Anda di halaman 1dari 21

VALUE RELEVANCE OF ACCOUNTING INFORMATION

DURING IFRS CONVERGENCE PROCESS IN INDONESIA 1
TRI LESTARI 2
Sultan Ageng Tirtayasa University - Indonesia; Kobe University - Japan
TOMOMI TAKADA
Kobe University - Japan

Abstract
The purpose of this study is to examine the value relevance of accounting
information in Indonesian market during IFRS convergence
process.Specifically, we investigate whether value relevance improves after
significant revisions of standards during the period from 2005 to 2012.
Using price model and return model, we examine the accounting
information value relevance of Indonesia listed firms. As predicted, we find
that the value relevance of accounting information increases after the
accounting standards change. We further document some determinants of
value relevance, such as the less informativeness of negative earnings
andthe more value relevance both of large firms and firms with a higher
level of good corporate governance before and after accounting standard
change. Finally, these findings contribute to the ongoing debate of IFRS
convergence effect on accounting quality, especially the case in emerging
markets.
Keywords: IFRS convergence, value relevance, Indonesia
Abstrak
Penelitian ini bertujuan untuk menguji relevansi nilai dari informasi
akuntansi di pasar modal Indonesia selama proses konvergensi IFRS.
Secara khusus, penelitian ini menginvestigasi adanya peningkatan relevansi
nilai setelah adanya revisi standar akuntansi secara signifikan selama
periode tahun 2005 sampai 2012. Dengan menggunakan price model dan
return model, penelitian ini menguji relevansi nilai informasi akuntansi dari
perusahaan-perusahaan yang terdaftar di Bursa Efek Indonesia.
Sebagaimana telah diprediksi, penelitian ini menemukan bahwa relevansi
nilai informasi akuntansi meningkat setelah perubahan standar akuntansi.
Dari analasis tambahan, penelitian ini juga menemukan beberapa
determinan relevansi nilai akuntansi yaitu laba positif vs laba negatif,
ukuran perusahaan dantingkat penerapan good corporate governance.
Temuan dalam penelitian ini memberikan kontribusi pada isu tentang efek
konvergensi IFRS pada kualitas informasi akuntansi yang masih menjadi
perdebatan terutama untuk kasus pada pasar modal di negara sedang
berkembang.
Kata Kunci: konvergensi IFRS, relevansi nilai, Indonesia

1We

thank Prof. Hisakatsu Sakurai and Prof. Kazuhisa Otogawa in Kobe University, Japan for their
helpful comments.
2Author can be contacted at trilestari.untirta@gmail.com

I. Introduction
International accounting standards have been affecting Indonesian companies
since 1994 when DSAK has committed to harmonizing PSAK to international
accounting standards. As such, most PSAK issued since then have been based on
international accounting standards. Although the converging process was slow in the
first decade, DSAK take a serious effort to expedite the convergence process in 2009.
A number of new revisions are made and some new standards are issued during 2009
and 2010. However, the target to fully IFRS adoption in 2012 has not been achieved.
Some major and minor differences between IFRS and PSAK still exist. The
convergence process still left two PSAK that have not been adopted yet, including
IFRS 1 and IAS 41.
According to Indonesian Law No. 40 (2007), corporate entities are required to
prepare annual financial statements in accordance with the accounting standards
issued by the professional accounting organization recognized by the Indonesian
government. Although there is no formal legal backing to IAI as a professional
accounting body, the DSAK-IAI acts as the de-facto standard setter in the country.
Some regulatory bodies, including Bappepam-LK (the Security Commission),
Indonesia Stock Exchange, and Bank Indonesia (the Central Bank) are responsible for
ensuring the compliance with PSAK.
Report on The Observance of Standards and Codes (ROSC) Indonesia (2010)
states that the in-country stakeholders view that the institutional framework of
corporate financial reporting in Indonesia has improved over the past ten years.
However, many observers concern about the consistency of accounting policies and
practices from one period to another, and the comparability of financial information
from one entity to another in a similar business or sector. Despite there are some
compliance weaknesses, the report mentions that investors in this country tend to rely
more on the information available in published financial statements audited by the
largest four accounting firms in the country.
The goal of establishing international accounting standards (IAS/IFRS) is to
develop an internationally acceptable set of high financial reporting standards.
However, there has been considerable debate over the value relevance of accounting
information prepared under IAS/IFRS. Barth et al. (2001) show that firms with high
quality accounting have a stronger association between stock prices and earnings and
book value because higher earnings quality better reflects a firm`s economic

