distress can be minimized (Atieh, 2014).
Conclusions
The results of the study showed (1) working capital ratio, debt-to-assets ratio, current
liabilities to assets ratio, return on equity, net profit margin, total asset turnover, and
operating cash margin do not significantly affect the condition of financial distress; (2)
Current ratio, return on assets, and cash flow ratio significantly affect the company's financial
distress condition. Specifically, the current ratio has the positive influence, while return on
assets and cash flow ratio have negative influence to the financial distress condition.
This study has some limitations that may affect the results. These limitations as well
as recommendations for further research are as follows (1) The sample in this study is only
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
manufacturing company listed on the Indonesia Stock Exchange, so that the results cannot be
generalized to all group companies; (2) Testing factors or independent variables only consist
of working capital ratio, current ratio, debt-to-assets ratio, current liabilities to assets ratio,
return on assets, return on equity, net profit margin, total asset turnover, cash flow ratio and
operating cash margin, so that the results would be different if the number of variable is
augmented. For further research, good corporate governance or intellectual capital can be
used as independent variable; (3) This research is only done for three years from 2011 to
2013 and using sample companies which is listed consecutively in the Indonesia Stock
Exchange during 2009 to 2013. The results will be more accurate if the study period is
extended; (4) This study is only used sample of 90 companies or 270 financial statement data.
This amount is only a small fraction of the companies listed on the Indonesia Stock
Exchange.
References:
Al-khatib, Hazem B. and Alaa Al-horani. (2012). Predicting Financial Distress of Public
Companies Listed in Amman Stock Exchange. Europian Scientific Journal, July
edition Vol. 8, No. 15, ISSN: 1857-7881.
Almilia, Luciana Spica. (2006). Prediksi Kondisi Financial Distress Perusahaan Go-Public
dengan Menggunakan Analisis Multinomial Logit. Jurnal Ekonomi dan Bisnis, Vol.
12, No.1, ISSN: 0854-9087.
Almilia, Luciana Spica and Emanuel Krsitijadi. (2003). Analisis Rasio Keuangan untuk
Memprediksi Kondisi Financial Distress Perusahaan Manufaktur yang Terdaftar di
Bursa Efek Jakarta. Jurnal Akuntansi dan Auditing Indonesia, Vol. 7, No. 2, ISSN:
1410-2420.
Atieh, Sulayman H. (2014). Liquidity Analysis Using Cash Flow Ratios as Compared to
Traditional Ratios in Pharmaceutical Sector in Jordan. International Journal of
Financial Research, Vol.5, No. 3, ISSN: 1923-4023.
Endri. (2009). Prediksi Kebangkrutan Bank untuk Menghadapi dan Mengelola Perubahan
Lingkungan Bisnis: Analisis Model Altman’s Z-Score. Perbanas Institute Repository,
Vol. 2, No. 1, ISSN: 1978-9017.
Ghozali, Imam. (2013). Aplikasi Analisis Multivariate dengan Program IBM SPSS 21 Update
PLS Regresi. Semarang: Badan Penerbit Universitas Diponegoro.
Hapsari, Evanny Indri. (2012). Kekuatan Rasio Keuangan dalam Memprediksi Kondisi
Financial Distress Perusahaan Manufaktur di BEI. Jurnal Dinamika Manajamen
Universitas Negeri Semarang, Vol. 3, No. 2: 101-109, ISSN: 2086-0668.
Hidayat, Muhammad Arif and Wahyu Meiranto. (2014). Prediksi Financial Distress
Perusahaan Manufaktur di Indonesia. Diponegoro Jurnal of Accounting, Vol. 3, No.
3: 1-11, ISSN: 2337-3806.
Juniarti. (2013). Good Corporate Governance and Predicting Financial Distress Using
Logistic and Probit Regression Model. Jurnal Akuntansi dan Keuangan, Vol. 15, No.
1: 43-50, ISSN 1411-0288.
Kasgari, Ahmad Ahmadpur, Seyyed Hasan Salehnezhad, and Fatemeh Ebadi. (2013). A
Review of Bankruptcy and its Prediction. International Journal of Academic
Research in Accounting, Finance, and Management Sciences, Vol. 3, No. 4: 274-277.
ISSN: 2308-0337.
Ohlson, James A. (1980). Financial Ratio and the Probabilistic Prediction of Bankruptcy.
Journal of Accounting Research, Vol.18, No.1: 109-131.
Pasaribu, Rowland Bismark Fernando. (2008). Penggunaan Binary Logit untuk Prediksi
Financial Distress Perusahaan yang Tercatat di Bursa Efek Jakarta. Jurnal Ekonomi,
Bisnis, dan Akuntansi Ventura, Vol. 11, No. 2: 153-172), ISSN: 1410-6418
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Pranowo, Koes, Noer Azam Achsani, and Nunung Nuryartono. (2010). Determinant of
Corporate Financial Distress in an Emerging Market Economy: Empirical from the
Indonesian Stock Exchange 2004-2008. International Research Journal and
Economics, ISSN: 1450-2887.
Saleh, Amir and Bambang Sudiyanto. (2013). Pengaruh Rasio Keuangan untuk Memprediksi
Probabilitas Kebangkrutan Pada Perusahaan Manufaktur yang Terdaftar di Bursa Efek
Indonesia. Dinamika Akuntansi, Keuangan, dan Perbankan, Vol. 2, No. 1: 82-91,
ISSN: 1979-4878
Subramanyam, K. R. and John J. Wild. (2009). Financial Statement Analysis. New York:
McGraw-Hill Companies Inc.
Weygandt, Jerry J., Paul D. Kimmel, and Donald E. Kieso. (2013). Financial Accounting
IFRS Edition.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
EFFECTIVENESS OF INTERNAL CONTROL OVER
FINANCIAL REPORTING IN INDONESIA ISLAMIC BANKING
RINI
UIN Syarif Hidayatullah Jakarta
[email protected]
Introduction
When conventional banking crash due to the global financial crisis, Islamic banks
instead experienced a significant advantage, even predicted growth will be doubled.
According to Governor of the Central Bank of Bahrain, Rasheed Mohammed Al Maraj, the
Islamic finance industry is more resistant than conventional in the face of the global financial
crisis first phase (2007-2009), because Islamic banking was not invested in harm financial
products. Singapore's Trade and Industry Minister who is also the Chairman of the Monetary
Authority of Singapore, Lim Hang Kiang in the opening of the World Islamic Banking
Conference Asia Summit in 2010, also said the Islamic banks increasingly widely accepted
and has appeal as a more ethical investment, making this industry grow twice fold compared
to conventional (Arif, 2010).
In 2013 slowdown in world economic growth. World Bank lowered its economic
growth prediction in 2013 and 2014 for the state of China and some developing countries of
East Asia. World Bank cites China's economic slowdown and falling commodity prices can
hit exports and investment in several countries including Indonesia. East Asia continues to be
the engine of economic growth, contributing for 40% of world economic growth (Rendra,
2013). Otherwise, International Monetary Fund (IMF) lowered its forecast for world
economic growth to 3.3 percent and 3.4 percent in 2013 and 2014. Senior Economist
Mandiri Securities, Aldian Taloputra said the downward trend of world economic growth
forecast this will be good but the recovery would ramp. Aldi explained until now the
European economy contraction still occurs because small countries such as Spain and Greece
are to make savings and unemployment rate in Europe was 10.9 percent (Berita Lampung,
2013). However, the growth of Islamic banking in the world, and in Indonesia in particular,
in 2013 still continues to rise. In Indonesia alone, it is indicated by an increase in the number
of bank branches by 8% compared to 2012. Meanwhile, the total assets of the Islamic
banking penetration, an increase in the number of outstanding countries: Malaysia 200%, the
United Arab Emirates and Qatar (100 %), and Indonesia 55% (Hamzah, 2014).
The rapid growth of Islamic banking requires supervision. Board commissioner in his
capacity as a supervisor at the same operating company acts as a supervisor and consider the
interests of stakeholders. To carry out its role as a supervisor, the board formed a special
committee. One of the special committee be formed board of commissioners is the audit
committee.
Elbanon (2009) reveals the effectiveness of the audit committee who is one of the
mechanisms of corporate governance is to improve the effectiveness of internal control over
financial reporting. Opinions Elbanon supported by Teamnuay and Sapleton (2009) which
divides the role of the audit committee of the role in relation to 1) the external audit; 2) the
internal audit; 3) external financial reporting; 4) other functions; 5) the quality of financial
reporting.
Bank Indonesia Deputy Governor Halim Alam in discussions on banking efficiency
award ceremony 2011 on June 22, 2011 declared a bank in Indonesia should learn from the
case of Barings Bank. Barings Bank is one of the oldest banks in London (England), but the
bank finally collapsed in 1995's due to the loss of up to $ 1.3 billion due to employees made
speculative investments in futures contracts. Barings Bank case that occurs in the absence of
equitable distribution of responsibilities, weak internal controls and a lack of supervision of
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
the top management. Cases which occurred abroad also occur in Indonesia. In Indonesia,
more or less that does not happen is the implementation of SOP and internal controls are
good. In addition, the lack of supervision of the peak or top management. Furthermore Halim
said the summit had done surveillance but not uncommon procedure of a general nature and
the simple fact is found not conducted on a regular basis (Purnomo, 2011).
Jos Luhukay, observers from the Strategic Indonesian Banking in the discussion
"Banking Crime" states that in several cases banks that occurred lately become a lesson for
the banking industry in order not to experience the same thing. Mode of banking fraud is not
only a question of fraud (fraud), but weak oversight of the bank's internal control of human
resources is also a point gap banking crimes. Internal control becomes a major problem
banks. To overcome this Bank Indonesia should set the standard operating procedure
(Dwiantika, 2011). With a strict supervision, the crime can be minimized so that the interests
of investors and customers protected (Sutaryono, 2011).
Tabel 1. The Islamic Banking Cases in Indonesia Related to Internal Control Problem
Year, Bank’s
Name
Cronological
2002, BSM & BNI Bank Syariah Mandiri (BSM) and BNI (Sharia Unit) joint in sindication
Syariah (UUS)
financing to Indosat Multimedia Mobil (IM3) project and got interest
for that financing 19% pa. Islamic Bank may not use Interest concept,
so the revenue of this financing could not be reported in to income
statement.
2011, BRI Syariah
Case of granting credit fictitious Attack BRI Syariah Rp 212 billion
involving 5 people. Deni Kurniawan demanded two years in prison and
a fine of Rp 50 million. Amir Abdullah criminal defendant sentenced to
6 years in prison. The defendant Muhammad Sugirus, sentenced to 4
years in prison. Both defendants also imposed fines amounting to Rp
150 million, a subsidiary of three months confinement. They are also
required to pay compensation of Rp 79.4 billion to be paid one month
after the verdict. Wijaya Dedih defendant sentenced to 4 years. While
Asry Ulya sentenced to 6 years in prison, together with his demands.
They are engaged in loan application engineered and without
verification, BRI disbursed Rp 212 billion.
2012, Bank Jateng
Defrauding Bank of Central Java with tekdakwa Yanuelva Etliana.
Mode is used in question is to ask tens of fictitious work orders from
several government agencies submitted that the accused, to obtain credit
in the Bank of Central Java by conventional Rp14,2 billion, and Bank
Syariah Unit Semarang Central Java Rp29 billion. The defendant also
gave money amounting to Rp250 million to the former Head of the
Regional Disaster Management Agency (BPBDs) Java Priyanto Jarot
Nugroho has also been declared as a suspect and is undergoing the same
process of the trial cases.
2013,
Bank Developer (Iyan) applying for a loan amounting to Rp1 billion to BSM
Syariah Mandiri
Bogor. Iyan and three employees of BSM Bogor then create fake
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
customers for facilities eligible for mortgage financing. They
manipulate a number of documents, such as land certificate, ID card,
and so on, and did not undergo the procedure that should be in the filed
of banking credit. Three employees of BSM Bogor also receive a gift
from the debtor Rp3-4 billion in cash, and no one received a car.
2013, BRI Syariah
Since 2010, Butet interested in the promotion of investment products
such as gold pawn sharia. According to the lawsuit, the product was in
the form of gold investment gold pawn Islamic products offered by the
loan contract funds (qardh) and leasing (ijara). The customer signed a
pledge certificate sharia (SGS) with a period of 120 days. The contract
may also be extended by making the back as from the signing of the
contract agreement deed. However, in early 2012, when et al Butet want
to extend the loan contract and lease, BRI Syariah rejected. BRI Syariah
even asked Butet et al sell gold that has been pledged by reason of a
Bank Indonesia Circular Letter No. 14/7 / DPBS on gold-backed
surveillance qardh products in Islamic banks and Islamic Business Unit.
Plaintiff surprised and shocked with this circular. Because the product
offered at the time of this pledge, BI has allowed marketing to the
public and there is a safe guarantee of BRI Syariah. Butet has
mortgaged 4.89 kg of gold, while M. Widodo 2.5 kg, 4 kg Hardianto
TL, Beautiful Sulistyawati 9137 grams, Elsje Hartini 2 kg, 5 kg
Sugiharto Robert and Selly Dull Goddess as much as 900 grams.
Plaintiff BRI Syariah judge actions that forced selling of gold as
collateral or the option to repay the loan principal is very detrimental to
the client. Butet loss reached USD 1.5 billion, while the total loss of six
other customers Rp 11.2 billion. According to him, the sale without
auction mechanism is contrary to Islamic principles and the principles
of propriety. Butet cs confirms BRI Syariah have committed acts
against the law because it does not provide true and honest about the
condition and security of goods.
Source: Compiled from some various business news from 2002 – 2013.
Director of PT Bank Rakyat Indonesia Syariah, Ventje Rahardjo, in an interview with
Business Daily Indonesia on 17 April 2011 said that Islamic banks use the momentum
embezzlement scandal to improve client internal controls. Majority of cases involved internal
parties concerned bank (Banjarnahor, 2011).
Cases - cases which demonstrate the importance of the company's internal control and
supervision does not only happen in Indonesia. In the United States due to a wave of business
failures and corporate scandals that began with Enron in 2001, the United States Congress
issued the Sarbanes-Oxley Act (SOX) in July 2002, Section 404 of SOX were issued in June
2003, requires management to assess the effectiveness of internal control over financial
reporting (ICOFR) and require independent auditors to report on management's assessment
and the effectiveness of internal control over financial reporting companies (Deloitte &
Touche LLP et al., 2004).
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Internal control over financial reporting is effective is essential for the proper
recording of transactions and preparation of reliable financial statements. An effective
internal control process should be comprehensive and involve people at all levels in the
company (Deloitte & Touche LLP et al., 2004). The importance of internal control and the
need for effective internal control can help to ensure the company's operational and financial
goals are fulfilled permanently (Kinney, 2001; Kinney, Maher & Wright, 1990).
To ensure that Islamic banks in accordance with the sharia, each bank must have a
supervisory board of sharia (Karim, 1990b; Abdallah, 1994; Briston and El-Ashker, 1986).
Karim (1990b) argues sharia supervisory board are also involved in the accounting policies. It
is supported by Abdallah (1994) which states sharia supervisory board is responsible for
running the audit ex ante and ex post to justify the extent to which Islamic banks operating in
accordance with sharia.
Aspects of compliance with sharia (shari'a compliance) is a major and fundamental
aspects that distinguish between Islamic banks with conventional banks. Bank Indonesia
research results along with several research institutes in the public universities about the
potential of Java, preferences, and behavior of society towards Islamic banks in the island of
Java in 2000, showed that one of the main reason why people choose Islamic banks are halal
products and services as well as the bank system in accordance with the Islamic sharia
principles. The study also concluded that one of the main reasons customers stop being
customers of Islamic banks because of doubts about the consistency of Islamic banks in
applying the principles of sharia. To ensure that the operations of Islamic banks has met the
principles of sharia, the Islamic bank should have an independent internal institutions
specialized in monitoring compliance with the sharia sharia supervisory board (Antonio,
2001).
Agustianto, Secretary General of the Association of Islamic Economics is an
economic expert said that the role of sharia sharia supervisory board is still not optimal in
supervising Islamic banks (October 2008). Though Shariah supervisory board is an
independent institution in Islamic banks whose main function is to supervise the compliance
of sharia in Islamic banking operations. Duties and functions of the supervisory board as well
as the existence of sharia in Islamic banks have a good legal basis of the jurisprudence and
legislation - Indonesia's banking laws. DPS very decisive role in overseeing the operations of
Islamic banks to keep fulfilling the principles of sharia. DPS should actively and regularly
monitoring the Islamic banks. Bank Indonesia also said there were indications that sharia
violations committed by Islamic banking institutions in operational practice. Because of the
weak role of the Shariah Supervisory Board, it is often the case management irregularities
committed Shari'ah Shari'ah bank. Shariah banks are still a lot of practice forbidden usury.
Though ideally Islamic banks who became an anti-usury locomotive financial institutions, but
instead of that Shariah banks are the practice of usury (Agustianto, 2008).
Suprayogi (2008) states that there are three reasons DPS has an important role in
Islamic banks, among others:
1. determines the level of credibility of Islamic banks
2. key elements in creating a sharia compliance assurance (shari'a compliance assurance)
3. one of the main pillars in the implementation of good corporate governance (GCG)
Islamic banks
Islamic banks must ensure that all transactions comply with sharia, not only formally
and legally, but also a more important social and economic substance based on the objectives
of sharia (Dusuki, 2008). Therefore the presence of DPS to provide an opinion on the level of
adherence to the rules of the institution of sharia (Alexakis, and Tsikouras, 2009). Accounting
and Auditing Organization for Islamic Financial Institution requires sharia supervisory board
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
and financial auditors of Islamic banks to report on compliance with the rules of sharia
(AAOIFI, 2004). AAOIFI standards explicitly state sharia supervisory board is intended to
investigate the suitability of Islamic banks with the principles and rules of Shariah in all his
activities. Investigations including examination of banks and memorandum of association
rules, contracts, financial statements and other reports (Burn, 2002). Karim (1995)
emphasized the authority of sharia supervisory board together with the external auditors.
Based on phenomenomn on above, resumed that the center of this research is
effectiveness of internal control over financial reporting was guessed at Islamic banking will
be Achieved well if sharia supevisory role of the board and the audit committee is
Implemented well. So that, the problem formulation in this research was how the role of the
audit committee and the supervisory board sharia influence effectiveness of internal control
over financial reporting at Indonesian Islamic Bank?
Theoretical Framework and Hypothesis
Research conducted by Krishnan (2005) concluded that the independence and a deep
understanding of the financial statements of the audit committee is closely related to their
ability to solve problems the company's internal control. Beasley and Salterio (2001) found
that firms that voluntarily form an audit committee member who has expertise and experience
in financial reporting, has a number of more members from outside the company.
Cohen, et.al (2007) said the process of communication between the audit committee,
auditors, and the board of commissioners may affect the quality of financial reporting,
internal control, environmental control, and performance of auditors.
Zhang, Yan; Jian Zhou and Nan Zhou (2006) suggested there is a relationship
between audit committee quality, auditor independence, and internal control weaknesses. If
audit committees have less financial expertise, then there will be an influence on the internal
control weaknesses.
Teamnuay (2010) states there are some roles of the audit committee, including: role in
reporting and role in relation to internal control. Rezaee (2003) and Mohammed (2005) also
raised the importance of the role of the audit committee.
Furthermore DeZoort (1988) also tested whether the experience of the company in
evaluating the impact of internal control of its operation as an audit committee. The study
supports the theory of the experience factor is one important factor in supporting the
effectiveness of the audit committee. Research results of the audit committee experience
effect on internal control.
Suprayogi (2007) found that 1) the control of Sharia compliance based on trust
between DPS and management, 2) there are two levels of compliance with sharia to be
implemented in the operations of banks, namely on a fatwa DSN compliance and adherence
to the rules and principles of Islamic law, and 3) DPS conducting a review of passive and
acted as a media management consultancy sharia rather than as a reviewer of sharia
compliance control. One of the alternatives to maximize the role and function of DPS is to
create a DPS function integration and the internal audit function in the Bank Islam.
Alexakis, Christos and Alexandros Tsikouras (2009) Islamic Financial Institutions
should have the DPS to provide an opinion on the level of institutional adherence to the rules
of sharia. Dusuki, AW (2008) Stakeholder Islamic bank is benefiting from the social and
ethical goals rather than the mechanism of operation. This implies that Islamic banks must
ensure that all transactions comply with Sharia, not only formally and legally, but also a more
important social and economic substance based on the objectives of sharia.
Based theoretical framework be noticed above, hypothesis in this research was:
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Ha: role of audit committee and sharia supervisory board influence effectiveness of internal
control over financial reporting simultaneously and partially.
Research Method
In this section, a survey instrument was used and data collection procedures are
discussed. Data collection used questionnaire. A total of 51 questions covering 15 attributes
of audit committee’ role (Teamnuay and Stapleton, 2009), 12 attributes of sharia supervisory
board’ role (Garas and Pierce, 2010; Regulation from Central Bank of Indonesia
No.12/13/DPbS, 2010) and 24 attributes of financial reporting quality (Jonas and Blanchet,
2000). Using a five - point Likert scale, respondents were asked to indicate their frequency
with each statement (1 as never to 5 as always frequency). The survey was distributed at
Islamic Bank in both the firm (BUS) and group/division (UUS).
Data analysis used multiple regression with SPSS software. The preliminary test
contain quality data test (validity and reliability) and classic assumption test (normality,
heteroscedasticity and multicolinearity). Analysis test used determination coefficient test, F
test and t test.
Data Analysis and Discussion
All questionnaires were personally distributed to a group of 245 respondents
(accounting employee, internal auditor, sharia supervisory board member, audit committee
member, group head and division head) at 34 unit Islamic Bank. 179 responses were received
and 173 usable responses that originated from 11 unit Islamic Bank Firm (BUS) and 22 unit
Islamic Bank Group/Division (UUS)
Data analysis with SPSS software described some results. Quality data test (validity
and reliability) and classic assumption test (normality, heteroscedasticity and
multicolinearity) complied with requirements (see appendices). Furthermore we explained the
results of determination coefficient test, F test dan t test.
Table 2. Resume of Statistics Test
Adjusted R Square
F – test
t – test
F
.718
41.733
Sig
.000a
Sig - ACR
.679
Sig - SSB
.000
a. Predictors: (Constant), ACR, SSB
b. Dependent Variable: EIC
Based on the test results of the first hypothesis; there is the influence of the role of the
audit committee and the role of sharia supervisory board of the effectiveness of internal
control over financial reporting either simultaneously or partially. Statistical analysis showed
there is the influence of the role of the audit committee and the role of sharia supervisory
board of the effectiveness of internal control over financial reporting both simultaneously.
Partially, there is the influence of the role of sharia supervisory board of the effectiveness of
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
internal control over financial reporting, but statistically insignificant role of the audit
committee.
These findings do not support the research conducted Krishnan, 2005; Rezaee et.al,
2003; Mohammed, 2005; Hoitash, 2008; McMullen et. al, 1996; DeZoort & Salterio, 2001;
Tengamnuay, 2009 and Elbanon (2009) also states that the effectiveness of the audit
committee is one of the corporate governance mechanism to improve the effectiveness of
internal control over financial reporting. The results of the study the researchers concluded
there are significant role of the audit committee of the effectiveness of internal control.
These results also do not support the theory that states the audit committee is part of
the company's internal control (Arens, 2012). Yet the implementation of the audit
committee's role in supporting the effectiveness of internal control, presumably because
Islamic banks in Indonesia that is largely a business unit sharia audit committee incorporated
with conventional banks. UUS is a business group of conventional banks. So the role of the
audit committee in UUS not by the audit committee on the BUS.
The findings of this study also proves the truth of the Qur'an Surah Al Araf verse 181
stated as follows:
   
