The influence the quality of financial reporting on firm value (survey on banks listed at IDX)

TheInfluencetheQualityofFinancialRepo rtingonFirmValue Surveyon BanksListedatIDX UsdiSuryana STIEEkuitas,Indonesia Abstract Thisstudyaimstoexaminetheeffectofthequalityoffinancialreportin

TheInfluencetheQualityofFinancialRepo

rtingonFirmValue

(Surveyon BanksListedatIDX)

UsdiSuryana

STIEEkuitas,Indonesia

Abstract

Thisstudyaimstoexaminetheeffectofthequalityoffinancialreportingoncorporatevalue

Thisstudyu s e s e x p l a n a t o r y r e s e a r c h method,d a t a c o l l e c t i o n u s i n g c e n s u s a p p r

o a c h byd i s t r i b u t i n g q u e s t i o n n a i r e s to31bankslistedinIndonesiaStockExchange.Theu nitofanalysisisabanklistedontheIndonesiaStockExchangewithinternalauditmanagerrespondents andfinancialaccountingmanagers.Thetypeofdatausedistheprimarydataofquestionnairerespons esrespondedbyrespondentsandsecondaryd a t a obtainedfromthebank'sannualreport.Validi tytestandreliabilitytestconductedtotheresponsesofq u e s t i o n n a i r e s collectedforsubseq uenthypothesistesting.Analysisofhypothesis testingdatausingpathanalysis

Theresultsshowedthatthereisinfluenceoffinancial reportingqualitytofirm value.Thevalue ofthec o m p a n y willbehigherif thequalityoffinancialreportingprepared and presentedmeet thebasicconcepts,qualitativecharacteristicsoffinancialstatements,recognitionandmeasurementoffin ancialstatements

Keywords:financialreportingqualityandcompanyvalue.

ChapterI:Preliminary

1.1.BackgroundResearch.

Thefinancialstatementss e r v e a s thep r i m a r y toolforc o r p o r a t e managementtod e l i v e r fina nciala n d operationalinformationasmanagementaccountabilityandtomeettheneedsofinternalande xternalpartiesw h o l a c k thea u t h o r i t y t o obtaint h e informationt he y n e e d fore c o n o m i c d e c i

s i o n

-m a k i n g ( S c h i p pe r a n d Vincent,2003).Thesa-meisstatedinthebasicfra-meworkforthepreparati onandpresentationoffinancial statements(IAI,1994)thatthepurposeoffinancialstatementsisto provideinformationpertainingtothefinancialposition,performance,andchangesinthefinancialposition

ofanentitybeneficialtoalargenumberofusersineconomicdecision-making.Oneoftheinformationthatmostconcernstheuseronthefinancialstatementsistheinforma tionaboutthefirm'searnings,sinceprofitsrepresenttheoverallperformanceofthecompany.Theconcep

asaperformancegauge,c o n fi r m a t i o n ofinvestorexpectations,andeconomicprofitestimator.A lthoughaccountingshouldnotbeabletomeasureandpresenteconomicprofit,accountingshouldatleastprovi deprofitinformationthatcanbeusedbyu s e r s tom e a s u r e e c o n o m i c profitw h i c h i n t u r n tod

e t e r m i n e t h e e c o n o m i c v a l u e ofthec o m p a n y (Suwardjono,2008)

TheBankasatrustinstitutionshallprepareandpresentthefinancialstatementsasaformofmanagemen taccountabilitytostakeholdersforthetrustithasreceived(PBI,2008).Inrecentyears,thefinancialstatem ents

ofpubliccompaniesin Indonesiaha v e always beeni n thespotlight ofinterestedparties Indone siaStock Exchange(BEI)in2012notedthereare54issuerslatedeliverthefinancialstatementsofthe auditresultsin2 0 1 1 thatmustbereportedin2012.AccordingtotheDirectorofCorporateValua tionBEI,Hoesen,inBEI,J a k a r t a , someviolations