Widodo Lo (2012) investigatesthe value relevance of accounting information under IFRS transition in Indonesia from 1994 to 2009. Widodo Lo. This continuing process has been made significant revisions of the standards since 2009. firm`s size and good corporate governance level. In addition. 2010. This study also gives other contribution by analyzing some factors that may affect the value relevance of firms financial reporting. Dobija and Klimczak. 2009. this study analyzes value relevance during IFRS convergence process using price model and return model. Alali and Foote. IFRS convergence process in Indonesia is still continuing.Moreover. Samarasekera et al. (2011) argue that examining the value relevance of accounting information under IFRS in an emerging market become interesting because investors in emerging markets have very limited information available... 2013). 2011. 2011. and Wan Ismail et al. By using both models. However. Studies on the relevance of IFRS adoption in emerging market become more popular in the recent years. . negative earnings. which only use price model in his analysis. 2012. this study uses more recent data of Indonesian listed firms.. Based on this background. Aubert and Grutnitski. Some studies find that accounting information under IAS/IFRS is more value relevance (Barth et al. (2008) also find the accounting standards that reduce earnings management behavior result in high value relevance accounting earnings. 2012.. Paglietti. Liu et al. while other studies find no improvement in value relevance after IAS/IFRS adoption (Paananen and Lin. The main purpose of this study is to examine whetherthe value relevance of accounting information increase over time during IFRS convergence process. it is interesting to investigatethe value relevance of accounting information prepared under accounting standards during IFRS convergence process in Indonesian market. 2009.. Different from Widodo Lo (2012). 2011). 2008. and Tsalavoutas et al. These factors include positive vs. 2012. prior studies on the value relevance of accounting information under international standards show conflicting evidence. which covers the period from 2005 to 2012. He finds that value relevance of earnings and equity book values is higher in the period of significant adoption of IAS/IFRS than the period of little IAS/IFRS adoption. Liu et al.condition. especially value relevance of accounting information prepared under IFRS-based standards. Barth et al. the analysis encompasses the scope of assessing value relevance into both income statement and balance sheet.

find that value relevance has not improved after IFRS adoption. sample selection procedures.S. Meanwhile. However. The remainder of our paper is organized as follows: section 2 provides a brief overview of prior research on value relevance and IFRS adoption. For companies listed on Warsaw Stock Exchange.We document empirically that the accounting information value relevance of firms listed on Indonesia Stock Exchange increases after significant revisions of accounting standards. On the contrary. We also find a higher level of value relevance for large firms and firms with higher quality of good corporate governance.1 Prior Literature Beaver (1998) and Ohlson (1999) provide formal definitions. The value relevance of accounting information has been tested extensively in prior studies. there . including accounting information prepared under international accounting standards (IAS/IFRS). section 5 concludes. Paananen and Lin (2009). and develops our hypothesis. Their finding indicates that. Dobija and Klimczak (2010) find a positive evidence of such relevance but no improvement in the strength of the relationship over time. section 3 discusses our valuation model. Paglietti (2009) compare the value relevance before and after IFRS mandatory adoption in Italy. we find evidence of some determinants effect on value relevance. II. Clarkson et al. domestic standards. there is an inconsistence finding in country specific studies. (2011) compare the value relevance between common law and code law countries using firms in EU countries and Australia. upon the switch to IFRS. Barth et al. In addition. (2008) find that firms applying IAS from 21 countries generally evidence more value relevance of accounting amounts than do matched sample firms applying non-U. which have similar key commonality in the definitions that is an accounting amount is deemed value relevant if it has a significant association with equity market value. and presents descriptive statistics. Some previous studies find that accounting information under IAS/IFRS is value relevant. there is a declining in value relevance of book value per share and earnings per share of firms in common law countries. section 4 presents results analyses and discusses our empirical findings. We test and find that firms with negative earnings are less informative. He finds that value relevance increase after IFRS mandatory adoption. using sample of Germany firms. Literature Reviewand Hypotheses Development 2.

create hidden reserves. Liu et al. 2. He finds that value relevance of earnings and equity book values is higher in the period of significant adoption of IAS/IFRS than the period of little IAS/ IFRS adoption. This is in line with the goal of IASC and IASB to developan internationally acceptable set of high quality financial reporting standards by issuing principle-based standards and taken steps to remove allowable accounting alternatives and to require accounting measurements that better reflect a firm`s economic position and performance (Barth et al. Barth et al. Widodo Lo (2012) investigates the influence of adopting IAS/IFRS on the value relevance of accounting information from 1994 to 2009. investors in Indonesian market tend to rely more on the information available in published financial statements. provide more useful balance sheets. it is expected that the new standards will improve the accounting quality of financial reporting. (2008) state that accounting amount that better reflect a firm`s underlying economics. 2008 with reference to IASC. 2012). One of the objectives of IFRS adoption in emerging markets is to have a higher quality of accounting standards. In addition. generally. Based on ROSCIndonesia survey in 2010. Hence. Prior researches in emerging countries show similar and more consistent results. A study using firms listed on Abu Dhabi Stock Exchange also show that accounting information under IFRS is value relevant (Alali and Foote.is an increasing in value relevance for firms in code law countries. and curtail the discretion afforded managers to manipulate provisions. Ball (2006) argues that IFRS are designed to make earnings more informative. In addition. 2012).2 Hypotheses Development The purpose of this study is to examinethe value relevance of accounting information during IFRS convergence process in Indonesia.. Such as in China. “smooth” earnings and hide economic losses from public view. For case in Indonesian market. (2011) find that value relevance of accounting information increase after new substantial IFRS-convergent accounting standard became mandatory. 1989). Wan Ismail et al. especially that audited by the largest four accounting firms in the country. In emerging markets. published financial reports are the only sources of information available for existing and potential investors to use (Alali and Foote. (2013) also find that earnings reported duringthe period after IFRS adoption in Malaysia is associated with higher value relevant. resulting from either principle- .