   
And of those whom We have created are a people who guide with the truth and
thereby they do justice.
Furthermore, in Qur’an Surah Al-Isra' verse 36, it is stated
        
  
    

And follow not that of which you have not the knowledge; surely the hearing and the
sight and the heart, all of these, shall be questioned about that.
So even with Qur’an Surah An-Nahl verse 43 which supports the need for control by
the experts.
     
    
     
And We did not send before you any but men to whom We sent revelation-- so ask
the followers of the Reminder if you do not know.
The importance of the role which financial experts and auditing in realizing the
effectiveness of internal control over financial reporting and the quality of financial reporting
also stated in the hadith the prophet Muhammad SAW. This is seen in the hadith of Bukhari
which reads as follows:
Abu Hurairah R.A said, "When the Messenger of Allah. in an assembly was talking to
a people, there came a village and say, 'When is the Hour?' Prophet continued to talk,
and most people said, 'He heard what was said by him, but he hated what he was
saying.' And some of them said, 'He does not hear.' So, when he finished speaking,
then he said, 'Where the hell people are asking about the end?' He said, 'Here I am, O
Messenger of Allah.' He said, 'If a mandate was being wasted, then wait for the
apocalypse.' He said, 'How can waste it?' He said, 'If the case (affair) submitted
(mentioned in the history of the: leaning) to other than an expert, then wait for the
apocalypse."
Furthermore, there is the influence of the role of sharia supervisory board of the
effectiveness of internal control over financial reporting. This result means that the greater
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
the role of sharia supervisory board, the internal control over financial reporting more
effective.
These results support the theory of internal controls on financial institutions declare sharia
sharia supervisory board has important role in realizing effective internal control (Chapra &
Khan, 2000). In the role of Islamic banks sharia supervisory board, the better it can be seen
from the more frequent sharia supervisory board attended the meeting held companies. This
indicates that the implementation of sharia supervisory board's role in supporting the
effectiveness of internal control, the better. These findings also support research conducted
Garas and Pierce, 2010; Rosly, 2010; Dusuki, 2008; Karim 1995, which states the importance
of the role of sharia supervisory board in realizing the effectiveness of internal control over
financial reporting.
These results consistent with the theory put forward by Algoud (1999) and Chapra
(2000) and Arens, et al (2012). The thinker is stating the importance of the role of the board
of the company (the sharia supervisory boards of Islamic banks) in realizing the effectiveness
of internal control.
The findings of this study also proves the truth of the Qur'an Surah Fussilat verse 33
     
     
 
And who speaks better than he who calls to Allah while he himself does good, and
says: I am surely of those who submit?
The role of sharia supervisory board is also supported by several other verses. Some
of these verses are: Qur’an Surah 9:122; 2:283; 8:27; 23:8; 70:32; and 5:8.
1. Qur’an Surah At-Taubah verse 122 (QS 9:122)
    
      
   
   
  
 
And it does not beseem the believers that they should go forth all together; why
should not then a company from every party from among them go forth that they may
apply themselves to obtain understanding in religion, and that they may warn their
people when they come back to them that they may be cautious?
Sharia supervisory board are people who remind jurists muamalah management of
Islamic banks to always go according to sharia. This is consistent with the concept proposed
by Shin and Pierce (2010), there are two roles sharia supervisory board is in this case,
namely: 1) oversee the activities or operations of Islamic banks and 2) overseeing the product
to be launched by Islamic banks.
2. Qur’an Surah Al-Baqarah verse 283 (QS 2:283)
     
    
    
  
     
    
    
  
And if you are upon a journey and you do not find a scribe, then (there may be) a
security taken into possession; but if one of you trusts another, then he who is trusted
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
should deliver his trust, and let him be careful (of his duty to) Allah, his Lord; and do
not conceal testimony, and whoever conceals it, his heart is surely sinful; and Allah
knows what you do.
3. Qur’an Surah Al-Anfaal verse 27 (QS 8:27)
   
  
  
 
O you who believe! be not unfaithful to Allah and the Messenger, nor be unfaithful to
your trusts while you know.
4. Qur’an Surah Al-Mukminun verse 8 (QS 23:8)
   
 
And those who are keepers of their trusts and their covenant,
5. Qur’an Surah Al-Maarij verse 32 (QS 70:32)
  
  
And those who are faithful to their trusts and their covenant
6. Qur’an Surah Al Maidah ayat 8 (QS 5:8)
   
     
    
    
      
