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

The Influence the Quality of Financial Reportingon Firm Value Survey on Banks Listed at IDX Usdi Suryana STIE Ekuitas, Indonesia Abstract This study aims to examine the effect of the qua

The Influence the Quality of Financial Reporting

on Firm Value

(Survey on Banks Listed at IDX)

Usdi Suryana

STIE Ekuitas, Indonesia

Abstract

This study aims to examine the effect of the quality of financial reporting on corporate value This study uses explanatory research method, data collection using census approach by distributing

questionnaires to 31 banks listed in Indonesia Stock Exchange The unit of analysis is a bank listed on the

Indonesia Stock Exchange with internal audit manager respondents and financial accounting managers The

type of data used is the primary data of questionnaire responses responded by respondents and secondary

data obtained from the bank's annual report Validity test and reliability test conducted to the responses of

questionnaires collected for subsequent hypothesis testing Analysis of hypothesis testing data using path

analysis

The results showed that there is influence of financial reporting quality to firm value The value of the

company will be higher if the quality of financial reporting prepared and presented meet the basic concepts,

qualitative characteristics of financial statements, recognition and measurement of financial statements

Keywords: financial reporting quality and company value.

Chapter I: Preliminary

1.1 Background Research.

The financial statements serve as the primary tool for corporate management to deliver financial and operational information as management accountability and to meet the needs of internal and external parties who lack the authority to obtain the information they need for economic decision-making (Schipper and Vincent, 2003) The same is stated in the basic framework for the preparation and presentation of financial statements (IAI, 1994) that the purpose of financial statements is to provide information pertaining to the financial position, performance, and changes in the financial position of an entity beneficial to a large number of users in economic decision-making One of the information that most concerns the user on the financial statements is the information about the firm's earnings, since profits represent the overall performance of the company The concept of profit in the semantic level includes the meaning of profit as a performance gauge, confirmation of investor expectations, and economic profit estimator Although accounting should not be able to measure and present economic profit, accounting should at least provide profit information that can be used by users

to measure economic profit which in turn to determine the economic value of the company (Suwardjono, 2008)

The Bank as a trust institution shall prepare and present the financial statements as a form of management accountability to stakeholders for the trust it has received (PBI, 2008) In recent years, the financial statements

of public companies in Indonesia have always been in the spotlight of interested parties Indonesia Stock Exchange (BEI) in 2012 noted there are 54 issuers late deliver the financial statements of the audit results in 2011 that must be reported in 2012 According to the Director of Corporate Valuation BEI, Hoesen, in BEI, Jakarta, some violations of issuers associated with financial statements are still frequent occurs in addition to delays in the delivery of financial statements, other violations of incomplete financial statement components, late submission of audit plans or limited review of financial statements Several other violations are the number of reports that are not in accordance with the explanation in the note, the information in the financial statements in the form of softcopy is not the same as the hardcopy financial statements announced in the mass media, the figures in the financial statements that can not be proved or subsequent explanation of the event is not adequate Merdeka.com, 13/08/2012)

Similarly, the case of revision of the financial report of Bank Bukopin resulting in a decline in profits from Rp 1 trillion to 183 billion due to errors in the recording of interest income from credit cards (Kontan 18/5/2018

In Indonesia a bit more happened is not yet done the Standard Operations and Procedures (SOP) and internal controls well, in addition to the lack of supervision from top leaders also although it has been implemented not infrequently procedures that are common and simple it

is often found not conducted regularly

Based on the above phenomenon and in an effort to implement governanace for commercial banks in delivering financial information through quality financial reporting, Bank Indonesia in accordance with PBI number 8/14 / PBI / 2006 has obliged the Commercial Bank to establish an audit committee The occurrence of a financial scandal is a failure of supervisory institutions, namely audit committee and internal audit in performing its role of producing financial reports that have high integrity and reliable to meet the information needs of users of the report (Nashwa George, 2003) Profit as part of the financial statements does not present the actual facts about the economic condition of the company so that the expected profit can provide information to support decision making into questionable quality Financial performance that does not indicate actual information about management performance may mislead the users of the report (Schipper and Vincent: 2003)