there are two basic types of valuation model that have extensively used by prior studies. Price model testing how firm`s market value relate to accounting earnings and equity book value.based standards or required accounting measurements.e. it is expected that the implementation of IFRS-based standards will result in an increase in value relevanceof Indonesian firms` financial statements. whereas price models based on Ohlson (1995) show how a firm`s market value is related both accounting earnings and equity book value. As seen in equation 1. III. return models will bias earnings coefficients towards zero. (2001) discuss two advantages of price models compare to return models. Easton and Harris (1991) popularized a specific version of the annual return model including both earnings levels and earnings changes. The return model used in this study. the use of Ohlson model will expand the scope of assessing the value relevance into both income statement and balance sheet.Therefore. In addition. . is provided in equation 2. the model expresses the firm value as a function of its earnings and equity book value. In particular. which describes the relation between stock returns and accounting earnings.1 Valuation Model In value relevance literature. i. prices leading earnings. based on Easton and Harris (1991). When stock markets anticipate any components of accounting earnings and incorporate the anticipation in the beginning stock price. Kothari and Zimmerman (1995) argue that price models yield unbiased earnings coefficients because stock prices reflect the cumulative effect of earnings information. On the other hand. Chen et al. Then. The value relevance of accounting information studies using returns-earnings association is motivated by the seminal work of Ball and Brown (1968). the main hypothesis is stated as: Ha: Value relevance of accounting information under substantially IFRSconvergent accounting standards increases after recent revisions of the standards. Return models only assess the value relevance of accounting earnings. based on Ohlson (1995). Research Method 3. can increase accounting quality because by doing so provides investors with information to aid them in making investment decisions. The other type of value relevance valuation model is return model.

𝐸𝐸𝐸𝐸𝐸𝐸𝑖𝑖𝑖𝑖 . then examine whether value relevance differs due to these factors based on the results of price model and return model. and (𝑬𝑬𝒊𝒊𝒊𝒊 −𝑬𝑬𝒊𝒊𝒊𝒊−𝟏𝟏 ) 𝑷𝑷𝒊𝒊𝒊𝒊−𝟏𝟏 to be positive and significant at a conventional level if accounting information is value relevant. coefficients and adjusted R-squared in later period is higher relatively compared to the previous period. We expect the coefficients of 𝐸𝐸𝒊𝒊𝒊𝒊 . we can find a large number of value relevance studies use both price and return models. This study estimates price model and return model described above to examine the hypothesis.However. 𝑬𝑬𝒊𝒊𝒊𝒊 𝑬𝑬𝑬𝑬𝑬𝑬𝒊𝒊𝒊𝒊 : Equity book value per share for firm i at the end of period t. Earnings per share of firm i for year t. If the period after the accounting standards changes (2009-2012) is more value relevant. Pit = α0 + α1 Eit + α2 EBVit + εit Where: Pit : Stock price of firm i (at three months after end of year t). and firms with high and low corporate governance perception index. Change in annual earnings per share. the analysis also . In addition. Cramer`s test (1987) is used to examine the significant different between two R-squared. The stock price at the beginning of nine months prior to fiscal year end. To examine the change in the relative value relevance of accounting information under substantially IFRS-convergent accounting standards after recent revisions of the standards. this study uses both price and return models in assessing the value relevance of accounting information. : Earnings per share for firm i during period t. 𝑬𝑬𝒊𝒊𝒊𝒊 𝑹𝑹𝒊𝒊𝒊𝒊 = 𝜶𝜶𝟎𝟎 + 𝜶𝜶𝟏𝟏 𝑷𝑷 Where: 𝑹𝑹𝒊𝒊𝒊𝒊 : : 𝑬𝑬𝒊𝒊𝒊𝒊 𝑬𝑬𝒊𝒊𝒊𝒊 − 𝑬𝑬𝒊𝒊𝒊𝒊−𝟏𝟏 : : 𝑷𝑷𝒊𝒊𝒊𝒊−𝟏𝟏 𝒊𝒊𝒊𝒊−𝟏𝟏 + 𝜶𝜶𝟐𝟐 (𝑬𝑬𝒊𝒊𝒊𝒊 −𝑬𝑬𝒊𝒊𝒊𝒊−𝟏𝟏 ) 𝑷𝑷𝒊𝒊𝒊𝒊−𝟏𝟏 + 𝜺𝜺𝒊𝒊𝒊𝒊 1) (2) Stock return firm i for year t (annual return from month -9 to +3). negative earnings. Kothari and Zimmerman (1995) argue that return models have less serious econometric problems of heteroscedasticity than price models. and the results of the two models are expected to complement each other. this study estimates equation 1 and 2 using subsample of the period before and after standards changes (2005-2008 and 2009𝑬𝑬𝒊𝒊𝒊𝒊 2012). Following previous studies and based on Kothari and Zimmerman suggestion. To analyze the impact of some factors on value relevance. this study divides firms sample according to firms with positive vs. In fact. firm size (small and large firm). 𝑷𝑷 𝒊𝒊𝒊𝒊−𝟏𝟏 .