   
O you who believe! Be upright for Allah, bearers of witness with justice, and let not
hatred of a people incite you not to act equitably; act equitably, that is nearer to piety,
and he careful of (your duty to) Allah; surely Allah is Aware of what you do.
The results of this study also supports Hadith of Bukhari above, that the control
should be left to people who are experts. The audit committee and the supervisory board of
sharia should actually apply his role so well that the Islamic banks internal control aimed at,
among others, to achieve compliance with the rule and the reliability of financial statements.
It supports research Dusuki (2008) who found that people pay more attention to the
fulfillment of aspects of sharia in Islamic banks than financial performance. It would require
a large role of sharia supervisory board on the control aspects of sharia. They shall keep and
remind the management in implementing the company's operations (to increase value for
shareholders and other interested parties), do not engage in activities that violate sharia, such
as the financing of the concept of interest and derivative securities trades that have been done
by some Islamic banks in early 2000s. Not significantly role of the audit committee, causing
the need to increase their role in order to minimize financial fraud in Islamic banks.
Conclusion, Implication, Suggestions and Limitations
This study was designed to investigate the effect of audit committee and sharia
supervisory board role on effectiveness of internal control over financial reporting at Islamic
bank in Indonesian. A data resources originated from questionnaire was distributed to
employee (internal auditor, accounting staff, division head, group head), sharia supervisory
board and audit committee member. Furthermore, role of audit committee and sharia
supervisory board at Islamic banking were also investigated. Finally, the key attributes used
by Islamic bank in creating effectiveness of internal control over financial reporting were also
examined.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
The general conclusions which can be derived from this study are role of audit
committee and sharia supervisory board influenced effectiveness of internal control over
financial reporting simultaneously. Role of sharia supervisory board influenced effectiveness
of internal control over financial reporting, but role of audit committee not significant
statistically. This finding proved importance these organs to bring Islamic banking toward
objective of Islamic accounting attainment.
Implication of this research was urgency role of audit committee and sharia
supervisory board. They should applied tightly control, in order to ensure transaction comply
with Islamic law. Role of audit committee must increase, in order to prevent fraud in Islamic
Banking. It also need honesty many parties in Islamic bank, such as managements, employees
and customers.
This research unrevealed all variables related with effectiveness of internal control
over financial reporting. Next study can explore others variables, such as: internal auditor
role, management commitment, and corporate governance. Future research can use secondary
data.
There was limitations in this study. The limitations were 1) Some Islamic bank did
not provide financial statement and annual report completely, 3) Many disclosure items that
be required some previous research not available in annual report of Islamic bank.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
REFERENCES
Agami, Abdel M. 2006. Reporting on Internal Control over Financial Reporting.
The CPA Journal, November, 76, 11: 32–34.
Agustianto. 2008. Optimalisasi Dewan Pengawas Syariah. www.niriah.com
diakses tanggal 11 Juli 2012.
Alexakis, Christos & Alexandros Tsikouras. 2009. Islamic Finance: Regulatory
Framework – Challenges lying Ahead. International Journal of Islamic
and Middle Eastern Finance and Management, Vol. 2, No. 2: 90-104.
Algoud, LM. & Lewis MK. 1999. Corporate Governance in Islamic Banking: the
Case of Bahrain. International Journal of Business Studies, 7 (1): 56–86.
Altamuro, Jennifer and Anne Beatty. 2010. How does Internal Control regulation
affect financial reporting? Journal of Accounting and Economics 49 (1-2):
58-74.
Antonio, Muhammmad Syafii. 2002. Bank Sharia: Dari Teori ke Praktek. Jakarta:
Gema Insani Press.
Archer, S. & Karim, R. A. A. 1997. Agency Theory, Corporate Governance and
The Accounting Regulation of Islamic Banks. Research in Accounting
Regulation. Supplement 1: 97–114.
Arens, Alvin A., Elder, Randa J., Beasley, Mark S. 2012. Auditing and Assurance
Services: An Integrated Approach. 14th Edition. New York: Prentice Hall
Inc.
Arif,
Johar. Perbankan Sharia Indonesia Urutan Keempat di Dunia.
www.republika.co.id 11 November 2011 diakses tanggal 18 maret 2011.
Bakar, M.D. 2002. The Sharia supervisory board and issues of Sharia rulings and
their harmonisation in Islamic banking and finance, dalam Islamic
Finance: Innovation and Growth (editor) S. Archer and R. A. A. Karim,
Euromoney Books and AAOIFI, London, pp. 74-89.
Banjarnahor, Donald. 2011. BRI Sharia Tingkatkan Pengawasan Internal. Harian
Bisnis Indonesia tanggal 17 April 2011. http://www.bisnis.com/
finansial/perbankan
/20433-bri-sharia-tingkatkan-pengawasan-internal.
Diakses tanggal 5 Mei 2011.
Beasley, M.S dan S.E Salterio. 2001. The Relationship between Board
Characteristics and Voluntary Improvements in Audit Committee
Composition and Experience. Contemporary Accounting Research.
Vol.18: 539-570.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Bédard, J., Chtourou, S. and Courteau, L. 2004. The effect of audit committee
expertise, independence, and activity on aggressive earnings
management. Auditing: A Journal of Practice and Theory, Vol. 23, No.2:
13-35.
1.
Berita Lampung. 2013. proyeksi pertumbuhan ekonomi dunia 20132014. http://www. beritalampungonline.com/2013/05/proyeksipertumbuhan-ekonomi-dunia-2013. html. Accessed on August 3rd, 2014.
Berkowitz, Steven J. 2005. Assessing and Documenting Internal Control over
Financial Reporting. The Journal of Government Financial Management,
Vol.54, No.3: 42–48.
Briston, R. & El-Ashker, A. 1986. Religious Audit: Could It Happen Here?
Accountancy, October: 120-1.
Chapra, U.M & Ahmed, H. 2002. Corporate Governance in Islamic Financial
Institutions. Occasional Paper No. 6. Jeddah: Islamic Research and
Training Institute, Islamic Development Bank.
Chapra, M. Umer & Thariqullah Khan . 2000. Regulation and supervision of
Islamic bank Occasional paper No.3. Jeddah: Islamic Development Bank
& Islamic Research and Training Institute
DeZoort, F. Todd dan Steven E. Salterio. 2001. The Effect of Corporate
Governance Experience, Financial Reporting and Audit Knowledge on
Audit Committee Members’ Judgments. Auditing A Journal of Practice
& Theory, Vol. 20, No. 2.
Dusuki, Asyraf Wajdi. 2008. Understanding the Objectives Islamic Banking: A
Survey of Stakeholders’ perspectives. International Journal of Islamic
and Middle Eastern Finance and Management, Vol. 1, No. 2: 132-148.
Elbannan, Mohamed A. 2009. Quality of internal control over financial reporting,
corporate governance and credit ratings. International Journal of
Disclosure and Governance Vol. 6, 2, 127–149
Garas, Samy Nathan and Chris Pierce. 2010. Sharia Supervision of Islamic
Financial Institution. Journal of Financial Regulation and Compliance,
Vol 18, No.4, pp.386-407.
Hamzah, Muhammad Zilal. 2014. Perbankan Syariah 2014.
http://www.investor.co.id/ home/perbankan-syariah-2014/75386. Accessed
on June 10th, 2014.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Hoitash, Rani dan Udi Hoitash. 2008. The Role of Audit Comittee in Managing
Relationship with External Auditors after SOX. Managerial Auditing
Journal. Vol. 24 No. 4: 368-397.
Ikhsan, Arfan dan M. Rizal Hasibuan. 2004. Aspek Religiusitas dan Independensi
Auditor Eksternal serta Dewan Pengawas Syariah pada Bank Syariah di
Indonesia. Makalah. Simposium Nasional Sistem Ekonomi Islam II,
PPBEI-FEUB, Malang, h.381-393.
Karim, R. A. A. 1990a. Standard Setting for the Financial Reporting of Religious
Business Organizations: The Case of Islamic Banks. Accounting and
Business Research, Vol.20, No.80, pp.299-305.
___________. 1990b. The Indepence of Religious & External Auditors: the case
of Islamic Banks. Auditing, Accounting and Accountability Journal. Vol.3,
No.3, pp.34-44.
____________. 1995. The Nature and Rationale of a Conceptual Framework for
Financial Reporting by Islamic Banks.
Accounting and Business
Research, Vol. 25, No. 100, pp. 285-300.
Klein, A. 2002. Audit Committee, Board of Director Caracteristics and Earnings
Management. Journal Accounting and Economics (33), hal. 375-400.
Krishnan, Jayanthi. 2005. Audit Committee Quality and Internal Control: An
Empirical Analysis. The Accounting Review; Apr, 80, 2; pg. 649
Mardiana and Dedi. 2012. Pembobol BRI Syariah Dituntut 2 Tahun. Harian
Satelit News. 20 Maret 2012. http://satelitnews.co.id/pembobol-brisharia-dituntut-2-tahun/. Access on June 3rd 2012.
Mc Mullen, Dorothy A., Raghunandan K, dan Rama D. 1996. Internal Control
Reports and Financial Reporting Problems. Accounting Horizons, Dec;
10,4; Pg. 67
Michelman, Jeffrey E. 2008. Improving Internal Control over Financial
Reporting. The CPA Journal, April,78,4: 30–34.
Mohammed, Ehab dan Md. Mostaque Hussein. 2005. The Role of Audit
Committee in Enhancing a Transparant Corporate Reporting.
Humanomics. Vol.21 No.1/2: 30-47.
Olach, Tom & Shayamini Weeramantri. 2009. How COSO has Improved Internal
Controls in the United States. Internal Auditing. Nov/Dec, 24, 6: 3-12
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Prasetyo, Brian A. 2005. Peran Dewan Pengawas Syariah dalam Bank Syariah.
Buletin Hukum Perbankan dan Kebanksentralan. Vol.3, No.1: 45-60.
2.
Rendra, 2013. World Bank Pangkas Proyeksi Pertumbuhan Ekonomi
Cina & Asia Timur. http://www.topgrowthfutures.com/2013/10/worldbank-pangkas-proyeksi-pertumbuhan-ekonomi-cina-asia-timur/.
Accessed on August 3rd, 2014.
Rezaee, Zabihollah, Kingsley O. Olibee, dan George Minmier. 2003. Improving
Good Corporate Governance: the Role of the Audit Committee
Disclosure. Managerial Auditing Journal, 18/6/7: 832-858.
Rittenberg, Larry E. 2007. Internal Control: No Small Matter. The Internal
Auditor, Oct, 63, 5: 16–17.
Rosly, Saiful Azhar. 2010. Sharia Parameters Reconsidered. International Journal
of Islamic and Middle Eastern Finance and Management, Vol. 3, No. 2:
132-146
Sekaran, Uma and Roger Bougie. 2010. Research Method for Business: A Skill
Building Approach. John Wiley and Sons.
Sihotang, Erichson, dkk. Kasus-kasus Perbankan di Indonesia. Harian Seputar
Indonesia. 26 April 2010.
Suprayogi, Noven. 2007. The Internal Sharia Supervision Activities in Islamic
Bank : A Case Study at BPRS Bakti Makmur Indah Sidoarjo, Indonesia.
Makalah. IIUM International Conference on Islamic Banking and Finance
(IICiBF 2007), Kuala Lumpur, 23 April 2007.
Sutaryono, Paul. 2011. Saatnya Pengawasan Bank menjadi Panglima.
http://www.infobanknews.com/2011/05/saatnya-pengawasan-bankmenjadi-panglima/. Diakses tanggal 5 Mei 2011.
Syafei, Ade Wirman. 2010. The Responsibility and Independence of Sharia
Supervisory Board of The Indonesian Islamic Banks. Paper. The Third
International Conference on Islamic Banking & Finance: Risk
Management, Regulation & Supervision. Jakarta, 23-24 Februari 2010.
Syahatah, Husein. 2001. Pokok-pokok Pikiran Akuntansi Islam. Translated by
Husnul Fatarib. Jakarta: Akbar
Tengamnuay, Kwansagool & Pamela Stapleton. 2009. The Role of the Audit
Comittee in Thailand: a Mature monitoring mechanism or an envolving
process? Journal of Management Governance, 13:131 – 161.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Appendixes
Table 3. Operationalization of Variables
Variable
Dimension
ACR = Audit 1.Role related to
committee
financial
role
reporting
Beasley et.al, 2000;
Rezaee et.al, 2003;
Mohammed, 2005;
Hoitash,
2008;
McMullen
et.al,
1996; Dezoort &
Salterio,
2001;
Tengamnuay
&
Stapleton, 2009
2.Role related to
effectiveness of
internal control
SSB =Sharia
supervisory
Board
Brishton, 1986;
Algoud, 1999;
Archer & Karim,
1997; Ikhsan &
Indicator
1.A. To ask information about accounting policy
change and
B. appaised it comply with accounting standard.
2.
To review transaction disclosure that caused
conflict of interest.
3.To review properiety some accruals, allowances, and
estimations.
4.To review disclosure on assets impairment.
5.To appraise risk that caused overstated or understated
in financial statement.
6.To review disclosure on financial intrument.
7.To ensure information in annual report and other
reports not be in contradiction.
8.To review disclosure in segment report.
9. To review evaluation and recommendation from
external auditor that be done by management.
10. To review management respond to internal control
recommendation by external auditor.
11. To review internal control system feasibility.
12. To monitor complied with rule by law.
13. To review accounting policy and practice.
14. To review changes in accounting policy and
practice.
1. Monitoring
1. To
ask
explaination
about
objectives,
process of new
characteristics, and agreement (akad) that be used in
product
new product will be launching.
development
2. To examine wheter agreement (akad) be used in
new product had get approval by fatwa DSN MUI
(2 questions).
3. To review system and procedure new product will
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Hasibuan, 2004;
Suprayogi, 2007;
Dusuki, 2008;
Syafei, 2010; Surat
Edaran Bank
Indonesia
No.12/13/DPbS,
2010; Garas &
Pierce, 2010
2. Monitoring
bank activity
Preventiv
EIC=Effectiveness 1.
of Internal
e Control
Control over
Financial
Reporting
Berkowitz,
2005;
PCAOB,
2004;
COSO,
2006; 2. Detective
Agami,
2006;
Control
Michelman, 2008;
Olach,
2009;
Rittenberg,
2007;
Elbannan, 2009.
be launching.
4. To give sharia opinion on new product.
5. To analysis management report.
6. To determine amount of transaction samples that
will be examined.
7. To examine transaction documents as sampling.
8. To do inspection, observation, confirmation, or
Melakukan inspeksi, pengamatan, konfirmasi atau
information request.
9. To review standard operating procedure about
sharia aspects.
10.
To give sharia opinion on banking activity.
11.
To report monitoring output to baord of
director and board of commissionaire.
1. All assets owned by the company is legal.
2. All the transactions that have been recorded in
accordance with all laws.
3. Documentation for internal control, all transactions
and other significant events are ready to be
examined.
4. All of the company's assets are protected against
fraud and abuse.
All transactions have been recorded
6. The financial information contains all the required
disclosures.
7. All financial information in the right format.
8. All obligations must be paid legally recorded.
9. All existing assets and liabilities have been
recorded.
10. All assets, liabilities and transactions have been
reported.
11. All the assets and liabilities reported on the
appropriate value.
5.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Result of Statistics Test
ANOVAb
Sum of
Squares
Model
1
Df
Mean Square
Regression
451.304
2
225.652
Residual
162.211
30
5.407
Total
613.515
32
F
Sig.
41.733
.000a
a. Predictors: (Constant), SSB, ACR
b. Dependent Variable: EIC
Model Summary
Model
R
R Square
1
.858a
Adjusted R
Square
.736
Std. Error of
the Estimate
.718
2.325
a. Predictors: (Constant), SSB, ACR
b. Dependent Variable: EIC
Coefficientsa
Unstandardized
Coefficients
Model
1
B
(Constant)
Standardized
Coefficients
Std. Error
1.475
5.421
ACR
.041
.098
SSB
.929
.143
Beta
T
Sig.
.272
.787
.053
.418
.679
.821
6.508
.000
a. Dependent Variable: EIC
Reliability and Validity for All Variables
1.
Audit Committee Role
Reliability Statistics
Cronbach's
Alpha
.882
Cronbach's
Alpha Based on
Standardized
Items
.886
N of
Items
15
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Summary Item Statistics
Minimu
m
Maximum
Mean
Range
Maximum /
Minimum Variance
N of
Items
Item Means
4.263
4.000
4.424
.424
1.106
.018
15
Inter-Item
Covariances
.124
-.070
.312
.383
-4.459
.004
15
2.
Sharia Supervisory Role
Reliability Statistics
Cronbach's
Alpha
Cronbach's
Alpha Based on
Standardized
Items
N of Items
.819
.819
11
Summary Item Statistics
Minimu
Maximum
m
Maximum Range / Minimum Variance N of Items
Mean
Item Means
4.408
4.152
4.697
.545
1.131
.028
11
Inter-Item
Covariances
.102
-.038
.248
.286
-6.550
.004
11
3.
Effectiveness of Internal Control
Reliability Statistics
Cronbach's
Alpha
.895
Cronbach's
Alpha Based on
Standardized
Items
N of Items
.895
11
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Summary Item Statistics
Mean
Minimu
Maximum /
m
Maximum Range Minimum Variance
N of
Items
Item Means
4.466
4.333
4.727
.394
1.091
.012
11
Inter-Item
Covariances
.142
.043
.334
.292
7.844
.004
11
