RISET AKUNTANSI

KEUANGAN DAN
PASAR MODAL
6 Desember
2014

Kuliah Umum Program Pascasarjana Doktor Ilmu

Akuntansi

The Efficient Markets

Hypothesis

Jensen (1978) defines an efficient market

as follows:

A market is efficient with respect to

information set t if it is impossible to make
economics profits by trading on the basis of
information set t.
Risk-adjusted
On

rate of return.

average.
Economic profits are net of all costs.

Market efficiency

Much of the regulation of financial

reporting is premised on the notion that
once firms make accounting data
publicly available, the implications will
be widely appreciated and reflected in
security prices

Market efficiency

If the market is inefficient, then financial

reporting and disclosure are not as
effective, at least with respect to prices
fully reflecting that information.
Also have implications for resource
allocation and production efficiency
Is also of interest to researchers
assumption about market efficiency in
the research design

Implications of Efficient Securities Markets

for Financial Reporting

Full disclosure

Management should develop and report

information about the firm as long as the
benefits to investors exceed the costs

Investors will use all available information about the

firm, so that additional information will not be wasted
The more information a firm discloses about itself, the
greater is investors confidence in the working of
securities market (less inside information to worry
about)

The fact of disclosure and not the form it takes

is what is important

Market efficiency

Post-earnings announcement drift (Bernard & Thomas,

1989 & 1990):

Accrual anomaly (Sloan, 1996):

Firms that report good news (bad news) in quarterly

earnings, their abnormal returns tend to drift upwards
(downwards) for some time following their announcement
Stock prices are found to act as if investors "fixate" on
earnings, failing to reflect fully information contained in
the accrual and cash flow components of current earnings
until that information impacts future earnings.

Abnormal accrual (Xie, 2001):

The overpricing of total accruals that Sloan (1996)

documents is due largely to abnormal accruals.

Information Asymmetry

Security prices do not fully reflect

fundamental value in the presence of
inside information.
Information asymmetry: some parties to
business transactions may have an
information advantage over others
Two major types of information
asymmetry

Adverse selection
Moral hazard

The Lemons Problem

The Lemons Problem

Akerlof (1970) used car market

Information Asymmetry

Securities markets are subject to

information asymmetry problems
Can lead to the breakdown in the
functioning of the capital market
Investors cant differentiate between
good firms and bad firms.
High quality reporting will reduce this
problem, thereby improving the working
of securities markets

Full Disclosure

2 main benefits:

To enable investors to make better

decisions
To improve the ability of securities markets
to direct investment to its most productive
uses

Example: voluntary disclosure, MD&A

Voluntary Disclosure

Medium:

Annual report
Website

Type:

General
Sustanability reporting / Corporate Social
Responsibility
Intellectual capital

Research on Disclosure

Botosan (1997): firms with low analyst

following, there is a negative relation
between cost of equity capital and the
extent of their voluntary disclosures.
Welker (1995): significant negative relation
between disclosures and bid-ask spreads.
Fu, Kraft, Zhang (2012): higher reporting
frequency reduces information asymmetry
and the cost of equity

Research on Disclosure

Sustainability reporting

Dhaliwal, Li, Tsang, & Yang (2011): firms with a high cost of
equity capital in the previous year tend to initiate disclosure
of CSR activities in the current year and that initiating firms
with superior social responsibility performance enjoy a
subsequent reduction in the cost of equity capital
Kim, Park, & Wier (2012): socially responsible firms are less
likely to manage earnings through discretionary accruals and
to manipulate real operating activities

Intellectual capital:

Striukova, Unerman, & Guthrie (2008): IC issues considered

important (proxied by frequency of disclosure of these issues
in the corporate reports studied) varied both with company
size and from sector to sector.

Value Relevance
Research

Examines the association between a

security price-based dependent variable
and a set of accounting variables

Value Relevance
Research

Fair values of financial instruments are

priced (Barth et al., 1996)
Intangible assets (e.g. capitalized
software, brans, and goodwill) are priced
(e.g. Aboody & Lev, 1998; Barth et al.,
1998; Barth & Clinch, 1998; Chamber et
al., 1999)

Value Relevance Research

Song, Thomas, & Yi (2010): find that the

value relevance of Level 1 and Level 2 fair
values is greater than the value relevance of
Level 3 fair values
Jones & Smith (2011): other comprehensive
income (OCI) gains and losses, special items
(SI) gains and losses are all value-relevant.
However, the value relevance of OCI gains
and losses is significantly smaller than the
value relevance of SI gains and losses.