3All continuous variables are winsorized at 1% top and bottom to control for outliers . The mean of earnings per share and equity book value per share also increases significantly in the period after accounting standards change. The annual stock return in the later period increases almost threefold to 53.2 Sample Selection and Descriptive Statistics Data are collected from the Bloomberg Database for all of non-financial listed companies on the Indonesia Stock Exchange from 2005 to 2012.304 observations and 1. which have 1. We divide the sample periods into two groups that represent the period before and after accounting standards change. All of the correlation magnitudes increase in later period. the mean increases in all variables in the later period.194 firm-year for return model. 3 On average.144.06%.413.33 compared to the previous period (1. 3. Table 1 shows descriptive statistics of regression variables. Panel B also shows significant positive correlations among variables used in return model. Table 2 provides the Pearson`s correlation coefficients for variables used in price model and return model. In addition. and earnings per share and equity book value per share are positive and significant for both periods. The mean of closing stock price presents an increase during the period of 2009-2012 to 2. The selection process ends up with total observations of 2.338 firm-year for price model and 2. Panel A presents that correlations between stock price and earnings per share.covers the impact of these factors on value relevance change between periods before and after accounting standards change. The first group consists of firm-year observations from 2005 to 2008. Comparing between the period of 2005-2008 and 2009-2012.47). firms are included in the sample are profitable. stock price and equity book value per share. firms with negative equity book value are also deleted from the sample. which can be seen in mean of earnings per share and total return. Firms with fiscal year end other than December 31 and firms with incomplete data of any variable need in the analysis then deleted. The second group consists of firm-year observations from 2009 to 2012 with 1.224 observations for price model and return model analysis respectively.034 observations for price model analysis and 970 observations for return model analysis.

Barth et al. So. we find that the later period (2009-2012) has a higher coefficient of earnings per share. 1Price Model Result Table 3 provides results of regressions using subsample 2005-2008 and 2009-2012 for price model. IV. (1998) show the importance of earnings and equity book value as determinants of equity prices. there are only about 19 % firms with negative earnings of pooled samples. except correlation between scaled earnings and scaled change earnings. Overall.47 and 11. Comparing results from the period before and after standards changes. Results 4. However. when the financial of firm deteriorates.438 . the later period has significantly higher adjusted R-squared(75%) relatively compared to the previous period (69%). The results of both periods show that accounting information in Indonesian market under IFRS-based standard is value relevant. this result supports the main hypothesis of this study that value relevance of accounting information increases after accounting standards change.Higher correlation magnitudes also found in the later period. The result of Cramer`s test showsthat the two Rsquared is significantly different.368 respectively.579 to 0. 4. The coefficient of earnings is positive and significant. it may explain why investors more focus to earnings rather than equity book value. In our sample. It suggests that earnings are more value relevant than equity book value. the results from price model show that the coefficients of earnings and equity book value are positive and significant. the magnitude of equity book value coefficient is smaller than earnings coefficient. They state that book value becomes more relevant. This higher coefficient indicating that earnings are more value relevant in the period after the accounting standards change.The coefficients of this variable from2005-2008 and 2009-2012 are 4. As expected. we find that earnings are value relevant in both periods.616.indicating that high level of earnings is associated with high stock return. The coefficient of equity book value also increases from 0. 2 Return Model Result From the result of return model regression. In addition. The magnitude of this coefficient also increases significantly from 57.

we find insignificant coefficient of earnings changes in both periods indicating that this variable is not associated with stock return. As in the 4We also estimate the price and return models using dummy period for pooled sample and get similar result with improved R-squared. By deleting firms with less than eight years data (2005-2012). Overall.954 in 2009-2012.649 firm-year observations for return model. we get 772firm-year observations ofprice model and 768firm-year observations of return model for each period.and 2008-2009 with 588 firm-year observations for price model and 568 firm-year observations for return model. 3Robustness Test We perform several sensitivity tests to check the robustness of the results. First.1% for 2005-2008 and 8.763firm-year observations for price model and 1. The result from return model also shows that the later period has significantly higher adjusted R-squared. we estimate the regression ofprice model and return model using a match-sample consisting firm-observations available in all sample periods.Table 4Panel B provides the regression results from price model and return model using three kinds of narrower period before and after accounting standards change. to rule out the effect of sample composition changes in the results of the whole sample. 2007-2012 with1.we re-estimate price model and return model regression by including firms with negative equity book value and add dummy EBV variable. In addition. The results from both models are materially similar compared to those reported in table 3.1% for 20092012. the results from stability test are consistent with the main test results. 2. However.105 firm-year observations for return model. This insignificant association reveals that investors do not concern about earnings surprise in both periods. stated as one if the firm has positive equity book value and zero otherwise. The coefficient of 2005-2008 and 2009-2012 of this variable are 10. 4 4.This result complements the evidence found in price model and supports the main hypothesis. The results remain materially unchangedcompared to those of the whole sample for both models.88 and 6. Furthermore.179 firm-year observations for price model and 1. we perform stability test by dividing the test period 2005-2012 into narrower period.63 respectively. The narrowed periods are 2006-2011 with 1. .in 2005-2008 to 140.