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
RISK MANAGEMENT AND PERFORMANCE OF
CONVENTIONAL BANKING IN INDONESIA
SUTRISNO
Management Departement – Faculty of Economics
Universitas Islam Indonesia
[email protected]
BACKGROUND
In accordance to Law No. 10 Year 1998 about banking, which explain the
bank is an entity that collects funds from the public in the form of deposits, and
distribute it to the public in the form of credit or other forms, in order to improve
people's lives. Thus the bank serves as a financial intermediary between people
who have excess funds to people who need funds. The source of the majority of
bank’s funds is from public, so the government has an obligation to protect the
public from banking practices which is inadvertent. Therefore, banking is a
company that is highly regulated by the government. Monetary authorities
regulates the bank capital, credit, non perform loans, bank liquidity, and the bank's
operations. Even to be bank manager need permission from Financial Services
Authority through fit and proper test.
The bank's managements is not only demanded by owners to improve
profitability, but also to be able in managing the risks which are faced by banks.
Risks that must be managed by the bank include capital risk, credit risk, liquidity
risk, management risk, operating risk, and market risk. Capital risk is measured by
its capital adequacy ratio (CAR), the amount set by Bank Indonesia at a minimum
of 8% in accordance to the regulations Banking International Settlements (BIS).
The bigger the CAR showed healthier the bank, so it is expected there is an
improvement in its performance. Research conducted by Almazari (2014) and Gul
et.al (2011) and Lelissa (2014) measures capital risk by capital adequacy ratio
(CAR).
Banking is a business of trust, which means in order to be trusted the bank
should be able to provide sufficient funds, thus when the customer decide to do
the withdrawal at any time the funds are always available. Banks are also required
to provide credit, so it is necessary to provide sufficient funds to complete loan
commitments. Policy to provide fund for withdrawal at any time and fullfil credit
commitments is referred to liquidity management. In this study, loan to deposit
ratio (LDR) is used to measure the liquidity policy, LDR is the ratio between a
given loans and the third party funds. The bigger LDR means the higher credit
given therefore it is increasing profits, but it also increasing the risk. Hutangalung
et.al (2011) and Margaretha and Zai (2013) using LDR to measure of liquidity
risk, as well as Gul et.al (2011) and Javaid et.al (2011).
The main income from the conventional banking is from given loans, it
means more loans the greater bank earning is. However, with the increasing credit
can also raise the potential for non perform loans. Therefore, bank management
must be able to manage credit risk is problematic. Purwoko and Sudiyatno (2013)
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
and Hutagalung et.al (2011) measure credit risk with non performing loan (NPL),
it is similar to the research by Frederick (2014) and Ongore and Kusa (2013).
The bank's management are also required to raise the level of efficiency,
so that the cost can be reduced which ultimately able to increase profits.
Efficiency is indicated by a comparison between the operating expense and the
operating income (BOPO). Operating risk occurs if the bank in less efficient
operations so that BOPO increases, because the higher the BOPO will degrade the
performance of the bank. Hutagalung et.al (2011) and Margaretha and Zai (2013)
use as a proxy BOPO for operating risks. Similarly, frederick (2014) and Indris
(2011) also uses BOPO as variables that affect the performance of the bank. Bank
efficiency is also measured by the ability of banks to manage risk management as
measured by the net interest margin (NIM), which is the ratio between the interest
income on loans. The higher NIM indicates more efficient in operation. Purwoko
and Sudiyatno (2013), Hutagalung et.al (2011) and Margaretha and Zai (2013)
using the NIM as a proxy efficiency policies. Similar to research Ongore and
Kusa (2013) and Frederick (2014) also use NIM as a measure of efficiency policy.
PREVIOUS STUDY
Idris et.al (2011) conducted a study in Malaysia find a positive and
significant influence between liquidity which is measured by the LDR and the
firm size on the performance of the bank. But the capital risk (CAR) and BOPO is
not significant effect. While Abera (2012) who conducted a study on the bank's
performance in Eutopia found a significant relationship between capital and the
size of the company on the performance of the bank, while the credit risk (NPL)
and BOPO have a significant and negative effect, but the liquidity risk does not
significantly effect the bank's performance. Frederick (2014), who examined the
factors that affect the performance of banks in Uganda found that NIM has a
positive and significant effect on the performance of bank, while the CAR and
NPL have significant and negative effect on the performance of the bank.
Tabari et.al (2013) found the effect of liquidity and credit risk have a
significant and negative effect on the performance of the bank, while the capital
risk (CAR) has a significant and positive effect. Almazari (2104) who studied
Arabic banks and Nigerian banks found that in Arab capital risk and liquidity risk
have significant effect on the performance of banks, whereas in Negeria liquidity
(LDR) and credit risk (NPL) as well as the firm size significantly affects the
bank's performance. While Gul et.al (2011) found the LDR and firm size have
influence on the performance of the bank, while the capital (CAR) does not affect
the performance of the bank. Ongore and Kusa (2013), which examines banks in
Kenya found the CAR and NIM positive effect while the LDR and the NPL does
not affect the bank's performance.
Setyorini (2012) found that banking in Indonesia, capital risk (CAR) has a
negative and significant effect and liquidity risk (LDR) significantly positive
effect on the bank performance, while the credit risk does not the effect
significantly. Javaid et.al (2011) found the size of the company has significant
influence but negatively on the performance of the bank, while the CAR and LDR
has a significant positive effect on the performance of the bank. Instead Lelissa
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
2014) found the CAR does not affect the bank's performance. While Hutagalung
et.al (2011) who studied banking in Indonesia find NIM positive significant effect
on banking performance, while LDR significantly and negative effect, but CAR
and NPL does not affect the bank's performance. Margaretha and Zai (2013)
found a significant and positive effect among CAR, NPL, LDR and NIM on the
performance of banks in Indonesia. While Purwoko and Sudiyatno (2013) found
that variables that significantly positive effect on bank performance is NIM, while
BOPO and NPL significant and negative affect same as CAR and LDR which not
affect the bank performance.
HYPOTHESIS DEVELOPMENT
1. Capital risk and bank’s performance
The function of capital in the banking system is not only giving funds needed
by bank in order to sustain the expansion of credit, but also to back up the
bank's losses. Bank’s capital is regulated by banking authorities and measured
by the capital adequacy ratio (CAR), decided with minimum value of 8%. The
higher the CAR means the better bank. But if the bank has too high CAR
indicates banks are less efficient because the fund distributed more than the
bank's capital, thereby reducing the performance of the bank. Margaretha and
Zai (2013) who studied banking in Indonesia found a positive effect between
the CAR with the performance of the bank. Frederick (2014) also find on the
banks in Uganda CAR positive effect on the performance of the bank.
Similarly, Javaid (2011) and Ongore and Kusa (2013) also found the same
thing. There are some researchers, among others Hutagalung et.al (2011),
Purwoko and Sudiyatno (2013) and Idris et.al discovered CAR is not
significant effect to the performance of the bank.
H1: Risk capital measured by CAR positively effect on the performance of
banks
2. Liquidity risk and bank’s performance
The bank's business is trust, thus must be able to provide sufficient funds
in order to the withdrawal of funds by the public could be served at any time.
Banks also need to provide funds to meet commitments approved credit. Bank
liquidity risk can be measured by the two measuring devices the minimum
reserve requirement (GWM) intended to meet community decision at any
time, and loan to deposit ratio (LDR) to meet credit commitments to
customers. LDR shows the amount of loans granted compared with public
funds, for example, the greater the greater the LDR loans so as to increase
interest income which will ultimately improve profitailitas. Tabari et.al (2013)
and Margaretha and Zai (2013) found LDR positive and significant effect on
the performance of the bank. Javaid et.al (2011), Gul et.al (2011), and
Almazari (2014) also found a positive effect between LDR with the
performance of the bank.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
H2: Liquidity risk is measured by the LDR positively effect on the performance
of banks
3. Credit risk and bank’s performance
On one side the amount of credit granted will increase interest income but on
the other side if the loans were not analyzed properly would pose a risk in the
form of increased credit risk that the troubled loans or non-performing loan
(NPL). Management should be able to maintain the NPL does not exceed
regulations imposed by Bank Indonesia, namely a maximum of 5%, due to
higher NPL will reduce the level of profitability. Tabari (2013) found a
significant and negative effect between the NPL and the bank's performance.
Purwoko and Sudiyatno (2013) also found in commercial banking in
Indonesia NPL significant and negative effect on the performance of the bank.
Similarly, Frederick (2014), Gul et.al (2011) and Idris et.al (2011) also found
a negative and significant influence between the NPL with performance.
However Hutagalung et.al (2011) and Ongore and Kusa (2013) found no
significant relationship between the performances of the bank NPL.
H3: Credit risk measured by NPL negative effect on the performance of banks
4. Managements risk and bank’s performance
Bank management has to strive to work efficiently so they can widen the
spread between interest rates on loans with interest rates on savings. Bank
management ability in order to earn interest on credit is called the net interest
margin (NIM). Therefore, risk management is often proxied by net interest
margin (NIM) which is the ratio between the interest incomes to total loans.
The higher NIM greater the level of profit the bank, so that if the bank in the
operation can reduce its overhead costs, the performance of banks will be
increased. Margaretha and Zai (2013) found in the Indonesian banking NIM
significant and positive impact on the performance of the bank. Purwoko and
Sudiyatno (2013) and Hutagalung et.al (2011) also found the same thing.
Similarly, the Ongore and Kusa (2013) which done research in Kenya also
found NIM positive effect on the performance of the bank.
H4: Management risk that proxied by NPM positively effect on the
performance of banks
5. Operating risk and bank’s performance
In the operation,beside interest to be paid to depositors, banks also have to
spend other expenses are referred to as overhead costs. Interest expense and
overhead costs is called by operating expenses. The higher operating expense
further reduced the profitability of banks, thus bank's management must be
able to control the operating exxpense. Operating risk is measured from the
ratio of operating expenses to operating income (BOPO). Banks should be
able to press BOPO in order to improve its performance. Research on banking
in Indonesia by Margaetha and Zai (2013), Purwoko and Sudiyanto (2014)
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
and Hutagalung et.al (2011) found a significant and negative effect among
BOPO with ROA. Similarly, Frederick (2014), Obamunyi (2013), and Ongore
and Kusa (2013) also found a significant and negative effect among BOPO
and the performance of the bank.
H5: Operating risk is measured by BOPO negative effect on the performance
of banks
RESEARCH METHOD
1. Data and Samples
The research population is the banking industry that has been registered in
the Indonesia Stock Exchange. While samples taken as many as 16 commercial
banks with purposive sampling method. The data required in this research is
financial statements of the banks into the sample. Sources of data obtained from a
sample bank's website and also the website of Bank Indonesia.
2. Variables and Variables Measurement
In this research there is one dependent variable in the form of banking
performance as measured by return on assets (ROA), and 5 independent variables
consisting of capital risk (CAR), liquidity risk (LDR), credit risk (NPL),
management risk (NIM), and operating risk (BOPO). The measurement and
formulation variables as follows:
No
Table 1: Variable Measurement
Variable
Measurement
1
Return on Assets (ROA)
Net Income/Total Assets
2
Capital Adequacy Ratio (CAR)
Total Equity/Weigthed Assets by
Risk
3
Loan to Deposit Ratio (LDR)
Total Credit /Third Fund Party
4
Non Performing Loan (NPL)
Credit non perform/Total Credit
5
Net Interest Margin (NIM)
Interest Income/Total Credit
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
6
Operating Expense to Operating
Income (BOPO)
Operating Expense / Operating
Income
3. Analysis Tools
This research is to investigate the influence of independent variables on
the dependent variable. The analysis tool used is multiple regressions with
regression equation as follows:
ROA = β0 + β1CAR + β2LDR + β3NPL + β4NIM + β5 BOPO
Where:
ROA = return on assets
CAR = capital adequacy ratio
LDR = loan to deposit ratio
NPL = non performing loan
NIM = net interest margin
BOPO = Operating Expense/Operating Income
RESEARCH RESULTS
1. Descriptive Data
From a sample of 16 conventional banks listed on the Indonesia Stock
Exchange, after being processed using SPSS 17.0 descriptive statistics obtained as
follows:
N
Table 2
Descriptive Statistics
Minimu Maximu
m
m
Mean
Statistic Statistic Statistic Statistic
Std.
Error
Std.
Deviation
Statistic
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
ROA
98
.01
.05
.0209
.00115
.01141
LDR
98
.57
1.10
.8589
.01120
.11084
CAR
98
.12
.24
.1654
.00264
.02617
NPL
98
.01
.05
.0201
.00098
.00969
NIM
98
.03
.09
.0543
.00158
.01560
BOPO
98
.60
.94
.7790
.00972
.09624
Valid N
(listwise)
98
Bank performance measured by ROA represents an average of 2.09% with
a maximum of 5% and a minimum of 1%. Liquidity (LDR) the banking average
of 85.89% is comparatively low due to less than ideal about 95%, even minimum
lending only 57%. Capital adequacy ratio (CAR) is still reasonable because the
average indicates the number of 16.54%, while non-performing loans as measured
by the NPL figures show that relatively small with an average of 2:01% is far
below the stipulated maximum of 5%. Net interest margin on average 5:43% and
BOPO in the category of great as it could on average 77.90%.
2. Hypothesis Testing Result
To test whether there is an effect of the independent variable on the
independent variable used multiple regression equation. By using SPSS 17.0,
obtained the following results of hypothesis testing
Table 3
Hypothesis Test Result
Unstandardized
Coefficients
Model
1
B
Std. Error
(Constant
)
.049
.010
LDR
.019
.006
CAR
-.019
NPL
NIM
BOPO
Standardize
d
Coefficients
Beta
t
Sig.
4.798
.000
.181
2.954
.004
.028
-.044
-.680
.498
-.089
.072
-.075
-1.240
.218
.265
.050
.362
5.275
.000
-.069
.008
-.579
-8.952
.000
a. Dependent Variable: ROA
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
From Table 3, it can be known the influence of each independent variable
on the dependent variable. Liquidity risk is measured by the LDR generates a
significance level of 0.004 is smaller than that required of 0.05, meaning LDR
significant and positive impact on the performance of conventional banks. Capital
risk measured by CAR figures showed a significance of 0.498 is greater than the
specified significant level of 5%, meaning CAR not significant effect on the
performance of the bank. The result of credit risk as measured by the NPL shows
a significance value of 0.218 is greater than the required significance level of 5%.
This reveals that the NPL effect is not significant to the performance of the bank.
While risk management is measured by the NIM result a significance level
of 0.000 is smaller than required so that NIM was significant and positive effect
on the performance of the bank. Similarly, operating risk measured by BOPO has
a significance value of 0000 is smaller than the significance level, so BOPO