In a capital market environment, published financial statements are an important source of information that most financial users and / or market participants and stakeholders need to support decision-making From some of the information obtained in the financial statements, profit becomes the center of attention of the users (Beattie et al., 1994) The published earnings may respond varied, indicating a market reaction to earnings information (Cho and Jung, 1991) The reactions given depend on the quality of profits generated by

the company As a public company whose shares are owned by the public through the stock exchange, the presentation of financial statements must meet the requirements stipulated by the competent authority, in Indonesia this institution is the Financial Services Authority / OJK and this report must be published through mass media which can be used as important sources

of information required by shareholders in particular and stakeholders in the company (stakeholders) in general One of the regulations is that issuers are required to disclose important information through annual reports including financial reports to shareholders and other reports to OJKs, Stock Exchanges, and to the public in a timely, accurate, understandable and objective manner (Bapepam LK, 2011)

Based on the situation, the conditions and phenomena that have been mentioned above, and supported by some survey results that have been done before, it can be formulated the theme of this research as follows:

"That if the quality of financial reporting is good then the probability of firm value will be affected" Based on the theme of the study the authors are interested to conduct research with the title "The Influence of Quality of Financial Reporting to Company Value" This research will

be conducted on Banking companies listed in Indonesia Stock Exchange (BEI)

1.4 Usefulness of Research Results.

1.4.1 Usefulness or Practical Use.

The results of this study are expected to contribute ideas and solutions to problem solving; Public bank, the results of this study provide input on the implementation of the preparation, presentation of financial reporting in accordance with the applicable financial accounting standards consistency

1.4.2 Usefulness in Science Development.

The results of this study are expected to contribute in the development of financial accounting studies, as follows;

For the academic world, make a scientific contribution based on the results of empirical evidence conducted so as to support or complement the theories of the results of existing research related to accounting science, especially financial accounting

The results of this study are expected to be used for further investigators with topics that are still relevant both complementary and continue similar research in the future

Chapter II: Literature review.

2.1 Quality of Financial Reporting.

Companies that have a good reputation for financial reporting will be able to increase their capital Moreover, an argument that with such financial reporting will also get lower capital costs because the company will reduce the issue when the company reports it more fully and reliably (Harry I Wolk et al., 1989)

FSAB in Suwardjono (2008-157) The main purpose of financial reporting is to provide information about the economic resources of a business entity, claims against those resources (the obligation of a business entity to transfer economic resources to another entity and owner's equity) and the consequences of transactions, events and circumstances that alter the resources of the enterprise and claims against those resources A large number of new economic activities require additional capital resources Companies can accumulate the amount of capital needed to be met at a greater cost in the framework of industrialization It encourages the separation of management with owners so that management becomes more specific A new accountability is established between management and owners and is supported by regulation to facilitate corporate development and protection of all matters relating to the organization of the company, especially the owner / shareholder as a provider of capital The accountability has been satisfied by providing information by the management of the company to the shareholders as outlined in the annual report of which most of the contents

of the financial statements (Michael Gaffikin, 2008)

The Ross L Watss & Zuo Luo 2011 study proves that accounting conservatism affects the value of firms during the crisis of 2008, indicating that firms with more conservative accounting policies in financial reporting during the crisis period were significantly reduced Kristen L.Andersen and Teri Lombardi Yohn (2009) in his research examined the effect of restatement

of financial statements and the disclosure of income recognition problems to market reaction The result of his research shows that there is a negative market reaction to the announcement

of the accounting problem The same thing shows that companies announcing the restatement

of financial statements relating to income recognition issues show a greater negative reaction The results of Zaenal Fanani's (2009) study stated that the quality of financial reporting with the attributes of relevance, timelines and conservatism has significant economic consequences relationship with the value of shares as the impact of information asymmetry Nevertheless, Abubakar Salisu's (2008) research findings indicate that accounting information of listed companies in the Nigerian stock exchange has little significant relevance value for users of information in making investment decisions