main test. Widodo Lo (2012). 4. the magnitude of earnings coefficient and equity book value coefficient in the later period are higher than the previous period for both models in all narrowed period. and not value relevant when both equity book values and earnings are negative. 1 The Effect of Negative vs. As Johnson (1999) argues that interest rates should be included in models whenever inferences about changes in the value relevance of earnings due to non-interest rate factors are hypothesized. Chen et al. the results remained qualitatively unchanged. Therefore. Positive Earnings Hayn (1995) find that firms with positive earnings have a significantly higher of earnings response coefficient than those with negative earnings. The adjusted R-squared in the later period decreases from . this study uses price model and return model to analyze the effect of positive vs. 1997. Different from Widodo Lo (2012). We use Bank Indonesia certificate (SBI) rate of return as a proxy of risk-free rate. Collins et al. As seen on Table 4 Panel C. Finally. positive earnings on the value relevance of accounting information. using sample of Indonesian listed firms. 2007-2008 and 2006-2008). Coefficient of all variables and adjusted R-squared from both model are similar to those in the main test. 4. in this analysis. finds evidence based on price model that equity book values and earnings are value relevant when both equity book values and earnings are positive. 4Additional Analyses 4. we expect that the accounting information of firms with positive earnings is more value relevant than firms with negative earnings before and after the accounting standards change. the coefficients of earnings in both periods arenegative and not significant. From results of return model. butthe coefficients of equity book value are positive and significant.. We find a mix result depend on the model used. we perform a sensitivity test by using interest rates as a control variable. 1997. This result suggests that book value become more relevant for firms with negative earnings. Table 5 presents the results of regression toanalyze the effect of negative vs. negative earnings on the value relevance. we find significant coefficient of earnings changes in three narrowed periods (2008.. for group of firms with negative earnings. 2001). Furthermore. From price model analysis. some other studies also find that equity book value becomes more relevant than earnings when firms have negative earnings (Burgstahler and Dichev.

03 in the previous period to 320. and consequently. This result is consistent with Widodo Lo (2012) finding. 4. Hayn (1995) and Chen et al. However. On the contrary.Hayn (1995) find an extremely low and insignificant earnings coefficient when only loss cases are considered.5% in the previous period to 78. (2001) using sample of China market also find that negative earnings is not value relevant. she finds that the coefficient and Rsquared decline monotonically with the number of years in which the firm experience a loss.9%). we find results as predicted. The adjusted R-squared also significantly increases from previous (5%) to later period (17. which substantially increase from 140. (2001) also find a weaker response of losses. The finding of less informative of loss is consistent with the results of previous studies. 2 The Effect Firm Size Firm size has been examined as a factor related to value relevance. 4. The coefficient of earnings and equity book value are positive and significant with adjusted R-squared more than 70% for both periods. stock prices of larger firms either incorporate more public information about the firm`s future prospect or aggregate such information more quickly than smaller firms. They argue that investors perceive negative earnings as non-sustainable and focus on the information reflected in equity book value. the earnings variable plays a significant role together with the equity book value variable for firms with positive earnings. Several prior studies show that accounting information is more value relevant for smaller firm than larger firm because larger firms receive more media coverage and other forms of public attention than smaller firms do. and the model is also insignificant.68 in the later period. both of which will lead to a smaller earnings response coefficient in larger firms (Chen et .3% in the previous period to 31.42.From the group of firms with positive earnings. Further. The adjusted R-squared also increase significantly from 70. As predicted by the theory.4% in the later period.4% in the later period. None of the coefficient is significant for both periods. we only find a significant coefficient of earnings change in the later period in the positive earnings group with a negative sign. Chen et al. for positive earnings groups. we find a significant positive coefficient of earnings. The return model gives a different result for groups of negative earnings.

(2001) and Alali and Foote (2012) find different results on the effect of firm size on value relevance from return model and price model. then make a partition of the sample equally into two groups according to the magnitude of firm`s market value.al. that accounting information of large firms is more value relevant than small firms. accounting information of smaller firms is more value relevant than larger firms. Lestari (2013) find that firms with a better implementation of corporate governance have better quality of earnings based on income smoothing. which suggest that value relevance increases in the later period for both of the groups. and Liang and Shan (2011). large firms have higher earnings coefficient and adjusted Rsquared compared to small firms in the period before and after accounting standards change. we compare the value relevance between a group of small and large firms. then we also compare the change of value relevance within group of small and large firms before and after the accounting standards change. However.The earnings coefficient and adjusted R-squared in groups of large and small firms increase in the later period. Specifically.Table 6 shows the results ofthe regression model from the group of small firms and large firms. accrual quality and timely loss recognition before and after accounting standards change. 4. while the finding based on price model shows an opposite result. Kent et al. However. we exclude firms with negative earnings since the result from return model shows that this group is not value relevant. Meanwhile. To examine the effect of firm size. Chen et al. Comparing within the groups. we can infer that firms with good corporate governance .The results from return model also support the findings in price model. 4. From price model. large firms have higher earnings coefficient and adjusted R-squared for both periods. this study finds similar inferences from price model and return model. value relevance of large firms increase in the later period. Based on return model. 2001).Of these findings. (2010). 3 The Effect of Good Corporate Governance Prior studies document that effective corporate governance mechanisms are associated with less earnings management as the properties of accounting quality (Van Tendeloo and Vanstraelen (2005). Different from previous studies findings. By estimating price and return model. small firms have a similar earnings coefficient and adjusted R-squared for both periods..