significant and negative effect on the performance of the bank.
DISCUSSION
Hypothesis testing of liquidity risk which is measured by measured by the
LDR showed significant results and positive means higher LDR increasing the
performance of the bank. LDR is an indicator of the amount of credit granted, so
the higher LDR showed higher loans, and the higher loans would provide the
advantage of high interest income, thus encouraging high profitability. These
results are consistent with research Margaretha and Zai (2013) who found LDR
significant positive effect on the performance of the bank. Similarly, Javaid et.al
(2011) who studied banking Pakistan and Alamzari (2014), and Albera (2012)
also found the same thing. Obamuyi (2013) also find on the banking in Negeria.
From the hypothesis test the risks of capital which is measured by using
CAR shows there is no significant effect on the performance of the bank, meaning
that the level of CAR does not affect the performance of the banking system. Thus
the hypothesis is not proven. This is possible because bank capital is a major
aspect that is assessed by the banking authority, so the banks should be able to
control the CAR in order to always meet the minimum requirement of 8%.
Descriptive statistics can be seen that the CAR is relatively safe with an average
of 16.54% with a maximum of 24% and a minimum of 12%. This shows that the
banks are very cautious in managing risk capital. These results are consistent with
findings Purwoko and Sudiyatno (2013) who studied commercial bank in
Indonesia. Similar to Gul et.al (2011) also found a negative influence but not
statistically significant.
The variable that is most feared by the bank management is problem loans
or non-performing loan (NPL). NPL is a risk faced by banks in providing credit.
Therefore, bank management should try to control over problem loans. But the
results of this study indicate NPL does not affect the performance of the bank.
This result is understandable, because the banks are very cautious in giving credit,
it is proved on average only about 2.20% NPL is much smaller compared with a
maximum of 5%. This result was also possible because NPLs value is not too
varied, which means that the effect is not significant. This finding is consistent
with research results Hutagalung et.al (2011), Setyorini (2012) and Margaretha
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
and Zai (2013) who conducted research on commercial bank in Indonesia.
Similarly, the Ongore and Kusa (2013) who conducted the research in Kenya
banking also found no significant effect between the NPL, the bank's
performance. Tabari et.al (2013), and Javaid (2011) also found the same thing.
The results also found that risk management is measured by NIM showed
no positive and significant effect on the performance of the bank. This implies
that the better management in managing the bank further improves the bank's
performance. Results of this study was supported by research Purwoko and
Sudiyatno (2013) and Hutagalung et.al (2011) who found a significant and
positive effect between the NIM with the performance of commercial banks in
Indonesia. Similarly, Margaretha and Zai (2013) and Ongore and Kusa (2013)
also found the same thing.
Test the hypothesis of the influence of operating risk is proxies by BOPO
the performance of the bank showed a significant and negative effect. This result
means that the higher the BOPO will degrade the performance of the bank.
Therefore, control of the amount of operating costs is needed in order to improve
the performance of the bank. Frederick (2014) in Uganda, Tabari et.al (2013) in
Malaysia, and Obamunyi (2013) who conducted research in Negeria also found a
significant and negative effect among BOPO with the performance of the bank.
Similarly, Purwoko and Sudiyatno (2013) and Hutagalung et.al (2011), which
conducts research in Indonesia also found that exhibited significantly and
negatively influence the performance BOPO the bank.
CONCLUSION
From the results of the study of theory, hypothesis testing and discussions
can be concluded that risk management is needed in managing banks, because
banks managing public funds if bankruptcy resulted in a national impact. Banking
risk which significantly and positively affect the performance of banks is liquidity
risk (LDR) and management risk (NIM). While the operating risk (BOPO) also
significantly affect the performance but the negative effect, meanwhile capaital
risk (CAR) and credit risk (NPL)
is not significant effect. The operating risks also significantly affect the
performance but the negative effect. The capital risk and and credit risk is not
significant effect to banking’s performance.
Management of banks is expected to manage the risks of banking by
promoting the prudencal principle. To improve the performance of the bank's
management can increase the LDR to some extent so as to improve its
profitability, in addition, it also must be able to manage the risk by lowering raio
of operating expense to operating income (BOPO) in order to improve the
performance of the bank.
REFERENCE
Abera, Amdemikael. 2012. Factors Affecting Profitability: An Empirical Study on
Ethiopian Banking Indutri. Thesis. Addis Ababa University
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Almazari, Ahmad Aref. 2014. Impact of Internal Factors on Bank Profitability:
Comparative Study between Saudi Arabia and Jordan. Journal of Applied
Finance & Banking, vol. 4, no. 1
Frederick, Nsambu Kijjambu. 2014.
Factors Affecting Performance of
Commercial Banks in Uganda: A Case for Domestic Commercial Banks.
Proceedings of 25th International Business Research Conference. 13 - 14
January, 2014, Taj Hotel, Cape Town, South Africa
Gul, Sehrish., Faiza Irshad and Khalid Zaman. 2011. Factors Affecting Bank
Profitability in Pakistan. The Romanian Economic Journal. Vol 14. No.
39. 61-87
Hutagalung, Esther Novelina., Djumahir dan Kusuma Ratnawati. 2011. Analisa
Rasio Keuangan terhadap Kinerja Bank Umum di Indonesia. Jurnal
Aplikasi manajemen. Vol 11 No 1. 122-130
Idris, Asma’ Rashidah, et.al, 2011, Determinant of Islamic Banking Institutions’
Profitability in Malaysia, World Applied Sciences Journal, Vol 12, 1-7
Javaid, Saira., Jamil Anwar, Khalid Zaman dan Abdul Gafoor. 2011.
Determinants of Bank Profitability in Pakistan: Internal Factor Analysis.
Mediterranean Journal Of Social Sciences. Vol. 2, No. 1. 59-78
Lelissa, Tesfaye Boru. 2014. The Determinants of Ethiopian Commercial Banks
Performance. European Journal of Business and Management. Vol.6,
No.14. 52-62
Margaretha, Farah dan Marsheily Pingkan Zai. 2013. Faktor-Faktor Yang
Mempengaruhi Kinerja Keuangan Perbankan Indonesia, Jurnal Bisnis dan
Akuntansi, Vol 15. No. 2. 133-141
Obamuyi, Tomola Marshal. 2013. Determinants Of Banks’ Profitability In A
Developing Economy: Evidence From Nigeria. Organizations And
Markets In Emerging Economies. Vol. 4, No. 2. 97-111
Ongore, Vincent Okoth., dan Gemechu Berhanu Kusa. 2013. Determinants of
Financial Performance of Commercial Banks in Kenya. International
Journal of Economics and Financial Issues. Vol. 3, No. 1 .237-252
Purwoko, Didik dan Bambang Sudiyatno. 2013. Faktor-Faktor Yang
Mempengaruhi Kinerja Bank (Studi Empirik Pada Industri Perbankan Di
Bursa Efek Indonesia). Jurnal Bisnis dan Ekonomi (JBE), Vol. 20, No. 1.
25 – 39
Setyorini, Winarti., 2012, Analisis Faktor-Faktor Yang Mempengaruhi Kinerja
Keuangan Pada Industri Perbankan Di Bursa Efek Indonesia (Periode
Tahun 2007-2010), Jurnal Ilmu Sosial Sosioscienta, Vol 4 (1), 179-186
Tabari, Naser Ail Yadollahzadeh., Mohammad Ahmadi and Ma'someh Emami.,
2013, The Effect of Liquidity Risk on the Performance of Commercial
Banks, International Research Journal of Applied and Basic Sciences,
Vol, 4 (6)
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
FIRMS' RESPONS ON TAX REFORM:
EVIDENCE FROM INDONESIAN CAPITAL MARKET
Vierly Ananta Upa
Accounting Lecturer
Accounting Department
Universitas Pelita Harapan
Jln. Jenderal Ahmad Yani No. 288 Surabaya 60234
[email protected] ac.id
1. INTRODUCTION
Earnings management is management interference in preparation of
external
financial
reporting in order to achieve a certain profit level. The opportunity to distort
earnings
arises
because the method of accounting provides an opportunity for management to
involve
subjectivity in preparing estimates. Managers can also distort profits by shifting
costs
and
revenue recognition period.
One thing that can trigger managers to conduct earnings management is
the
desire
to
minimize the political risk (Scott, 1997:303). Earnings management in order to
minimize
the
political risk is known as the political cost hypothesis. Political cost hypothesis
states
that
the
companies tend to reduce its profits in order to minimize the political costs on
them
(Scott,
1997:303). Political costs include all costs to be borne by the company related to
political
actions, such as antitrust, regulation of state subsidies, taxes rate, labor demands,
and
so
forth.
Many researchers support the political cost hypothesis by examining indications
of
earnings
management actions undertaken by the manager related to changes in tax policy
(Mo
and
Yue
2008, Lu, Lin, and Zhang 2007, Lin, Lin, and Tsai 2004, Wulandari, Kumalahadi,
and
Prasetyo
2004, and Subagyo and Octavia, 2010).
In 2007 Indonesian government has made changes in taxation law. One of
the
new
tax
regulation is Act No. 36 of 2008 regarding income tax. This regulation includes
24
chapters.
One
form of such changes is related to the taxation of business property and real
estate.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
In Act No. 36 of 2008 Article 4 Paragraph 2 described that the income
derived
from
real
estate business is final taxable income. The implication of this regulation is the
amount
of
income tax for real estate based on any sales made. This condition is different
from
previous
years where the income tax of real estate based on net income. The new
regulation
stated
that
the
income tax rate for property and real estate business is 5% of the transaction
gross amount.
This new regulation will be very beneficial for real estate companies
because
the
company's effective tax rate becomes smaller. If managers seek to maximize firm
value
by
minimizing the tax burden, this regulation will benefit for managers (Subagyo
and
Octavia,
2010). Setiawati in Saputro and Setiawati (2004) revealed that managers tend to
postpone
recognition of income prior to the enactment of new tax rates in order to
minimize
the
amount
of
taxes paid.
Many researchers have done studies on earnings management actions
undertaken
by
the
manager related to changes in tax policy. Mo and Yue (2008) conducted research
related
to
earnings management actions undertaken by Chinese companies in anticipation
of
a
decline
in
corporate income tax rates. In their research, Mo and Yue (2008) concluded that
companies
in
China convicted of earnings management to report smaller profits prior to
imposition
of
tax
rate
reduction.
In addition, Lu, Lin, and Zhang (2007) conducted a study related to the
same
thing.
Lu,
et
al. (2007) tested the effect of changes in income tax rates on earnings
management.
Lu,
et
al.
(2007) found that companies in China conducted earnings management before
income
tax
rate
reduction.
Lin, Lin, and Tsai (2004) also conducted a similar study in Taiwan. Lin,
et
al.
(2004)
examined earnings management related to tax rate changes in Taiwan. The results
of
this
study
found that companies in Taiwan conducted earnings management in the early
years
of
the
implementation of new tax rate.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
In Indonesia, research on associational between earnings management
with
changes
in
tax policy have been made by Wulandari, Kumalahadi, and Prasetyo (2004).
Wulandari
et
al.
(2004) examine earnings management actions undertaken by the company related
to
tax
rate
reduction. The results of these studies indicate that the management of companies
tends
to
transfer their earnings after the new tax regulation is implemented because at this
period
income
tax rate has declined so that companies can obtain tax savings.
Subagyo and Octavia (2010) also conducted research related to
indications
of
earnings
management before the implementation of changes in tax rates. Subagyo and
Octavia
(2010)
examine earnings management undertaken by the company related to income tax
rate
reduction.
Subagyo and Octavia (2010) found that the profit manufacturing companies tend
to
conducted
earnings management. Subagyo and Octavia (2010) also found that earnings
management
is
influenced by the tax incentives and non-tax incentives.
Based on the description above, this study intends to reexamine whether
the
company
conducted earnings management in response to changes in taxation policies
stipulated
in
Act
No.
36 of 2008. In addition, this study also examined and analyzed the effect of tax
and
non-tax
factors on earnings management undertaken by property and real estate
companies
in
Indonesia.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
2.
LITERATUR
E REVIEW
2.1 Empirical
Findings
Many researchers have done studies on earnings management undertaken
by
the
manager
related to changes in tax policy. Mo and Yue (2008) conducted research related to
earnings
management actions undertaken by Chinese companies in anticipation of
reduction
in
corporate
income tax rate. By using discretionary accruals, Mo and Yue (2008) tested the
effect
of
tax
variables, shareholder control structures, and net income. In their research, Mo
and
Yue
(2008)
concluded that companies in China conducted earnings management to report low
profits
before
income tax rate reduction.
In addition, Lu, et al. (2007) conducted a study related to the same thing.
Lu,
et
al.
(2007)
also tested the effect of changes in income tax rates on earnings management
action.
In
contrast
to Mo and Yue (2008), Lu, et al. (2007) used discretionary current accruals as
earnings
management parameters. In addition, Lu, et al. (2007) using a variable effective
tax
rate,
share
ownership, Return on Equity (ROE), expected long-term growth, the level of
corporate
profits,
total assets, and cash flow from operating activities as an independent variable.
Lu,
et
al.
(2007)
found that China companies conducted earnings management. Companies that
perform
earnings
management is more likely done by private companies.
Lin, et al. (2004) also conducted a similar study in Taiwan. Lin, et al.
(2004)
examined
earnings management actions related to changes in income tax rates in Taiwan.
By
using
discretionary accruals as an earnings management parameters, Lin, et al. (2004)
examine
the
effect of variable effective tax rates, the size of the company, the company's longterm
debt
ratio,
standardized prediction errors, and the book value of share ownership by
directors.
The
results
of
this study found that companies in Taiwan conducted earnings management in
the
early
years
of
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
the implementation of the new tax rate. Companies that perform earnings
management
is
more
likely done by private companies.
In Indonesia, research on correlation earnings management with changes
in
tax
rates
has
been done by Wulandari, et al. (2004). Wulandari et al. (2004) examine earnings
management
undertaken by the company related to tax rate reduction. In detecting the presence
of
earnings
management Wulandari et al. (2004) use discretionary accrual approach. The
results
of
these
studies indicate that discretionary accrual after the implementation new tax rate is
higher
than
the
previous period. This means that the management of companies tends to transfer
their
earnings
in
the period after the implementation new tax rate because at this period income tax
rate
has
declined so that companies can obtain tax savings.
Subagyo and Octavia (2010) also conducted research related to similar
things.
Subagyo
and Octavia (2010) examine earnings management undertaken by the company
related
to
income
tax rate reduction. Subagyo and Octavia (2010) divide research samples into two
groups,
profit
firms and loss firms. They examined the effect of tax incentives and non-tax
incentives
on
earnings management behavior by manufacturing companies in order to respond
to
changes
in
tax rates. Subagyo and Octavia (2010) using discretionary accruals in detecting
earnings
management and found empirical evidence that the profit manufacturing
companies
conducted
earnings management in order to respond to changes in tax rates. In addition,
Subagyo
and
Octavia (2010) also found evidence that earnings management is influenced by
tax
incentives
and
non-tax
incentives.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
2.2 Hypothesis Development
In 2009 Indonesia government imposed a new tax policy for income tax on