ofissuersassociatedwithfinancialstatementsarestillfrequentoccursinadditiontod e l a y s inthedeli veryoffinancialstatements,otherviolationsofincompletefinancialstatementcomponents,latesubmis sionofa u d i t p l a n s orl i m i t e d r e v i e w offinancialstatements.S e v e r a l otherviolationsa r e thenu mberofreportsthatarenotinaccordancewiththeexplanationinthenote,theinformationinthefinancialst atementsintheformofsoftcopyisnotthesameasthehardcopyfinancialstatementsannouncedinthemass

m e d i a , thefiguresinthefinancialstatementsthatcannotbeprovedorsubsequentexplanationofthee ventisnotadequateMerdeka.com,13/08/2012)

thefinancialreportofBankBukopinresultinginadeclineinprofitsfromRp.1 trilliont o 1 8 3 billiond u e to

e r r o r s i n therecordingofinterestincomef r o m c r e d i t c a r d s (Kontan1 8 / 5 / 2 0 1 8

InIndonesiaa bitmorehappened is notyetdonethe StandardOperationsa n d Procedures (SOP)

a nd internalc o n t r o l s well,i n additiont o thel a c k ofs u p e r v i s i o n f r o m t o p l e a d e r s a l s o a l t

h o u g h i t h a s beeni m p l e m e n t e d n o t infrequentlyp r o c e d u r e s thata r e c o m m o n a n d si mplei t i s oftenfoundn o t c o n d u c t e d regularly

Basedontheabovephe no me no n and i n an effor t toimpl ementgov er na na ce forc o mme r

c i a l banksi nd e l i v er i n g financialinformationthroughqualityfinancialreporting,BankIndonesiain accordancewithPBInumber8/14/PBI/

2006hasobligedtheCommercialBanktoestablishanauditcommittee.Theoccurrenceofafinancialscan dalisafailureofsupervisoryinstitutions,namelyauditcommitteeandinternalauditinp e r f o r

m i n g itsroleofproducingfinancialreportsthathavehighintegrityandreliabletomeettheinformationn e

e d s ofusersofthereport(NashwaGeorge,2003).Profitaspartofthefinancialstatementsdoesnotprese ntthea c t u a l f a c t s aboutt h e economicc o n d i t i o n oft h e c o m p a n y s o t h a t thee x p e c t e

d profitc a n p r o v i d e informationtos u p p o r t d e c i s i o n m a k i n g i n t o questionablequality.Fin ancialperformancethatdoesn o t indicateactualinformationaboutmanagementperformancemay misleadtheusersofthereport.(Schippera n d Vincent:2003)

Inacapitalmarketenvironment,publishedfinancial statementsareanimportantsourceofinf ormationthatmostfinancial usersand/

ormarketparticipantsandstakeholdersneedtosupportdecision-making.Fromsomeoftheinformationobtainedinthefinancialstatements,profitbecomesthecenter ofattentionoftheusers(Beattieetal.,1994).Thepublishedearningsmayrespondvaried,indicatin gamarketreactiontoearningsinformation(ChoandJung,1991).Thereactionsgivendependonthequali tyofprofitsgeneratedbythe

company

Asapubliccompanywhosesharesareownedbythepublicthroughthestockexchange,thepresentation offinancialstatementsmustme e t therequi re me nt s stipulated bythecompetentauthorit y, in I ndonesia t hi s institutionistheFinancialServicesAuthority/

OJKandthisreportmustbepublishedthroughmassmediaw h i c h canbeusedasimportantsourc esofinformationrequiredbyshareholdersinparticularandstakeholdersinthecompany(stakeh olders)ingeneral.Oneoftheregulationsisthatissuersarerequiredtod i s c l o s e importantinfor mationthroughannualreportsincludingfinancialreportstoshareholdersandotherreportstoOJKs,S t o c

k Exchanges,a n d tot h e p u b l i c i n a timely,a c c u r a t e , u n d e r s t a n d a b l e a n d objectivemanne r.(BapepamLK,2011)

Basedonthesituation,theconditionsandphenomenathathavebeenmentionedabove,andsupporte dbysomesurveyresultsthathavebeendonebefore,itcanbeformulatedthethemeofthisresearchasfollo ws:

"Thatifthequalityoffinancialreportingisgoodthentheprobabilityoffirmvaluewillbeaffected".Based onthethemeofthestudytheauthorsareinterestedtoconductresearchwiththetitle"TheInfluenceofQualityo fFinancialReportingtoCompanyValue".ThisresearchwillbeconductedonBankingcompaniesliste dinIndonesiaStockExchange(BEI)

1.4 UsefulnessofResearchResults.

1.4.1 UsefulnessorPracticalUse.

Theresultsofthisstudyareexpectedtocontributeideasandsolutionstoproblemsolving;Publicba nk,theresultsofthisstudyprovideinputontheimplementation ofthepreparation,presentatio noffinancial r e p o r t i n g inaccordancewiththeapplicablefinancialaccountingstandardsconsistency

1.4.2 UsefulnessinScienceDevelopment.

The resultsofthisstudyareexpectedtocontributeinthedevelopmentoffinancialaccounting studies,asfollows;

Fortheacademicworld,makeascientificcontributionbasedontheresultsofempiricalevidenceconducte

ds o astosupportorcomplementthetheoriesoftheresultsofexistingresearchrelatedtoaccounting science,especiallyfinancialaccounting

Theresultsof

thisstudyareexpectedtobeusedforfurtherinvestigatorswithtopicsthatarestillrelevantbothcomplem entaryandcontinuesimilarresearchinthefuture

ChapterII:Literaturereview.

2.1 QualityofFinancialReporting.

Companiesthath a v e a goodr e p u t a t i o n forfi n a n c i a l reportingw i l l beabletoincreasetheir

c a p i t a l M o r e o v e r , a n a r g u m e n t t h a t w i t h s u c h fi n a n c i a l r e p o r t i n g w i l l a l s o g etl o w e r c a p i t a l costsb e c a u s e thec o m p a n y willreducetheissuewhenthecompanyreportsitmoref

ullyandreliably.(HarryIWolketal.,1989).FSABinSuwardjono(2008-157)Themainpurposeoffinancialreportingistoprovideinformationabouttheeconomicresourcesofa businessentity,claimsagainstthoseresources(theobligationofabusinessentitytotransfereconomicr esourcestoanotherentityandowner'sequity)andtheconsequencesoftransactions,e v e n t s andcircumstancesthataltertheresourcesoftheenterpriseandclaimsagainstthoseresources.Alargenum berofn e w e c o n o m i c a c t i v i t i e s r e q u i r e a d d i t i o n a l c a p i t a l r e s o u r c e s C o m p a n i e s cana c c u m u l a t e t h e a m o un t ofcapitalneededtobemetatagreatercostintheframeworkofindust rialization.Itencouragestheseparationofmanagementwithownerssothatmanagementbecomesmor

especific.Anew accountabilityisestablishedbetweenmanagementandownersandissupportedbyregulationtof acilitatecorporated e v e l o p m e n t andprotectionofallmattersrelatingtotheorganizationofthec

ompany,especiallytheowner/

s h a r e h o l d e r asaproviderofcapital.Theaccountabilityhasbeensatisfiedbyprovidingi nformationbythemanagementofthecompanytotheshareholdersasoutlinedintheannualreportofwhich

mostofthecontents ofthefinancialstatements(MichaelGaffikin,2008)

TheRossLWatss&ZuoLuo2011studyprovesthataccountingconservatismaffects thevalueof firmsduringthec r i s i s of2 0 0 8 , indicatingt h a t fi r m s w i t h moreconservativea c c o u n t i n g

p o l i c i e s i n fi n a n c i a l r e p o r t i n g duringthecrisisperiodweresignificantly reduced.Krist enL.AndersenandTeriLombardiYohn( 2 0 0 9 ) i n hisresearchexaminedtheeffectofrestatement offinancialstatementsandthedisclosureofincomerecognitionproblems toma rk et reaction.T h e re sultofhisresearchshowsthat thereisanegativema r k e t r e a c t i o n to theannouncementof