To test the effect of corporate governance on value relevant.097 firms without a high level of CGPI index (hereafter refer to as “non-CGPI firms”). The comparison between CGPI firms and nonCGPI firms give us similar inferences about value relevance using price and return models. The results show that group of CGPI firms are more value relevant before and after accounting standards change. On the contrary. As additional analyses. V. For CGPI firms. we expect that these firms have a better value relevance of their accounting information. coefficient of earnings decreases in the later period and adjusted R-squared does not significantly increase.practice are more concern with accounting quality. this study documents the less informative . Conclusion The objective of this study is to examine the value relevance of accounting information in Indonesian market under substantially IFRS-convergent accounting standards after recent revisions of the standards. the return model analysis gives different results. In addition. including negative vs. So. non-CGPI firms have an increasing of earnings coefficient and adjusted r-squared. firm size. we find that value relevance of CGPI firms and non-CGPI firms increase after accounting standards change.964 non-CGPI firms. there are 241 firms with a high level of CGPI (hereafter refer to as “CGPI firms”) and 2. This finding supports the assumption that firms with a higher level of good corporate governance are more concern about the accounting quality of their financial statements. Using data of firms listed on IDX. this study compares the value relevance of firms` accounting information in 20052008 and 2009-2012. from the price model. and corporate governance quality on value relevance. This study finds that value relevance of accounting information increases after accounting standards change. However. Comparing between the period before and after accounting standards change. this study also examines the effect of some factors. we identify firms with high level of corporate governance perception index (hereafter refer to as CGPI) based on data fromthe Indonesian Institute for Corporate Governance. For return model. Table 7 presents the results from regression model from group of CGPI and non-CGPI firms. For price model. positive earnings. we have 230 CGPI firms and 1. The value relevance change is analyzed using price model and return model by testing the coefficient and adjusted R-squared.

. we acknowledge that there are some other factors that may influence the value relevance change during the sample period.. especially the case in emerging markets.of negative earnings and shows that large firms and firms with higher level of good corporate governance are more value relevant before and after accounting standard change. However.g. the results of this study are still subject to several limitations. Include some other control variables and apply other methodology to analyze value relevance change (e. 2008 approach) may give a different insight about the impact of accounting standards change on value relevance. Barth et al. Although. the results are robust to some sensitivity tests. These findings contribute to the ongoing debate of IFRS convergence effect on accounting quality.

W. and P. Barth. and M. Dobija. R. and T. 2008. E. IFRS and Indonesian GAAP (PSAK): Similarities and Differences. D. Dichev. Auditing and Finance 26(4): 659-676. Adaptations and Equity Value. R. Clarkson. J. Grudnitski. McNichols. 2010. Accounting and Business Research 36 (Special issue): 5-27. J.. Foote. The Impact and Importance of Mandatory adoption of International Financial Reporting Standards in Europe. and S. Development of Accounting in Poland: Market Efficiency and the Value Relevance of Reported Earnings. Journal of Accounting Research 29 (1): 19-36. 1998. E. Richardson. and W. H. Aubert. Ball. and K. Maydew. Landsman. W. Liu. International Accounting Standards and Accounting Quality. Mean and Variance of R2 in Small and moderate Samples. M. R. The Characteristics and Valuation of Loss reserves of Property Casualty Insurers. Yao. Burgstahler. M. F. Chen. W. Beaver. The Information Content of Losses. H. D. Journal of Accounting. Journal of Accounting and Economics. Review of Accounting Studies 4: 93-117. and W.1999.The Accounting Review (April): 187-215. Auditing and Taxation 10: 1-22. 1–34. Barth. and Thompson Rex.. Journal of Accounting and Economics 24: 39-67. 2011.. Collins. Weiss.. C. .498. Liu. Beaver. Journal of Accounting and Economics 20: 125-153.Beaver. Barth. M. 1991. N.com/id. and L.pwc. The International Journal of Accounting 45(3): 356-374. M. C. International Financial reporting standards (IFRS): Pros and Cons for Investors. S... 2001. The Relevance of the Value relevance Literature for Financial Accounting Standard Setting: Another View. X. Available at www. J. P. 1998. M.. A. 2011. Gordon. 25. 1997. The Impact of IFRS on Accounting Quality in a Regulated Market: An Empirical Study of China. 1995.. F. D. M. E. Journal of Accounting and Economics 31: 77-104. Journal of Accounting Research 46 (3): 467. and G.Reference Alali. 1997. Earnings. 2006. S. Klimczak. S. Hu. 2001. P. Hanna. Lang. Hayn. D. The Impact of IFRS Adoption on The Value Relevance of Book Value and Earnings. Earnings as an Explanatory Variable for Returns. Cramer. H. D. Harris. Journal of Contemporary Accounting and Economics 7: 1-17. Su.. Review of Accounting Studies 3: 73-95. P. 1987.. Is Accounting Information Value-Relevant in the Emerging Chinese Stock Market?Journal of International. and I.Journal of International Financial Management and Accounting 22(1): 1-26. 2011. R. 2012. Landsman. F. Landsman. Johnson. 2012. G. Relative valuation roles of equity book value and net income as a function of financial health. Easton. Chen. Changes in the Value-Relevance of Earnings and Book Values over the Past Forty Years. J. D.. C. L. The Value Relevance of International Financial Reporting Standards: Empirical Evidence in an Emerging Market. and I. Business Cycles and the Relation between Security Returns and Earnings. D. W. The International Journal of Accounting 47: 85-108.. F.Journal of Econometrics 35: 253-226.