property and real estate business through Act No. 36 of 2008 Article 4 Paragraph
2 and PP No. 71 of 2008
Article 4 Paragraph 1. In this regulation the income tax rate of property and real
estate business
is 5% and shall be final. With this provision, the property and real estate
companies will benefit
significantly. If the management of company seeks to minimize the tax burden,
the change tax
rate will provide benefits to the company.
According to the theory of positive accounting, the political cost is one of
earnings
management motivation. Income taxation is one of form political cost motivation
(Ujiyantho,
2004). Several previous studies revealed that the company is likely to do earnings
management
in anticipation of reduction in income tax rates (Mo and Yue, 2008; Lu, et al.,
2007; Lin, et al.,
2004). Wulandari et.al (2004) revealed that the management of companies tends
to transfer their
earnings in the period after the implementation of new tax rate because at this
period income tax
rate has declined so that companies can obtain tax savings. Based on this
description the property
and real estate companies will conduct earnings management before and after the
enactment of
Act No. 36 of 2008.
H1: Property and real estate companies indicated to conduct earnings management
before and
after the implementation of Act No. 36 of2008.
Research conducted by Subagyo and Octavia (2010) examined the effect of tax
factors on
earnings management. By doing a replication of research Yin and Chen (2004)
they argue that
efforts to minimize corporate tax payments are influenced by tax planning. Tax
planning is a
systematic analysis of the actions of the tax options in order to minimize tax
liabilities. Subagyo
and Octavia (2010) found that earnings management by profit firm is influenced
by tax planning.
H2a: Tax planning has positive influence on earnings management undertaken by
the property
and real estate companies.
According to Lin, et al. (2004) before the company has decided to conduct
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
earnings
management, they will evaluate the costs and benefits of earnings management.
For
companies
that have high tax rates before application of the new tax rate, the wealth of
shareholders
will
be
higher if the company shifts its income before tax. In their research, Lin, et al.
(2004)
found
that
the effective tax rate has positive and significant impact on discretionary accruals.
H2b: Effective tax rate has a positive influence on earnings management actions
undertaken
by
the property and real estate companies.
In addition to the influence of the tax factor, Subagyo and Octavia (2010)
argue that
earning management is also influenced by non-tax factors, namely:
a. Debt ratio
The decision to conduct earnings management is closely associated with
corporate
debt
levels. According to positive accounting theory is one of the motivations of
earnings
management are debt agreements. The higher the debt ratio of a company and
the
greater
the
probability of covenant violations, encourage managers to use accounting
methods
that
can
increase income (Belkaoui, 2004:448). Several previous studies show that
corporate
debt
levels have a significant effect on earnings management (Widyaningdyah,
2010;
Damayanthi, 2008; Astuti, 2008).
H2c: Debt ratio has a positive influence on earnings management undertaken
by
property
and
real
estate
companies.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
b. Firm size
Firm size is a measure of the value of assets owned by the company.
Zimmerman
in
Handayani and Rachadi (2009) suggested to use a company size in terms of
motivation
research related political costs. Watts and Zimmerman in Handayani and
Rachadi
(2009)
revealed that large firms more attention from various parties, including
financial
analysts
and
government. Consequently reporting earnings that striking will be the focus of
governmental
institutions, especially the consequences of tax and other social costs. Watts
and
Zimmerman
(1990) reveals that some researchers succeeded in proving that the political
process
has
an
impact on the selection of accounting procedures by companies. Handayani
and
Rachadi
(2009) found that medium and large firms tend to engage in earnings
management
to
avoid
reporting losses.
H2d: Firm size has a positive influence on earnings management undertaken
by
property
and
real estate companies.
c. Managerial ownership
Managerial ownership is ownership of a company owned by the company
management.
According to agency theory the conflict between the taxpayer and government
that
cause
information asymmetry can lead to earnings management. Lin et al (2004)
and
Antonia
(2008) found that firms with high managerial ownership are more likely to
conduct
earnings
management. Companies with a high level of managerial ownership tend to
have
negative
discretionary accruals to obtain tax advantages (Subagyo and Octavia, 2010).
H2e: Managerial ownership has a positive influence on earnings
management
undertaken
by
property and real estate companies.
3. METHODOLOGY
3.1 Population and Sample
The population of this study is property and real estate companies listed
on
the
Indonesia
Stock Exchange. The sample selection is based on purposive sampling in order to
obtain
samples
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
in accordance with the purpose of research. Some of the criteria established to
obtain
the
sample
include:
1. Companies engaged in property and real estate sector
2. Companies listed on the Indonesia Stock Exchange in 2007 until 2010.
3. Company published annual financial statements have been audited during the
period 2007 to
2010.
4. The data on the variables to be studied are available in the company's
financial statements
from 2007 until 2010.
3.2 Variable Identification and Measurement
Dependent variable in this study is management earnings (ML). Earnings
management
is
the selection of accounting policies by managers to achieve certain goals (Scott,
2006:344).
This
study used discretionary accrual approach to detect earnings management.
Discretionary
accrual
is calculated by subtracting the total accrual (TACC) and nondiscretionary
accrual
(NDACC).
The calculation of discretionary accruals in this study used the Modified Jones
model.
The
calculation of discretionary accruals can be described as follows:
a. Calculating the total accrual
Based on the modified Jones model total accrual is calculated by subtracting
net
income
with
cash flow from operating income. This can be formulated as follows:
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
TACCit = NIit - CFOit ................ (1)
Where:
TACCit : total accrual
NIit
: net income
CFOit : cash flow from operation
b. Calculate the non-discretionary accrual
Non-discretionary accrual is can be
formulated as follows:
TACCit/TAit-1= a1(1/TAit-1) + P1 ((AREV it-ARECit)/T Ait-1) +
P2(PPEii/TAit-0 ................................................................................................................... (2)
After getting the value of the coefficient, the normal accrual rate can be
calculated
by
the
following formula:
NDAit = a1(1/TAit-1) + P1 ((AREV it-ARECit)/T Ait-1) + P2(PPEit/TAit1) ........................................................................................................................................ (3)
Where:
TACCit : total
accrual
TAit-1 : total
assets last year
AREVit : difference between revenue last year with
this year
ARECit : difference between the receivables this year
with last year
PPEit : total assets this year
c. Calculating the
discretionary accruals
This can be
formulated as
follows:
DAit=TACCit/TAit-1-[a1(1/TAit-1)+P1((AREVit-ARECit)/TAit1)+P2(PPEit/TAit-1)] .......................................................................................................... (4)
The independent variable is the tax planning (TAXPLAN), effective tax rate
(ETR),
the
level
of
debt (debt), firm size (SIZE), and managerial ownership (MGTOWN). Here is a
description
relating these variables:
a. Tax planning (TAXPLAN)
Tax planning is a systematic analysis of the actions of the tax options in order
to
minimize
tax liabilities. Based on research conducted by Subagyo and Octavia (2010)
tax
planning
is
calculated using the following formula:
',30 %.PTI~CTE
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
TAXPLAN = ' ..................... ...... (5)
^2003
Where:
TAXPLAN : tax planning
PTI
: Pre-tax income
CTE
: Current portion of total tax expense
b. Effective tax rate (ETR)
Effective Tax Rate is the tax rate applicable to a company. This variable is a
dummy
variable, namely:
1 = If a company has a tax rate before the implementation of Act No. 36 of
2008 is higher
than the new tax rates.
0 = If the company has a tax rate before the application of Act No. 36 of 2008
is lower than
the new tax rates.
c. Debt ratio (DEBT)
Debt ratio is the level of the company's ability to repay the loan company.
Debt
ratio
used
in
this study is leverage. Leverage is the ratio of total liabilities to total assets
beginning
of
year.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
d. Firm size (SIZE)
Firm size is the value of assets owned by the company. Firm size variable in
this study were
measured by the natural logarithm of assets.
e. Managerial ownership (MGTOWN)
Managerial ownership is ownership of a company owned by the company
management.
Managerial ownership is measured by the percentage ownership of the board
of
directors
of
the total shares outstanding.
3.3 Data Analysis
This study used the paired sample T-Test with SPSS version 16. In
addition,
this
study
also uses panel data regression analysis with Eviews version 4. H1 was tested
using
paired
sample T-test. H2a to H2e used panel data regression model:
DAit = a + btTAXPLANit + b2ETR + c2DEBTit + c3SIZEit + c4MGTOWNit
Where:
TAXPLAN : Tax
planning
ETR
:
Effective tax rate
DEBT
: Debt ratio
SIZE
: Firm size
MGTOWN : Managerial ownership
This model is intended to provide an understanding of how the behavior of
earnings
management
by property and real estate companies in response to changes in tax rates.
4. RESULT AND
DISCUSSION
4.1 Sample
Selection
Population used in this study is the property and real estate company
which
has
been
listed on the Indonesia Stock Exchange (BEI) in 2007 to 2010. The sampling
method
is
purposive sampling. There are 37 companies used in this study. Based on
purposive
sampling
method there are five companies that are removed from the sample. Thus, 32
companies
are
being sampled in this study.
** insert Table 1 here **
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
4.2 Descriptive
Statistic Analysis
Discretionary
accrual (Y)
In Table 2 shows the descriptive statistic of discretionary accruals during
2007-2010.
** insert Table 2 here **
Based on table 2 the lowest discretionary accruals occurred in 2009 and
the
highest
discretionary accruals occurred in 2007 and 2008. This shows that in 2009 the
property
and
real
estate company has negative discretionary accruals. In 2007, 2008, and 2010
these
companies
have the positive discretionary accruals.
Tax planning (X1)
Table 3 shows the descriptive statistic of tax planning during 2007-2010.
** insert Table 3 here **
Based on table 3 the lowest tax planning occurred in 2008 and the highest
tax
planning
occurred in 2009. This indicates that the property and real estate companies tend
to
do
more
tax
planning
in
2009.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Effective tax rate (X2)
Table 4 shows the descriptive statistic of Effective Tax Rate. This variable
is
a
dummy
variable, namely:
1 = If a company has a tax rate before the implementation of Act No. 36 of 2008
is higher than
the new tax rates.
0 = If the company has a tax rate before the application of Act No. 36 of 2008 is
lower than the
new tax rates.
** insert Table 4 here **
Table 4 shows companies that have higher tax rate before the implementation of
Act
No.
36
of
2008 more numerous than companies that have lower tax rates before the
implementation
of
Act
No. 36 of 2008.
Debt ratio (X3)
Table 5 shows the descriptive statistic of debt ratio.
** insert Table 5 here **
Based on table 5, the lowest debt ratio occurred in 2008 and the highest
debt
ratio
in
2007. During 2007-2008, debt ratio of property and real estate companies are
relatively
constant.
Firm size (X4)
Table 6 shows the descriptive statistic of firm size.
** insert Table 6 here **
Based on table 6, the lowest firm size occurred in 2007 and the highest
firm size in 2010.
During 2007-2010, firm size of property and real estate companies are relatively
increased.
Managerial ownership (X5)
Table 7 shows the descriptive statistic of managerial ownership.
** insert Table 7 here **
Based on table 7 the lowest managerial ownership occurred in 2010 and
the
highest
managerial ownership occurred in 2008. During the years 2007-2010, managerial
ownership
of
property and real estate companies are relatively decreased.
4.3 Indications of Earnings Management Before and After Implementation
of Act No. 36
of 2008
Through paired samples t-test discretionary accruals has significant
difference
between
before and after implementation of Act No. 36 of 2008. Based on table 8
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
discretionary
accruals
after the implementation of Act No. 36 of 2008 was lower than before the
implementation
of
Act
No. 36 of 2008. Thus first hypothesis is accepted. This means that property and
real
estate
companies are indicated conducted earnings management before and after
implementation
of
Act
No. 36 of 2008.
Discretionary accruals before income tax rate reduction showed positive
values
and
value
discretionary accrual after income tax rate reduction shows a negative value. This
suggests
that
property and real estate companies are conducted earnings management by
delaying
its
earnings
in the period after the enactment of tax policy changes. Based on these two H1
accepted.
The result of this study is consistent with research conducted by
Wulandari
et.
al.
(2004).
Wulandari et. al. (2004) found that there were significant differences between the
discretionary
accrual between before and after the implementation of Act No. 17 of 2000.
Discretionary
accrual after the implementation of Act No. 17 of 2000 is higher than
discretionary
accrual
before the implementation of Act No. 17 of 2000. This suggests that the reduction
in
tax
rates
encourage
earnings
management.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
** insert Table 8 here **
4.4 The Influence of Tax Factor and Non-Tax Factors on Earnings
Management
After testing indications of earnings management by property and real
estate
companies
by using paired sample t-test, we was testing the influence factors of tax and nontax
on
the
earnings management by using panel data regression. This testing was conducted
using
the
Eviews version 4.
Before testing the influence factors of tax and non-tax on earning
management,
we
conducted F test (Chow test) and Hausman test as a basis in selecting the best
regression
model.
The models are the PLS (pooled least squares), FEM (fixed effect model) and
REM
(random
effects model).
Based on the results of Chow test F value is 1.74571. While the F table
value
is
1.5774.
It
can be concluded F value is greater than the F table where the fixed effect model
selected.
Hausman test is then performed to select whether the fixed effect model or
random
effects
model
to be used.
Based on the results of Hausman test chi-square value is 4.5433. While
the
chi-square
table value is 11.071. It can be concluded chi-square value is smaller than the chisquare
table
value where the random effects model is used.
Based on panel data regression model which can be concluded that the
independent
variables of tax planning (TAXPLAN), effective tax rate (ETR), debt ratio
(DEBT),
firm
size
(SIZE), and managerial ownership (MGTOWN) can predict or describing the
variable
discretionary accruals (DA) of 45.3%. While 54.7% is influenced by other
variables.
In the regression model also shows that tax planning (TAXPLAN),
effective
tax
rate
(ETR), debt ratio (DEBT), firm size (SIZE) and managerial ownership
(MGTOWN)
has
a
positive influence on discretionary accruals (DA). This means that if these
variables
increase,
the
discretionary accruals of property and real estate companies on the Indonesian
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Stock
Exchange
will also increase.
The testing of influence of tax planning (TAXPLAN), effective tax rate
(ETR),
debt
ratio
(DEBT), firm size (SIZE) and managerial ownership (MGTOWN) partially
conducted
by
t-test
(t-stat). T-stat test results on tax planning variables (TAXPLAN), effective tax
rate
(ETR),
the
debt ratio (DEBT), firm size (SIZE), and managerial ownership (MGTOWN) is
as follows.
**insert Table 9 here **
The table 9 shows that the tax planning (TAXPLAN), effective tax rate
(ETR),
debt
ratio
