the influence of earnings management and information asymmetry towards cost of equity capital case...

8/10/2019 The Influence of Earnings Management and Information Asymmetry Towards Cost of Equity Capital Case IDX Property Sector Listed Period 2008-2011

1/14

Present by:

Candy Gloria

2121 0516

The Influence of

Earnings Management

and

Information Asymmetrytowards

Cost of Equity Capital(Case: IDX Property Sector Listed

Period 2008-2011)


2/14

Research Background


3/14

Research Problem

1. Does earnings management influence

cost of equity capital?

2. Does information asymmetry

influence cost of equity capital?

3. Do earnings management and

information asymmetry influence cost

of equity capital?

Research Objectives

1. Examine and obtain influence of

earnings management towards cost of

equity capital.


information asymmetry towards cost of

equity capital.


earnings management and information

asymmetry towards cost of equity

capital.

Research Probles and Objectives


4/14

Research Framework and Hypothesis

Hypothesis

H1 : Earnings management

influences cost of equity capital.

H2 : Information asymmetry

influences cost of equity capital.

H3 : Earnings management and

information asymmetry

influence cost of equity capital.

Earnings

Management

Cost of Equity

Capital

InformationAsymmetry


5/14

Research Method

Objects

Property companies listed in IDX

period 2008-2011.

Types and Sources of Data

Data type used is secondary data from

IDX i.e. annual data report of property

companies listed in IDX period 2008-2011.

Methods of Data Collection

Sampling is done by using purposive

sampling method with some criteria.

Analysis Method

This research used panel data

regression by fixed effect model (panel

data with dummy)

Criteria Total

Companies which listed in property sector 46

Criteria violations:

1. Companies which do not publish complete

annual reports during period 2008-2012

22

2. Companies which do not have consistent

profits experience during the period 2008-

2011

10

3. Companies which do not perform earnings

management

0

4. Companies which have negative book value

of equity

0

Property companies which meet the criteria 14

Property companies which selected randomly 8

Table 1. Criteria of Sample


6/14

Operational Variable

Dependent Variable and

Measurement

Cost of Equity Capital

This variable is measured by using

Ohlson model (1995) which has

been simplified by Utami (2005) as

the following equation:

=( + )

Independent Variable and

Measurement

Earnings Management


specific accruals model namely working

capital accruals and sales as the deflator

expressed by the equation:

=

Information Asymmetry


relative bid-ask spreads as the following

equation:

, =(, , )

(, , )/2 100%


7/14

Results and Discussion

The maximum value of 1,826276 indicates the highest earnings management of

COWL and the minimum value of -0,997320 indicates the lowest earnings

management of CTRP.

The maximum value of 1,500867 indicates the highest information asymmetry of

CTRS and the minimum value of 0,211180 indicates the lowest information

asymmetry DUTI. The maximum value of 1,883938 indicates the highest cost of equity capital of

GMTD and the minimum value of -0,548528 indicates the lowest cost of equity

capital of COWL.

Descriptive Statistics


8/14

Results and Discussion (Cont.)

In the table above, there is a comparison between 1st model (enter method) and

8th model (backward method) as the fit model. The table shows the F coefficient is

21,780 has a significance level of 0.000.

It means both of the independent variables (earnings management and

information asymmetry) simultaneously have a significant influence to cost of

equity capital at the 5% significance level.

Simultaneously Testing (F-Test)


9/14


t count value of earnings

management variable is -0.353

with a significance of 0,727 > 0,05.

t count value of information

asymmetry variable is 2,479 with a

significance value of 0.010 < 0,05.

t count value of D4 variable (CTRP)

is equal to 2,460 with a

significance value of 0,020 < 0,05.

t count value of D8 variable

(GMTD) is equal to 4,774 with a

significance value of 0,000 < 0,05.

Partially Testing (t-Test)

Y = 0,332X2+ 0,270D4+ 0,548D8 +


10/14


The table above shows the value of the adjusted R-square values (coefficient ofdetermination) is in amount of 0,661.

It indicates that the ability of independent variables in explaining the variance of

the dependent variable is equal to 66,1% and there is still 33,9% variance ofdependent variable which can not be explained by independent variables.

Hypothesis Testing


11/14


12/14


Hypothesis 1 (X1) earnings management influences cost of equity capital is rejected (significant

value of 0,727 > 0,05).

This is consistent with researches conducted by Regina (2012), Agus Purwanto (2012), and Seny

Selpiani (2013). It indicates that the company's cost of equity capital will not be increase by the

increasing earnings management.

Hypothesis 2 (X2) information asymmetry influences cost of equity capital is received

(significance value of 0,010 < 0,05).

This is consistent with researches conducted by Komalasari (2000), Khomsiyah (2005), andAdriani (2006). If information asymmetry increases, the market becomes less liquid. The decline

of liquidity and the increase of information asymmetry will lead to higher securities prices so

that cost of equity capital will also increase.

Hypothesis 3 (X3) earnings management and information asymmetry influence cost of equity

capital is received (significance value of 0,000 < 0,05).

When the companies manipulate their accounts and perform earnings management

automatically it causes information asymmetry. So that both of earnings management and

information asymmetry simultaneously will increase cost of equity capital.


13/14

Conclusion and Recommendation

Conclusion

1. Based on the results of F test, earningsmanagement and information asymmetry

influence cost of equity capital simultaneously.

2. Based on the results of t test, earnings

management does not influence cost of equity

capital.

3. Based on the results of t test, informationasymmetry significantly influences cost of

equity capital.

Recommendation

1. Use a larger number of samples that arebetter able to represent the influence of

independent variables on the dependent

variable.

2. Use other independent variables, such as

voluntary disclosure, financial performance,

and so on.3. Use Model-Based Aggregate Accrual and

Model-Based Distributin of Earnings After

Management to detect earnings

management.

4. Use an alternative assessment model of other

companies, such as Gordon model and the

CAPM to determine cost of equity capital.

Limitations

1. The number of samples used only eight

property companies listed in Indonesia StockExchange during the period 2008-2011.

2. The independent variables used only two

variables, such as earnings management and

information asymmetry.


14/14

the influence of earnings management and information asymmetry towards cost of equity capital case...

Documents