Innate and Discretionary Accruals Quality and Corporate Governance. 2009. and K. A. A. I. Available at SSRN: http://ssrn. Review of Accounting Studies 4: 145-162.imf. A. Van Tendeloo. C. Widodo Lo. Vanstraelen.aspx Samarasekera.. The Transition to IFRS and the Value relevance of Financial Statements in Greece. 1995. Wan Ismail. Report on The Observance of Standards and Codes (ROSC) Indonesia – Accounting and Auditing.Earnings Management under German GAAP and IFRS. 2012.. Ohlson. Price and Return Models. B. Lin. N. The Effect of IFRS Convergence and Corporate Governance on Earnings Quality: Evidence from Emerging market. Ohlson. T. and J. http://www.org/external/NP/rosc/rosc. The British Accounting Review 44: 262-277. W. Earnings Quality and the Adoption of IFRS-based Accounting Standards: Evidence from an Emerging Market. J.. 1999. 50 (1): 171-195. 2013. Evans. Liang.European Accounting Review. Investigating the Effects of the EU Mandatory Adoption of IFRS on Accounting Quality: Evidence from Italy. A. Tsalavoutas. Working paper in The International Conference on Governance. and A. Milicent. The Development of Accounting Quality of IAS and IFRS over Time: The Case of Germany. . Asian Review of Accounting. and H. S. Zimmerman. and A. 2010. Jurnal Akuntansi & Manajemen 23 (2): 139151. Earnings.. P. IFRS and Accounting Quality: The Impact of Enforcement. E. University of Western Australia. Zijl. 1995. 2012. and J.. Tarca. Shan. Lestari. Journal of International Accounting Research 8 (1): 31-55. International Journal of Business and Management 4 (12): 3-18. J.Kent. Routedge. P. T. Financial Markets and Corporate Governance Conference. and L. 2012. Accounting and Finance. K. G. 2005. 2010. 14 (1): 155-180.com/abstract=2215424. 2009. Book Values and Dividends in Security Valuation. A. M. 2013. On Transitory Earnings. Kothari. Paul. J. Paglietti. Working paper at Business School. Dunstan. Stewart. 21 (1): 53-73.. and Y. Jakarta-Indonesia. Khairul. Contemporary Accounting Research 11 (2): 661-687.. Journal of Accounting and Economics 20 (2): 155-192. Trisakti University. Paananen.Do Corporate Governance Impact on Earnings Quality? Evidence from IFRS Adoption in European Union. The Value Relevance of Accounting Information in Transition to IAS/IFRS: the Case of Indonesia. J. 2013.

954 6.22 0.10 -1.545 14. Median 275.63 49.799*** .034) E .99 1.69 0. Adjusted R2 0.096*** 2009-2012 1.86 -540.034 4.007.87 -70.92 -1.616 31.021 0.673.66 7.032*** Panel B: Return model R it =α 0 +α 1 E it /P (it-1) +α 2 (E it -E (it-1) )/P (it-1) +ε it N α1 α2 2005-2008 970 57.304) .96*** 8.75 Adjusted R2 0.034) (n = 1.519*** Table 3 Regression Results Panel A: Price model P it =α 0 +α 1 E it +α 2 EBV it +ε it N α1 α2 2005-2008 1.15 432.144.148*** . 2.78 1.579 21.956 2009-2012 1.014.888 3.33 0.18 150.84 -85.820 14.56 1.73 1.575*** *** indicates significance at 0.26 Min 24.33 97.01 significance level.13 2.65*** 0.224) (n = 970) E/Pt-1 .13 0.01 Max 21.36 Table 2 Correlations Matrix Panel A Correlations matrix for price model variables P 2005-2008 2009-2012 2005-2008 (n = 1.Appendix Table 1 Descriptive Statistics Variable P 2005-2008 2009-2012 E 2005-2008 2009-2012 EBV 2005-2008 2009-2012 R 2005-2008 2009-2012 E/P t-1 2005-2008 2009-2012 ΔE/P t-1 2005-2008 2009-2012 Mean 1.741*** Panel B Correlations matrix for return model variables R 2005-2008 2009-2012 2005-2008 (n = 970) (n = 1.74 -1.110*** .24 -304.517 *** indicate significance at 0.257 3.38 -0.135 3.47 2.081 .08 0.04 Std.998 68.91 803.82 755.413.08 -1.57 485 13.05 0.05 0.94 104.368 0.07 0 0.304) (n = 1.54 18.23 20.29 352.44 6.20 0.161*** .286*** ΔE/Pt-1 .616 873.31 1 2.246*** 0.63 8.01. Dev.70 28 278.47 0.862.787*** E/Pt-1 2009-2012 (n = 1.224) .267*** 13.304 11.744*** .86 97.859*** EBV .06 0.17 53.03 0.54 8.224 140.78 E 2009-2012 (n = 1.745*** .47 345.438 10.46 0.868.