(DEBT), and managerial ownership (MGTOWN) have a significant influence on
discretionary
accruals (DA) because it has a probability (prob.) is smaller than 5%. Firm size
(SIZE)
does
not
have significant influence on the discretionary accruals (DA). The probability of
firm
size
is
greater than 5%.
Based on the results of random effect model earnings management on
property
and
real
estate companies are affected by tax factors and non-tax factors. Tax factors have
significant
influence on earnings management of property and real estate companies. This
tax
factors
includes tax planning and the effective tax rate. Tax planning and effective tax
rate
have
positive
and significant impact on discretionary accrual of property and real estate
companies.
Based
on
these result H2a and H2b are accepted. This suggests that earnings management
actions
undertaken by property and real estate companies are affected by tax factors. This
is
consistent
with positive accounting theory presented by Watts and Zimmerman (1990). The
theory
was
revealed that one of the motivations of earnings management actions are political
costs.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
These results are consistent with research conducted by Subagyo and
Octavia
(2010)
and
Lin et al (2004). Subagyo and Octavia (2010) found that earning management is
influenced
by
tax planning. This indicates that if tax planning increase, earnings management
also
increasing.
Lin et. al. (2004) found that the effective tax rate affect the discretionary accrual
of
Taiwanese
companies. In their study Lin et. al. (2004) reveals that companies that have tax
rates
higher
than
the new tax rate is proved to have earnings management ahead of the imposition
of new tax rates.
Non-tax factors are shown have positive and significant influence on
earnings
management action by property and real estate companies. This non-tax factor
includes
the
debt
ratio and managerial ownership. Based on these result H2c and H2e are accepted.
This
suggests
that earnings management actions undertaken by property and real estate
companies
are
affected
by debt ratio and managerial ownership. This is consistent with positive
accounting
theory
presented by Watts and Zimmerman (1990). The theory was revealed that one of
the
motivations
of earnings management actions is debt agreements.
However, this condition is not consistent with research conducted by
Subagyo
and
Octavia (2010) and Lin et. al. (2004). In their research Subagyo and Octavia
(2010)
and
Lin
et.
al. (2004) found that debt ratio has no significant influence on earnings
management
actions
undertaken by companies. Meanwhile, according to research conducted by
Widyaningdyah
(2010), Damayanthi (2008), and Astuti (2008) corporate debt ratio have a
significant
effect
on
earnings management.
Managerial ownership variables also have a positive and significant
influence
on
earnings
management action by property and real estate companies. This is consistent with
agency
theory
which states that the practice of earnings management is affected by the conflict
of
interest
between management (agent) and owner (principal) that arises when each party
trying
to
achieve
and maintain a desired level of prosperity. Consequently the greater the
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
managerial
ownership
in
a company likelihood increase earnings management at the company.
These results are consistent with research conducted by Lin et. al, (2004)
and
Antonia
(2008) who found that firms with high managerial ownership are more likely to
do
earnings
management. However this is not consistent with research conducted by Subagyo
and
Octavia
(2010). In his research Subagyo and Octavia (2010) find that managerial
ownership
has
positive
and insignificant influence. This is due to the research Subagyo and Octavia
(2010)
the
managerial ownership of manufacturing companies in Indonesia most of below
1%.
These
conditions show low managerial ownership in manufacturing firms that become
the
object
of
research Subagyo and Octavia (2010).
Non-tax factor that has no significant effect on earnings management of
property
and
real
estate companies is firm size. Based on these result H2d is rejected. This shows
that
both
large
companies and small companies conduct earnings management. The rejection of
this
hypothesis
is consistent with research conducted by Subagyo and Octavia (2010) and Lin et
al
(2004).
Subagyo and Octavia (2010) found that firm size had no significant effect of
earnings
management actions undertaken by the company.
5. CONCLUSION
This study aims to examine and analyze the indications of earnings
management
by
property and real estate companies in Indonesia. In addition, this study also aims
to
examine
and
analyze the influence factors or factor taxes and taxes on non-profit management
actions
undertaken by the property sector companies / real estate in Indonesia.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Based on the result paired sample T-Test property and real estate
companies
in
Indonesia
indicated conducted earnings management before and after the implementation
Act
No.
36
of
2008. This earnings management is conducted by delaying the recognition of
income
in
the
period before the implementation of new policies. The condition was describe by
the
value
of
discretionary accruals are lower in the period before the tax rate reduction than
the
period
after
the decline in tax rates. This supports the hypothesis proposed previously.
Earnings management actions undertaken by the property and real estate
companies
are
affected by factors and non-tax factors. The tax factors affecting earnings
management
is
tax
planning and the effective tax rate. This supports the hypothesis proposed
previously.
While
nontax factors that significantly influence earnings management property and real
estate
companies
are debt ratio and managerial ownership. This also supports the hypothesis
proposed previously.
Non-tax tax factor that had no significant influence on earnings
management
action
is
firm size. This suggests that both small and large companies conduct earnings
management.
REFERENCE
Antonia, Edgina 2008, Analisis Pengaruh Reputasi Auditor, Proporsi Dewan
Komisaris
Independen, Leverage, Kepemilikan Manajerial dan Proporsi Komite
Audit
Independen
Terhadap Manajemen Laba, Master's degree Thesis, Universitas
Diponegoro e-prints.
Astuti, Dewi Saptantinah Puji 2008, 'Analisis Faktor-faktor yang Mempengaruhi
Motivasi
Manajemen Laba di Seputar Right Issue', JurnalIlmiah Akuntansi dan
Bisnis, vol. 3, no.
1, viewed 5 Juni 2011,
http://eiournal.unud.ac.id/abstrak/dewi%20saptantinah%20puii%20astuti.p
df.
Belkaoui, & Ahmed Riahi 2004, Accounting Theory, Fifth Edition, Thomson
Learning,
Great
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Britain.
Damayanthi, I. G. A. Eka, 2008, 'Perbedaaan Pengaruh Besaran Perusahaan dan
Leverage
Terhadap Manajemen Laba Pada Perusahaan yang Memiliki Komite
Audit
dan
Diaudit
oleh Auditor Berkualitas', Jurnal Ilmiah Akuntansi dan Bisnis, vol. 3, no.
1,
viewed
5
Mei 2011, http://ei ournal .unud.ac.id/abstrak/ok_eka.pdf
Handayani, RR Sri & Agustono Dwi Rachadi 2009, 'Pengaruh Ukuran
Perusahaan
terhadap
Manajemen Laba', Jurnal Bisnis dan Akuntansi, vol. 11 no. 1, pp. 33-56.
Indonesia Goverment 2008, Peraturan Pemerintah No. 71 Tahun 2008
Perubahan
Ketiga
Atas
Peraturan Pemerintah Nomor 48 Tahun 1994 Tentang Pembayaran
Pajak
Penghasilan Atas Penghasilan dari Pengalihan Hak Atas Tanah
Dan/Atau
Bangunan,
Author, Indonesia.
Indonesian Goverment 2008, Undang-undang Nomor 36 Tahun 2008 Tentang
Perubahan
Keempat atas Undang-undang Nomor 7 Tahun 1983 tentang Pajak
Penghasilan,
Author,
Indonesia.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Lin, Suming, Tzong Huei Lin, & Yann-Ching Tsai 2004, 'Earning
Management
in
Taiwan's
Imputation Tax System', Taiwan Accounting Review, vol. 4, no. 2, pp.
1-22.
Lu, Rui, Bingxuan Lin, & T. Jeffrey Zhang 2007, Change in Tax Policy and
Earning
Management: Evidence for Chinese Market, viewed 22 February
2011,
http://aaahq.org/AM2010/display.cfm?Filename=SubID
2608.pdf&MIMEType=applica
tion/pdf.
Mo, Bai, & Fu Yue 2008, Anticipated Reductions in Tax Rates and Earning
Management
of
Listed Companies: Evidence from China, viewed 22 February 2011,
www. seiofbluemountain. com/seacrh/detail.php?id=4463.
Saputro, Julianto Agung & Lilis Setiawati 2004, 'Kesempatan Bertumbuh dan
Manajemen
Laba:
Uji Hipotesis Political Cost', Jurnal riset Akuntansi Indonesia, vol. 7,
no.
2,
pp
251
263.
Scott, W.R 2006, Financial Accounting Theory, Prentice-Hall, Toronto, Canada,
Subagyo, & Octavia 2010, 'Manajemen Laba sebagai Respon atas Perubahan
Tarif
Pajak
Penghasilan', paper presented at the Simposium Nasional Akuntansi
XIII,
13
Oktober
2010,
viewed
15
July
2011,
http://www.mediafire.com/download/8i7868mtoj2fq8s/SNA13+Perpajakan. rar.
Ujiyantho, Moh. Arief 2004, Asimetri Infromasi dan Manajemen Laba:
Suatu Tinjauan dalam
Hubungan Keagenan, viewed 22 February 2011,
www.freewebs.com/stiemuhpekl/asimetri%20informasi. doc.
Yin, Jennifer, & Agnes Cheng 2004, Earnings Management of Profit Firms
and
Loss
Firms
in
Response to Tax Rate Reductions, Review of Accounting and
Finance,
vol.
3,
pp.
67
92.
Watts, Ross L., & Jerold L. Zimmerman 1990, Positive Accounting Theory:
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Ten
Year
Perspective, The Accounting Review, vol. 6, no. 1, pp. 131-156.
Widyaningdyah, Agnes Utari, Analisis Faktor-faktor yang Berpengaruh
Terhadap
Earnings
Mangement Pada Perusahaan Go Public di Indonesia, viewed 6
April
2011,
http://puslit2.petra.ac.id/ejournal/index.php/aku/article/viewFile/1568
2/15674.
Wulandari, Deni, Kumalahadi, & Januar Eko Prasetyo 2004, 'Indikasi Manajemen
Laba
Menjelang Undang-undang Perpajakan 2000 pada Perusahaan
Manufaktur', paper
presented at the Simposium Nasional Akuntansi VII, 2-3
Desember 2004, viewed 15
July 2011, http://www. mediafire. com/download/8i
7868mtoj2fq8s/SNA7+Perpajakan. rar.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
TABLES
Table 1. Sample Selection
Criteria
1. Companies listed on the Indonesia Stock Exchange in
2007 until 2010
2. Company published annual financial statements have
been audited during the period 2007 to 2010.
3. The data on the variables to be studied are available in
the company's financial statements from 2007 until
2010.
TOTAL
Table 2. Descriptive Statistic of Discretionary Accruals
Statistic
Year
2007
2008
2009
Mean
0,27382
0,27382
-0,04662
Maximum
1,30188
1,30188
0,05653
Minimum
-0,35309
-0,35309
-0,15496
Std. Deviation
0,42659
0,42659
0,05231
Table 3. Descriptive Statistic of Tax Planning
Statistic
Year
2007
2008
Mean
0,00466
0,00108
Maximum
0,02807
0,02059
Minimum
-0,02853
-0,05689
Std. Deviation
0,01179
0,01497
2009
0,01350
0,07004
-0,02790
0,01917
Table 4. Descriptive Statistic of Effective Tax Rate
Category
Year
2007
2008
2009
Effective Tax Rate (ETR) Value 0
9
13
6
Effective Tax Rate (ETR) Value 1
23
19
26
Table 5. Descriptive Statistic of Debt Ratio
Statistic
2007
2008
Total
37
(1)
(4)
32
2010
0,02488
0,37096
-0,12045
0,09940
2010
0,01280
0,04301
-0,01987
0,01469
2010
6
26
Year
2009
2010
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Mean
Maximum
Minimum
Std. Deviation
0,40113
0,80153
0,00495
0,23951
0,33160
0,76986
0,04145
0,21499
0,33600
0,81329
0,00039
0,22832
0,37698
0,71154
0,00848
0,20900
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Table 6. Descriptive Statistic of Firm Size
Statistic
Year
2007
2008
Mean
27,86364
28,04648
Maximum
30,55248
30,92024
Minimum
25,19792
25,49652
Std. Deviation
1,36911
1,47573
2009
27,99648
30,12650
25,50392
1,36325
2010
28,09827
30,46800
25,48800
1,43523
Tab e 7. Descriptive Statistic of Managerial Ownership
Year
2007
2008
2009
2010
Mean
1.6377
2.6136
1.3473
1.3381
Maximum
23.3300
30.8300
30.8300
30.8300
Minimum
0.0000
0.0000
0.0000
0.0000
Std. Deviation
5.7145
7.9413
5.6609
5.6038
Statistic
Table . Result of Paired Sample T-Test
Mean
Sig (2-tailed)
Discretionary Accrual
before implementation of
0,2738234
Act No. 36 of 2008
.037
Discretionary Accrual
-0,0091131
after implementation of
Act No. 36 of 2008
Table 9. The Result of Random Effect Model
Model
Variable
SE
t-statistic
Coefficient
TAXPLAN
4.108073 1.607929
2.554884
ETR
0.121819 0.061435
1.982890
DEBT
0.311701 0.114540
2.721329
SIZE
2.751501 8.131502
0.337861
MGTOWN
0.015195 0.003841
3.956190
Prob.
0.0119
0.0496
0.0075
0.7360
0.0001
Description
Significant
Significant
Significant
Not Significant
Significant
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
RELEVANSI INDIKATOR KEUANGAN DENGAN METODE
GENERAL PRICE LEVEL ACCOUNTING DAN CURRENT
COST ACCOUNTING
Ni Made Vita Indriyani 1
Made Gede Wirakusuma 2
1
Faculty of Economy and Bussiness Udayana University (Unud), Bali, Indonesia
e-mail: [email protected]/telp: 082145172579
2
Faculty of Economy and Bussiness Udayana University (Unud), Bali, Indonesia
INTRODUCTION
Inflation is an economic circumstances caused by the increase in prices of
goods and services in general and continuously. Based on the Consumer Price
Index (CPI) in the calculation of annual inflation in the Badan Pusat Statistik, the
percentage of inflation in Indonesia in 2013 amounted to 8.38%. This percentage
has increased greater than in 2012 amounted to 4.30%. While not reaching double
digits, but inflation of 5% can be said to be high. This shows that an increase in
prices of goods and services caused by consumer’s purchasing power and price
changes in the industrial sector. Therefore, this study used the year 2013 as the
year of observations because the inflation rate has risen dramatically by 95%.
Badan Pusat Statistik (BPS) noted that in July 2013 due to inflation the highest by
foodstuffs in the amount of 5.46% and food, beverages, cigarettes and tobacco by
1.55%, while for groups other than food and beverages below 1%.
The increase in prices of goods and services to make changes in purchasing
power will affect the company's financial statements. Financial statement with the
application of Historical Cost method will not show changes in consumer
purchasing power due to the financial statements based on Historical Cost method
assumes that the financial statements are prepared based on the monetary unit at a
stable price level, while the prices of goods and services that occur will cause
instability price level. The relevance of financial statements and financial
indicators during the period of inflation based on the existence of a significant
difference to the historical financial statements with financial statements that have
been converted (Meythi and Seffie, 2012).
Standard-setting elaborate Board makes the Financial Accounting Standards
Board (FASB) should follow the procedures for making decisions (Brown and
Feroz, 2009). FASB in the USA in the statement no. 33 states that companies are
required to establish the presentation of additional information in the form of
general price level accounting and current cost accounting. However, in a
statement no. 89 states that the additional information in the form of general price
level and current cost accounting should be presented, but not required.
Pernyataan Standar Akuntansi Keuangan (PSAK) 63 in the second paragraph
explained that the restatement of Historical Cost report presented at the end of the
reporting period using the unit of measurement at fair value (IAI, 2010). With
such uncertainty, this research needs to be done to see the importance of
conversion and by what method should be used.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
The financial statements are the end result of the accounting process that
contains financial information for the purposes of the various stakeholders
(stakeholder or shareholder). Harahap (2007) stated that the financial statements
as a form of corporate responsibility. Their prices tend to fluctuated make
historical financial statements become irrelevant with the assumption that the use
of the value of money stable (Nature, 2006). Silalahi (2010) states that inflation
accounting as an accounting process in order to obtain information by calculating
the level of price changes. This means that if the company's earnings decline, the
company tends to do the conversion (Feroz, 1987). The purpose of this study as
follows:
1) To know the difference between the value of the financial indicators
General Price Level Accounting methods and Historical Cost.
2) To know the difference between the value of the financial indicators
Current methods of Historical Cost Accounting and Cost.
Research conducted by Meythi and Seffie (2012) describes the GPLA has
an influence on the financial statements and financial ratios historical cost. This
influence occurs primarily on retained earnings statement and income statement.
Influences that occur in every report due to a significant difference between the
general price level with historical value. Therefore, it is important to adjust the