Positive Accounting Theory

PAT takes the view that firms organize

themselves in the most efficient manner,
so as to maximize their prospects for
survival
A firm can be viewed as a nexus of
contracts

The firm will want to minimize the various

contracting costs
Many of these contracts involve accounting
variables

The Three Hypotheses of Positive Accounting Theory

The bonus plan hypothesis

The debt covenant hypothesis
The political cost hypothesis

The Three Hypotheses of Positive Accounting Theory

The bonus plan hypothesis

All other things equal, managers of firms with

bonus plans are more likely to choose
accounting procedures that shift reported
earnings from future periods to the current
period

The Three Hypotheses of Positive Accounting Theory

The debt covenant hypothesis

All other things equal, the closer a firm is to

violation of accounting-based debt covenants,
the more likely the firm manager to select
accounting procedures that shift reported
earnings from future periods to the current
period

The Three Hypotheses of Positive Accounting Theory

The political cost hypothesis

All other things equal, the greater the political

costs faced by a firm, the more likely the
manager is to choose accounting procedures
that defer reported earnings from current to
future periods

Empirical PAT Research

Healy (1985)

Dichev & Skinner (2002)

Bonus plan hypothesis managers of firms with

bonus plans based on reported income
systematically adopted accrual policies so as to
maximize their expected bonuses
Debt covenant hypothesis managers choose
accounting policies to maintain their covenant ratios
so as to meet or exceed the level required

Jones (1991)

Political cost hypothesis affected firms were

systematically choosing accrual policies so as to
improve their case for import protection

Earnings Management

Earnings management is the choice by a

manager of accounting choice, or actions
affecting earnings, so as to achieve
some specific reported earnings
objective

Patterns of Earnings Management

Taking a bath
Income minimization
Income maximization
Income smoothing

Type of Earnings Management

Opportunistic

Bad side

Efficient

Good side

Earnings Management

Accrual earnings management

Real earnings management
Classification shifting

Accrual Earnings
Management

Accruals:

Discretionary accruals
Non discretionary accruals

Discretionary accruals earnings

management

Discretionary Accruals
Model

Several models to estimate discretionary

accruals:

Jones (1991)
Dechow et al. (1995)
Kothari et al. (2001)
Stubben (2010)

Real Earnings Management

Bushee (1998):

Roychowdhury (2006):

R&D expenditures

Price discounts to temporarily increase

sales, overproduction to report lower cost
of goods sold, and reduction of
discretionary expenditure

Gunny (2010):

Similar with Roychowdhury + sale of assets

Classification Shifting

Misclassification of items within the financial statement

Mc Vay (2006): managers opportunistically shifting expenses

from core expenses (cost of goods sold and selling, general,
and administrative expenses) to special items.
Barua, Lin, Sbaraglia (2010): firms shift operating expenses
to income-decreasing discontinued operations to increase
core earnings
Lee (2012): firms manage cash flows from operation by
shifting items between the statement of cash flows
categories both within and outside the boundaries of
generally accepted accounting principles (GAAP), and by
timing certain transactions such as delaying payments to
suppliers or accelerating collections from customers.

Research on Accruals EM

Management can improve or impair the

quality of financial statements through
the exercies of discertion over financial
statements
Motives for accrual management:
opportunistic or efficient contracting

Subramanyam (1996): managerial

discretion improves the ability of earnings
to reflect economic value efficient
contracting

Accruals and Real EM

Cohen, Dey, & Lys (2008): firms switched from

accrual-based to real earnings management
methods after the passage of SOX
Cohen & Zarowin (2010): SEO firms engage in real
activities manipulation, and the decline in post SEO
performance due to the real activities management
is more severe than that due to accrual
management.
Zang (2012): whether managers use real activities
manipulation and accrual based earnings
management as substitutes in managing earnings

Earnings Quality

Accruals quality
Earnings persistence
Earnings response coefficient (ERC)

Future earnings response coefficient (FERC)

Timeliness

Earnings Quality & CG

Cohen, Hoitash, Krishnamoorthy, &

Wright (2014): audit
committeesindustry expertise, when
combined with accounting expertise, can
improve the effectiveness of the audit
committee in monitoring the financial
reporting quality (financial restatements
and discretionary accruals).

Standard Setting

Standard setting is a form of regulation

that is ultimately the responsibility of a
countrys government or legislature
Standard setting bodies: IASB, FASB,
DSAK-IAI

IFRS Research

Landsman, Maydew, Thornock (2012):

The information content of annual
earnings announcements and mandatory
adoption ofIFRS
Clarkson, Hanna, Richardson, Thompson
(2011): The impact ofIFRSadoption on
the value relevance of book value and
earnings

IFRS Research

Li (2010): the IFRS mandate significantly reduces the

cost of equity for mandatory adopters, and this reduction
is present only in countries with strong legal enforcement
Yip & Young (2012): mandatory IFRS adoption improves
cross-country information comparability
Armstrong, Barth, Jagolinzer, & Riedl (2010):

Incrementally positive reaction for firms with lower quality

pre-adoption information, which is more pronounced for
banks, and with higher pre-adoption information asymmetry
Incrementally negative reaction for firms domiciled in code
law countries
A positive reaction to IFRS adoption events for firms with
high-quality pre-adoption information.

Research On Analysts Behavior

Analysts behavior is important to

accounting research, because analyst
are among the major information
intermediaries who use and interpret
accounting data
Security prices reflect the results of their
analysis

Analysts forecasts outperform the best

statistical models (Brown et al, 1987a)

Referensi

Beaver, W.H. 2002. Perspectives on

Recent Capital Market Research,
Accounting Review 77 (2), 453-474.
Scott, W.R. 2014. Financial Accounting
Theory, 7th Ed. ,Pearson Education.

Terima Kasih
Sylvia Veronica Siregar
Pascasarjana Ilmu Akuntansi FEUI
sylvia.veronica@ui.ac.id /
sylvia.vnps@gmail.com /
sylvia_vnps@yahoo.com
08129182716