thingshowsthatcompaniesannouncingtherestatementoffinancialstatementsrelatingtoincomerecog nitionissuesshowagreaternegativereaction.T h e resultsofZaenalFanani's(2009)studystatedthatth equalityoffinancialreportingwith

theattributesofr e l e v a n c e , timelinesandconservatismhassignificanteconomicconseque

ncesrelationshipwiththevalueofs h a r e s a s thei m pa c t ofi n f o r m a t i o n a s y mme t r y N e v e r t

he le s s , AbubakarSa l i s u's ( 2 0 0 8 ) r e s e a r c h findingsindicatethataccountinginformationoflisted companiesintheNigerianstockexchangehaslittlesignificantr e l e v a n c e valueforusersofinforma tioninmakinginvestmentdecisions

porting

SFAC,2010

AkhmadRBelkaoui,2006,

Harry,Walk2003

Suwarjono,2008S

AK (IAI:2012)

TobinQ MingzhiLIU,2011 RossLWatss,eta

l , 2 0 1 1 JeffryNg,2008

2.2 Paradigmofresearch,

Corporatevalue

JonathanBerka n d

P e t e r DeMarzo,20 07JosephFSinkeyJ R,1992

Bringham,1996 Fama,1978

2.3 Hypothesis

Ina c c o r d a n c e withthef r a m e w o r k thath a s beend e s c r i b e d previously,i t c a n beformulat edr e s e a r c h hypotheses.Thehypothesisformulationis

H1Thequalityoffinancialreportingaffectsthevalueofthecompany

ChapterIII:Researchmethods.

3.1 ObjectsandMethods.

Theobjectofresearchinthisstudyisthequalityoffinancialreportingandcorporatevalue.Thefocu sofr e s e a r c h isdirectedtothequalityoffinancialreportingbothweaknessesandadvantagesi nincreasingthev a l u e ofthecompany

Theresearchmethodusedinthisresearchisexplanatoryresearch(expalanatoryreserach),becaus eitisar e s e a r c h thatexplainsthecausalrelationshipbetweenvariables(CooperandSchindler, 2006:154)throughcensusresearch

3.2 VariableOperationalization.

1.Qualityoffinancialreporting.

Themainpurposeofthefinancialreportingprocessistoprovidehighqualityfinancialreportsthatpresentinf ormationoneconomicentities,themainfinancial conditionsforuseineconomicdecisionmakin g(IAI,2 0 1 2 ) Providinghighqualityfinancialreportinginformationisimportantbecauseitpositively affectscapitalp r o v i d e r s andotherinterestedpartiesinmakinginvestment,creditandallocationd ecisionsthatcanimprovem a r k e t e ffi c i e n c y ( I A S B , 2 0 0 8 ) Subsequentlyfi n a n c i a l reportin gqualityi s operationalizedi n theformofv a r i a b l e (X)

2.Corporatevalue.

AccordingtoFama(1978),thevalueofacompanyisareflectionofitsshareprice.Themarketprice ofacompany'sstockformedbetweenthebuyerandthesellerintheeventofatransactioniscalledthe marketv a l u e ofthefirm,sincethestockmarketpriceisconsideredareflectionofthetrueassetvalueoft hefirm.Thev a l u e ofa fi r m formedt h r o u g h a n indicatorofthem a r k e t v a l u e ofthes t o c k i s h

e a v i l y influencedbyinvestmentopportunities.Theexistenceofinvestmentopportunitiescanprovideaposit ivesignalaboutfuturec o m p a n y growth,sothatwillincreasethestockprice,withrising

stockpricesthenthevalueofthecompanywillincrease.Furthermoretheconceptofcorporatevalueisope rationalizedintheformofvariables(Y)

Asafurther elaborationoftheoperationalization ofvariables,inTable3.1.presentedmeasur ementofobservedvariablesconsistingofv a r i a b l e elements,t h e conceptofvariables/

d i m e n s i o n s , i n di c a t o r s a n d m e a s u r e m e n t scale

Table3.1.OperationalizationVariable

Financial

ReportingQuality

(X)SFAC

,

HarryWolk,atal,2003A

hmedR

Belkaoui,2006

Suwardjono,2008I

A I , SAK,Revisi2009

2.Qualitativec h a r

a c t e r i s t i c s offinancialstatemen

3.Recognitionofe l e

m e n ts offinancials

4.m e a s u r e m e n t ofelements offina

CorporateValue(Y

)