general price level in times of inflation. Research conducted by Purwanti (2012)
describes a company that has compiled historical financial statements, the
information can be trusted. Kodrat (2006) adds the event of inflation greater than
the return on net capital, the amount of total assets and lower capital turnover,
hence the need for an adjustment to the general price level.
H₁: There is a difference between the value of the financial indicators of
general price level method and historical cost accounting.
Hendriksen (1993) in Suryaputri (2007) describes the accounting policies is
the process of choosing the method of reporting, measurement and disclosure.
Research conducted by the Fuel and Julia (2007) aimed to compare with the
historical cost method and the cost is currently in the assessment of zakat.
Explained that the current cost accounting method is more relevant additional
information used when the change in consumer purchasing power caused by
inflation. However, the results of this study states that there is no clear answer for
the use of relevant method, the company is expected to establish the best method
to increase the company's credibility. Effiong, Udoayang and Asuquo (2011)
states that the CCA as well as the base method, must be measured and reported
after the capital of the company has been maintained.
H₂: There is a difference between the value of the financial indicators of
current methods of cost accounting and historical cost
RESEARCH METHODS
Design research on this study is a comparative design. This study used a
single variable like Historical Financial Indicators, Financial Indicators General
Price Level Accounting and Financial Indicators of Current Cost Accounting.
Research was conducted on consumer goods industry sector food and beverage
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
sub-sectors listed in Indonesia Stock Exchange (BEI) by access the IDX website
at www.idx.co.id. The object of this study is the company's annual financial
indicators Sector Consumer Goods Industry on Food and Beverages subsector
listed in the Indonesia Stock Exchange and the consumer price index contained in
the Central Bureau of Statistics. The sample used in this study are 15 (Fifteen)
companies in 2013 period. The sample are show on the table below:
Table 1.
List of Samples
Code
ADES
AISA
ALTO
CEKA
DAVO
DLTA
ICBP
INDF
MLBI
MYOR
PSDN
ROTI
SKBM
SKLT
ULTJ
Name of Company
PT. Akasha Wira International, Tbk
PT. Tiga Pilar Sejahtera Food, Tbk
PT. Tri Banyan Tirta, Tbk
PT. Cahaya Kalbar, Tbk
PT. Davomas Abadi, Tbk
PT. Delta Djakarta, Tbk
PT. Indofood CBP Sukses Makmur, Tbk
PT. Indofood Sukses Makmur, Tbk
PT. Multi Bintang Indonesia, Tbk
PT. Mayora Indah, Tbk
PT. Prashida Aneka Niaga, Tbk
PT. Nippon Indosari Coporindo, Tbk
PT. Sekar Bumi, Tbk
PT. Sekar Laut, Tbk
PT. Ultrajaya Milk Industry and Trading Company, Tbk
Source: www.sahamok.com access date January 2, 2015
Data on this study is secondary data that is cross-sectional analysis of
financial indicators of the industrial sector of food and beverages subsector listed
in the Indonesia Stock Exchange in 2013. This study used a non-participant
observation that observed by researchers without taking part in the activities
observed as a method of data collection and data analysis using the t test
(Wilcoxon) with the aim to test two paired samples and the average difference
between the sample groups. Data analysis techniques on this study is Wilcoxon
used as samples in this research are 15 companies, which is the sample are less
than 30, so that research data is nonparametric. In testing the significance of the
data analysis technique, used SPSS 17.0 for Windows with a significance level
used was 5% or 0.05.
RESULTS AND DISCUSSION
Descriptive statistics between HCA and GPLA method showed that the
value of the financial indicator current ratio had the highest average value
compared to the value of other financial indicators in the amount of 68.3860
before the conversion and increased after conversion to 74.1140 with a standard
deviation of each are 257.39837 and 278.96050. The minimum value and a
maximum value of current ratio has a very long interval is 0.98 and 998.82 before
conversion and after conversion of 1.06 and 1082.49. This means that the current
ratio greatly affects the occurrence of a difference before and after the conversion.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
To return on assets arelow because it has an average value of the lowest among
other financial indicators are 0.1340 before conversion and 0.1440 after
conversion. This is because the minimum value held also low at 0.01 and does not
change the time of the conversion, but the test is based on the hypothesis that the
ROA remained significant value to be used as one of the financial indicators
converted while inflation.
Descriptive statistics between HCA with CCA method is almost the same
results with a comparison between the methods of HCA with GPLA. The average
yield of the highest current ratio is equal to 68.3860 and 794.6000 with a standard
deviation of 257.39837 and 2990.84647, but the HCA to CCA, the value of the
indicator quick ratio is also high at 48.0447 and 558.250 with standard deviation
of 180.84367 and 2101.32921. The lowest value indicated on the minimum value
of ROA is 0.01 before and 0.09 after conversion with an average value of 0.1340
and 1.5460.
Hypothesis test used was t-test (Wilcoxon). Wilcoxon was used to test
whether there is a difference between the value of the financial indicators GPLA
and CCA with HCA before and after the conversion is done. The alternate
hypothesis is accepted if there is a significant difference with a significance value
of less than or equal to 0.05 (≤0,05) and was rejected with a significance value
greater than 0.05 (>0.05). The recapitulation of the data processing below:
Table 2.
Results recapitulation p-value SPSS
Ratio
Current Ratio
Quick Ratio
Inventory Turnover
Total Assets Turnover
Total Debt to Total Assets
Total Debt to Total Equity
Return On Assets
Return On Equity
HCA vs GPLA
0,001
0,001
0,001
0,001
0,001
0,001
0,005
0,001
HCA vs CCA
0,001
0,001
0,001
0,001
0,001
0,001
0,001
0,001
Source: Output SPSS, 2015
Data Table 2 p-value result of financial indicators HCA GPLA smaller than
equal to 0.05 (≤0,05) which means that there is a difference between the values of
financial indicators GPLA method with HCA. This means that H₁ are accepted
and H0 are rejected. Anda also the p-value result of financial indicators HCA than
CCA are smaller and equal to 0.05 (≤0,05) which means that there is a difference
between the values of financial indicators CCA method with HCA. This means
that H₂ are accepted and Hₒ are rejected.
Data Table 2 p-value shown that the comparison between HCA with GPLA
method has the result that almost the same significance in every financial
indicator, however positive ranks on the second group of GPLA sample value are
greater than the HCA first group and has a number of different ties in the form of
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
financial indicators such as return on assets (ROA), return on equity (ROE) and
total debt to total assets (TDTA) so that the number of average (mean ranks)
generated have differences. In contrast to the p-value between HCA comparison
with GPLA, comparison between HCA method with CCA have the same
significance of the result is equal to 0.001. Results from the Z value (-3.408) are
the same in every financial indicators and have the same positive ranks by 15 the
number of average (mean ranks) of 8.00. Positive ranks at 15 with a sample or N
numbered 15 means that the sample with the second group CCA value higher than
the value of the first group HCA.
Relevant financial statements are needing by any participant for making
decisions. Financial statements used by the company is the historical financial
statements. The existence of historical financial statements when the price
changes made irrelevant historical financial statements used while inflation. This
is caused by the assumption that the value of money stable used (Nature, 2006).
When the price changes, inflation accounting as an accounting process in order to
obtain an information by calculating the level of price changes. The approach used
when the inflation is the Current Cost Accounting and General Price Level
Accounting taking into account the prevailing price when the price increases
(Surya, 2010).
The hypothesis that there are significant differences between the values of
financial indicators historical cost accounting and general price level is accepted.
This is indicated by sig. (2-tailed) below 0.05. These results show a significant
difference is caused by the consumer price index also changing the time of
inflation. This difference was highly significant occurred in consumer goods
industry sub-sectors of food and beverages for the food and beverage industry is
strongly influenced by price changes. Calculation results between historical cost
accounting and general price level based on the consumer price index for current
and base year so that the significance value different from one another. However,
according to the results obtained that the financial statements of general price
level accounting methods are very relevant to use the time of inflation.
The hypothesis that there are significant differences between the values of
financial indicators historical cost and current cost accounting is accepted. This is
indicated by sig. (2-tailed) below 0.05. Calculation results between historical cost
and current cost accounting is based on the consumer price index and the number
of years now the consumer price index by month so the significance value
obtained at any financial indicator is the same. This means that financial
indicators with the current method is very relevant cost accounting is used when
the inflation. Based on the results obtained, the current approach is more relevant
cost accounting is used when the inflation compared to general price level
accounting approach. This is because the consumer price index used by the
current-cost accounting method is more specific than the general price level
accounting methods that are more common to all industrial goods. So, while
inflation, indispensable application of the financial indicators with the conversion
method primarily in the consumer goods industry sub-sectors of food and
beverages for conversion method not only as a supplement report, but financial
indicators should be presented for the sake of long-term decision making.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Results of this study had different results with previous research by
Purwanti (2012) which examined the accounting treatment and presentation of
inflation in the financial statements using the GPLA and CCA (case study at PT
Catur Putra Sanjaya Brebes), where the results of this study concluded that less
irrelevance of historical value is used when the price increases occur, and
therefore needed a method GPLA and CCA. However, the method GPLA only
shows the value of earnings in the financial statements that are changing the actual
value, while the CCA method only served as additional financial statement and
only show that profit as the number of resources that can be distributed over a
specified period by tax considerations are ignored and physical capital are
maintained. Thus, according to research conducted by Purwanti (2012) that the
conversion method only as a supplementary report to analyze the current financial
situation of inflation. In addition, more GPLA methods are recommended for use
because it is easier to do calculations compared with CCA method.
CONCLUSIONS AND RECOMMENDATIONS
Based on the results on this study, the conclusion is there are a difference
between the value of the financial indicators with a method of general price level
as well as the historical cost accounting and there is a difference between the
value of the financial indicators with the current method of cost accounting and
historical cost. The results showed that the alternative hypothesis (H₁ and H₂) are
accepted and significant. A significant result means that the conversion method
GPLA and CCA are relevant to used while there are the increase in the price of
goods or services continuously or inflation.
FASB Statement in the USA on the statement no. 33 that the company is
required to establish the presentation of additional information in the form of
general price level accounting and current cost accounting. However, in the
statement no. 89 states that the additional information in the form of general price
level and current cost accounting should be presented, but not required. This
makes the uncertainty in the application of the conversion method. PSAK 63
states that the restatement of Historical Cost report presented at the end of the
reporting period using the unit of measurement is based on fair value. Therefore,
with this study, the conversion method must be presented when inflation occurs.
Conversion method is indispensable for companies in the consumer goods
industry sub-sectors of food and beverages. Consumer goods industry sub-sectors
of food and beverages is influenced by rising or falling prices. Presentation of
financial indicators that have been converted, interested parties will easily make
decisions, especially long-term decisions. This is because the user can predict the
effect of inflation in the future. In accordance with the conclusions, the
suggestions can be provided below:
1) The financial statements with the conversion method that is GPLA and
CCA should have presented so the users can easily take long-term
decisions. However, it is advisable to use a conversion method such as
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
CCA even if the calculation is more complicated than GPLA methods, but
the results obtained more relevant.
2) For further research, suggested the addition of the study period and the
number of samples used to be more accurate and are advised to examine
the company other than the consumer goods industry sub-sectors of food
and beverages to determine the relevance of the relevant conversion
method is also applicable to companies other than the consumer goods
industry sub-sectors food and beverage.
REFERENCES
Badan Pusat Statistik. http://www.bps.go.id. Diakses tanggal 20 Desember 2014.
Bakar, Nur Barizah Abu dan Julia Mohd Said. (2007). Historical Cost versus
Current Cost Accounting. Journal of Business and Accounting. Malaysia.
Brown, L. D. dan E. H. Feroz. Dipublikasikan 1 Mei 2009. Corporate Influence
on FASB Decision Making: The Case of GPLA. Journal of Accounting. New
York: City University.
Bursa Efek Indonesia. http://www.idx.co.id. Diakses tanggal 20 Desember 2014.
Effiong, S. A., J.O. Udoayang dan A.I Asuquo. (2011). Correlational and
Differential Influence of Historical Cost and Current Cost Profits on the
Operating Capabilities of the Firm. International Journal of Financial
Research, Vol. 2, No. 1. Nigeria: Calabar University.
Feroz, Ehson. (1987). Corporate Demands and Changes in GPLA. Journal of
Business Finance and Accounting, Vol. 14 No. 3. New York: City University.
Harahap, Sofyan Safri. (2007). Teori Akuntansi. Edisi Revisi. Jakarta: PT Raja
Grafindo Persada.
Http://www.sahamok.com/emiten/sektor-industri-barang-konsumsi/sub-sektormakanan-minuman.html. Diakses tanggal 2 Januari 2015.
Ikatan Akuntan Indonesia. (2010). Standar Akuntansi Keuangan. Jakarta:
Salemba Empat.
Kodrat, David Sukardi. (2006). Studi Banding Penyusunan Laporan Keuangan
dengan Metode Historical Cost Accounting dan General Price Level
Accounting pada Masa Inflasi. Jurnal Akuntansi dan Keuangan, Vol. 8, No.
2. Surabaya: Universitas Ciputra.
Meythi dan Seffie Teresa. (2012). Historical Cost dan General Price Level
Accounting: Analisis Relevansi Indikator Keuangan. Jurnal Akuntansi, Vol. 4
No. 2. Bandung: Universitas Kristen Maranatha.
Purwanti, Suci. (2012). Perlakuan dan Penyajian Akuntansi Inflasi pada Laporan
Keuangan dengan menggunakan Metode GPLA dan CCA (Study Kasus pada
PT Catur Putra Sanjaya di Brebes). Jurnal Ekonomi dan Bisnis. Semarang:
Universitas Dian Nuswantoro.
Silalahi, Dorlan Patiaraja. (2010). Fairness of Financial Report in PT Bentoel Tbk
(Study Conversion Historical Cost Accounting Into General Price Level
Accounting). Journal of Economy. Depok: Universitas Gunadarma.
Surya, Fidelisman. (2010). Perbandingan Penyusunan Laporan Keuangan dengan
Menggunakan Metode Historical Cost dan Metode General Price Level
diunduh dari:
www.multiparadigma.lecture.ub.ac.id
Accounting pada masa Inflasi 2008-2009. Rangkuman Skripsi. Surabaya:
Sekolah Tinggi Ilmu Ekonomi Perbanas.
Suryaputri, Rossje V. (2007). Analisis Faktor-Faktor yang Berpengaruh pada
Pemilihan Metode Depresiasi. Media Riset Akuntansi, Auditing, dan
Informasi, Vol. 7 No. 2. Jakarta: Universitas Trisakti.
diunduh dari:
www.multiparadigma.lecture.ub.ac.id