2.2 Paradigm of

research,

Corporate value Quality of financial

reporting

Jonathan Berk and SFAC,2010

Peter DeMarzo, 2007 Tobin Q

Akhmad R Belkaoui, 2006,

Joseph F Sinkey JR,

1992

Bringham, 1996

Fama, 1978 Jeffry Ng, 2008

2.3 Hypothesis

In accordance with the framework that has been described previously, it can be formulated research hypotheses The hypothesis formulation is

H1 The quality of financial reporting affects the value of the company

Chapter III: Research methods.

3.1 Objects and Methods.

The object of research in this study is the quality of financial reporting and corporate value The focus of research is directed to the quality of financial reporting both weaknesses and advantages in increasing the value of the company

The research method used in this research is explanatory research (expalanatory reserach), because it is a research that explains the causal relationship between variables (Cooper and Schindler, 2006: 154) through census research

3.2 Variable Operationalization.

1 Quality of financial reporting.

The main purpose of the financial reporting process is to provide high quality financial reports that present information on economic entities, the main financial conditions for use in economic decision making (IAI, 2012) Providing high quality financial reporting information is important because it positively affects capital providers and other interested parties in making investment, credit and allocation decisions that can improve market efficiency (IASB, 2008) Subsequently financial reporting quality is operationalized in the form of variable (X)

2 Corporate value.

According to Fama (1978), the value of a company is a reflection of its share price The market price of a company's stock formed between the buyer and the seller in the event of a transaction is called the market value of the firm, since the stock market price is considered a reflection of the true asset value of the firm The value of a firm formed through an indicator of the market value of the stock is heavily influenced by investment opportunities The existence of investment

opportunities can provide a positive signal about future company growth, so that will increase the stock price, with rising stock prices then the value of the company will increase Furthermore the concept of corporate value is operationalized in the form of variables (Y)

As a further elaboration of the operationalization of variables, in Table 3.1 presented measurement of observed variables consisting of variable elements, the concept of variables / dimensions, indicators and measurement scale

Table 3.1 Operationalization Variable

Financial Reporting

1.Basic Concept

(X)

2.Qualitative

characteristics of

financial statement

Belkaoui,

2006

3.Recognition of Suwardjono, 2008 elements of

IAI, SAK, Revisi 2009

statament

4

measurement of elements of

statement Corporate Value Share holder

value

W.Brigham, 2003

Jonathan Berk, 2007

Source: data is processed from various

sources

3.3 Data types, Research instruments and Measuring Instruments.

Type of data in this research is primary data and secondary data Primary data is used to measure the quality of financial reporting and secondary data used to measure company value

To obtain the data the instrument used in this study is a questionnaire to obtain data quality reporting financial variables and make an analysis to examine existing data and information for corporate value variables In this study the party who will answer the proposed instrument item / respondent is the Financial Accounting Manager at the Bank listed on the Indonesia Stock Exchange For secondary data with data source obtained from daily data of share price at Indonesia Stock Exchange and annual report and financial report of Bank registered in Bursa Efek Indonesia

The research measuring instrument used in this study, to change the qualitative data from the questionnaire into a quantitative data size is Summated Rating Method: Likert Schale (Likert Scale) With Likert scale, the variables measured as starting points to arrange the items

of the instrument in the form of statements or questions scored in seven levels, moving from 1

to 7

3.4 Population Research and Census.

The target population in this study were all bank companies listed on the Indonesia Stock Exchange in the year 2017, namely: (i) a banking service provider company during the period

of observation (ii) companies issuing annual reports for the year ended 31 December 2015,

2016 and 2017 The number of banks listed on the Indonesia Stock Exchange up to 2017 is 31 Banks.5 In this study, the respondents are audit committee, internal supervisory unit and manager of Financial Accounting Division at a bank company listed in Indonesia Stock Exchange

3.5 Data Analysis Tool.