967*** 0.152 26.021 Panel B: Stability test Price model P it =α 0 +α 1 E it +α 2 EBV it +ε it N α1 289 5.29** 587 157.642*** 0.273 8.579 -44.801 0.017*** -0.959 3.021 0.511*** 772 13.297 2.037 2.439** 1.987 21.691 0.616 -10.362 7.22 3.034 4.872 31.412 0.945*** 8.083 1.878*** 2009-2011 958 11.75 Adj.061 19.228 0.844 0.08 2009-2012 1.921*** 2006-2008 805 5.783 0.51*** -0.034 0.42 748 52.668 768 56.421 2.369 0.69 0.05.45*** 2009 299 9.245 0.103 7.224 140.021 2.474 0.848 8.235 -21.365** 1.667*** 0.887 0. 0. Adj.677 21.658*** 0.094 .Table 4 Results of Robustness Test Panel A: Results using match sample 2005-2008 2009-2012 Price model P it =α 0 +α 1 E it +α 2 EBV it +ε it N α1 α2 772 4.268 11.826*** 0.235 4.432*** 11. R2 0.763 768 164.032 Panel C: Regression results using SBI rate as control variable Price model P it =α 0 +α 1 E it +α 2 EBV it +α 3 SBI t +ε it N α1 α2 α3 2005-2008 1. R2 0.128 2009-2012 1.032** 0.987*** 0.194 0.773 12.16 48.341 0.977*** Adj. N α1 α2 R2 277 33.162 18.875 -22.015 2.256*** 13.75 Return model R it =α 0 +α 1 E it /P (it-1) +α 2 (E it -E (it-1) )/P (it1) +ε it Adj.919** 291 98.699 0.864*** 1. R2 0.702* Return model R it =α 0 +α 1 E it /P (it-1) +α 2 (E it -E (it-1) )/P (it-1) +ε it 2 Adj.72 0.342 0.875 -0.468 0.335 4.345 20.895 23.13 8. R N α1 α2 Adj.1. 0.546 18.827*** -1. R2 0.225** 2.959 8.758*** -1.719 27.035*** 2007-2008 562 7.045 3.081 7.284 2.117 518 59.06 2.3*** *.547 0.744 0.156*** 2009-2010 617 9.252 3.096*** -1.01*** 0.123 Return model R it =α 0 +α 1 E it /P (it-1) +α 2 (E it -E (it-1) )/P (it-1) +α 3 SBI t +ε it N α1 α2 α3 2005-2008 970 56.161 27. **.304 11.186*** 2008 α2 0.761* 901 143.01 significance levels respectively.513 17. *** indicate significance at 0.207*** 1.

705 20.297 -82.178 10.515 2009-2012 185 -20.014 2009-2012 1039 320.105 6.678 -41.145 7.867*** 0.78 0. Table 6 Regression Results for Small vs.179 13.Table 5 Regression Results for firm with Negative vs.88 Positive Earnings 2005-2008 776 140.435 -0.204 0.66*** *** indicates significance at 0.035 0.939*** -1.251*** 3.613 0.357 22.518 0.134 0.266*** 2009-2012 622 13.202 -22.041 0. Large Firms Panel A: Price model P it =α 0 +α 1 E it +α 2 EBV it +ε it N α1 α2 Adj.754 0.564*** Positive Earnings 2005-2008 828 5.349 0.569*** Panel B: Return model R it =α 0 +α 1 E it /P (it-1) +α 2 (E it -E (it-1) )/P (it-1) +ε it N α1 α2 Adj.329 24.394 0.322 2009-2012 577 490.464 0.98** 1.446 0.976 0.584 -7.731 14.784 33.559*** -2.51*** 4.206*** 2009-2012 195 -3.243 -0.953*** Panel B: Return model R it =α 0 +α 1 E it /P (it-1) +α 2 (E it -E (it-1) )/P (it-1) +ε it N α1 α2 Adj.004 -1.724 0.052 1.125*** 6. Positive Earnings Panel A: Price model P it =α 0 +α 1 E it +α 2 EBV it +ε it N α1 α2 Adj.423 -1.461 0.287*** 7.908*** 4.068 0.01 significance level.006 -0.861 8.687 15. R2 Negative Earnings 2005-2008 206 -0.675*** Large Firms 2005-2008 347 6.872*** 2009-2012 487 4. R2 Small Firms 2005-2008 445 60.032 0.75*** 2009-2012 1109 12.314*** 8.11 0.05 4.42 -12.181 2.869 33.744 0.781 0.592 0.268 .25 Large Firms 2005-2008 331 351. R2 Small Firms 2005-2008 481 4.793 0.619 2009-2012 462 227.192 0.314 -0. R2 Negative Earnings 2005-2008 194 -47.687 17.364 0.16*** -0.

298 -13.244*** 2009-2012 135 12.05 and 0.157 4.628 4.367 1.649 0.01 significance level respectively.667 0.995 2009-2012 1.549 9.664 **.644 54.01 significance levels respectively.143*** -3.018 2. *** indicate significance at0.951*** 2009-2012 1. *** indicate significance at 0.093 135.944*** -0.717*** 0.723 27.076 7.169 10.29*** 8.533 Non-CGPI 2005-2008 871 51.012 0.643*** 14.599 0. R2 CGPI 2005-2008 106 5.287*** **.122 2.536 0. .571 0.595 0.728 20.435 11.281 0. 0.827*** 0.809 0.363 0.342*** 1. R2 CGPI 2005-2008 99 325.021 0. Table 7 Regression Results for CGPI vs non-CGPI Firms Panel A: Price model P it =α 0 +α 1 E it +α 2 EBV it +ε it N α1 α2 Adj.857 12.174** 0.358 2009-2012 131 200.13.635* Non-CGPI 2005-2008 928 4.985*** 4.05.367*** Panel B: Return model R it =α 0 +α 1 E it /P (it-1) +α 2 (E it -E (it-1) )/P (it-1) +ε it N α1 α2 Adj.