Tobin,2001

W.Brigham,2003

JonathanBerk,2007

Shareholdervalue

Stockprice/

Nominalvalueoftheshare Rasio

Source:dataisprocessedfromvarioussources

3.3 Datatypes,ResearchinstrumentsandMeasuringInstruments.

Typeofdatainthisresearchisprimarydataandsecondarydata.Primarydataisusedtomea surethequalityoffinancial reportingandsecondary datausedtomeasurecompanyvalue.T

o obtainthedatathei n s t r u m e n t usedinthisstudyisaquestionnairetoobtaindataqualityreportingfi nancialvariablesandmakea n analysistoexamineexistingdataandinformationforcorporatevaluevariab les.Inthisstudythepartywhowillanswertheproposedinstrument item/

respondentistheFinancialAccountingManagerattheBanklistedontheIndonesiaStockExchange.For secondarydatawithdatasourceobtainedfromdailydataofsharep r i c e atIndonesiaStockExchangeand annualreportandfinancialreportofBankregisteredinBursaEfekIndonesia

Theresearchmeasuringinstrumentused inthisstudy,tochangethequalitativedata fromthe

q u e s t i o n n a i r e intoaquantitativedatasizeisSummatedRatingMethod:LikertSchale (Li kertScale).WithL i k e r t scale,thevariablesmeasuredasstartingpointstoarrangetheitemsoft heinstrumentintheformofstatementsorquestionsscoredinsevenlevels,movingfrom1to7

3.4 PopulationResearchandCensus.

ThetargetpopulationinthisstudywereallbankcompanieslistedontheIndonesiaStockExchangeinth

ey e a r 2017,namely:

(i)abankingserviceprovidercompanyduringtheperiodofobservation(ii)companiesissuingannu alreportsfortheyearended31December2015,2016and2017.ThenumberofbankslistedontheIndo nesiaStockExchangeupto2017is31Banks.5Inthisstudy,therespondentsareauditcommittee,i nternalsupervisoryunitandmanagerofFinancialAccountingDivisionatabankcompanylistedinIndonesiaSt ockExchange

3.5 DataAnalysisTool.

1

 1-RY 2  x ,x   CR11

1 2

 n-k-1 

Methodofdataanalysisisbywaytodescribedataaccordingtotheelementscontainedineachvaria ble.Dataanalysisherethemainpurposeistotesttheresearchhypothesis.Thedataanalysistoolu sedispathanalysis

3.6 FlowChartDevelopment(pathdiagram)

Theflowdiagramwillmakeiteasiertoseecausalrelationshipsnormallyexpressedintermsofequations

T h e theoretical basis forexplainingrelationshipsamongvariableshasbeendescribed asintheframework ofthought.Thepathdiagramorresearchmodeltobetestedisasfollows:

Figure3.1

LineChartModel

3.7 HypothesisTestingResearch

1)PartialTesting

t1=

Totestthehypothesisformulationaboveusedttestwiththeformula,asfollows:D e c i s i o n Crit eria:

NotacceptedHoifthitung>t(0,05)(n-k-1)A c c e p t Hoifthitung≤t(0.05)(n-k-1)

ChapterIV:ResearchResultAndDiscus

sion.

4.1ResearchResults.

4.1.1 DeskripsiReturnRateQuestionnaire.

Distributiona nd collectionofq u e s t i o n n a i r e s w a s c o nduc t e d forthreemonthsf r o m D e c e m

b e r 2 0 1 7 toM a r c h 2018.Questionnairesweregivento31Banks,eachBankwasgiven3questionnaire stobeaddressedbytheChair/

MemberoftheAuditCommittee,InternalAuditManagerandFinanceManagerwiththenumberofquestionn airesdistributed93questionnaires.Ofthe93questionnairesdistributed,thenumber

ofreturnedq u e s t i o n n a i r e s wasobtainedfrom31unitsofpublicbankanalysisinIndonesia or100%,withatotalof68q u e s t i o n n a i r e s from93submittedquestionnairesor73.12%

thequestionnaireaccordingtoCooperandSchindler(2006:314),therateofreturnof3 0 % isgood,andit wouldbebetterifitreached70%.Thus,thereturnofthequestionnaireof73.12%isagoodr a t e ofreturnba sedonthecriteriaproposedbyCooperandSchindler(2006:314)

4.1.2 ViewsofObservationUnit.

Theobservationunitinthisstudyisapublicbankthathasauditcommittee,internalaudit,perfor mingfinancialr e p o r t i n g a n d sellings h a r e s i n c a p i t a l market.Respondentsi n t h i s studya r

e theC h a i r m a n /

membersoftheA u d i t Committee,I n t e r n a l A u d i t U n i t M a n a g e r a n d F i n a n c i a l Accountin

gM a n a g e r a s responsiblepersonsintheirrespectivefields/

departmentstorespondtothestatementsdescribedintheq u e s t i o n n a i r e tomeasurether oleoftheauditcommittee,internalauditandfinancialreportingquality

InformationonthevalueofthecompanyintheobservationunitoftheBankrecordedinIndonesia,forthe

p r i c e ofsharesobtainedfromthesourceoftheIndonesiaStockExchangein2015,2016and2017

4.1.3 TestResultsValidityandReliabilityResearchData.

Testingthevalidityusingproductmomentcorrelation(indexvalidity)wherethestatementisd eclaredv a l i d i f thecorrelationc oe ffi c ie nt i t e m statement 0.30.T h e n reliabilitytestingus i ngs pl i t

-ha l f methodofSpearmanBrownandtheresultsarestatedreliablyifthereliabilitycoefficientgreatert-han 0.70.Basedontheresultsoftestingdataobtainedthroughthespreadofquestionnairesentirelyvalidandre liable

4.2 Testing.

4.2.1 TestingTheEffectOfQualityOfFinancialReportingToCompanyValue

Thehypothesistobetestedistheeffectofthequalityoffinancialreportingoncompanyvalue.Based ontheresultsofdataprocessingobtainedcoefficientpath fromthequalityoffinancial reportingt ocorporatev a l u e canbeseeninthetablebelow

Variable PathCoeficient tcount

R2=0.238

ThresholdCoefficientofTcountR2=0.238

Source:Resultbydata

Fromthetableaboveobtainedthetotalinfluenceoffinancialreportingqualityvariable(X)tothevalue(Y)is 0.238or23.80%.Whilet he r e s t of7 6 2 0 % i s thei n fl ue nc e ofotherf a c t o r s be y o nd thequalityoff

i na nc i a l r e p o r t i n g Visually,thepathdiagramoftheinfluenceoffinancialreportingqualityoncom panyvalueisshowni n thefollowingfigure:

LineChartOnHypothesisFourthTesting

1.000–X 0.488Y0.762 Throughthevaluescontainedinthepictureabovecanbecalculatedtheinfluenceofindependentvariab les(financialreportingquality)tothevalueofthecompany

Y=0.488*X Afterthepathcoefficient iscalculated,furthermoretoprovewhetherthequalityoffinancialre portingsignificantlyinfluencet he v a l ue oft he c o mpa ny , then testedt h e followinghypotheses:H

y p o t h e s i s :

H0:ρyxyx=0H 1

:ρyxyx≠0

Thequalityoffinancialreportingdoesnotaffectthevalueofthecompany.T

h e qualityoffinancialreportingaffectsthecompany'svalue

CoefficientofFinancialReportingQualityPathAgain

stCompanyValue

ResultofTestingInfluenceofQualityofFinancialReportingAgain

stCompanyValue

Basedonthetestresultsinthetableabovecanbeseentcountvalueoffinancialreportingqualityvariables of3.009andttableof2.045wherethevaluetcount=3.009>ttable=2.045.Sincethevalueoftcountisgreat ert h a n ttable,withα=5%itisdecidednottobereceivedH0sothatH1isaccepted