Proceedings of Annual Tokyo Business Research Conference
9 - 10 November 2015, Shinjuku Washington Hotel, Tokyo, Japan, ISBN: 978-1-922069-88-7
The Effect of Convergence with IFRS on Earnings Quality under
Indonesian GAAP
Maria Stefani Osesoga* and Jinn-Yang Uang**
This study examines the effect of convergence with IFRS in Indonesia on the
quality of earnings reporting. Using manufacturing companies listed in the
Jakarta Stock Exchange in the years from 2009 to 2014, we find that earnings
reported under the IFRS convergence period has a higher earnings response
coefficient than earnings reported under the period of previous Indonesian GAAP.
This finding lends support to the contention that IFRS convergence can increase
investors’ belief in earnings quality. Taken together, this study provides evidence
indicating that converging national accounting standards with IFRS in emerging
capital markets may improve accounting quality.
JEL Codes: G14, M41
1. Introduction
This study examines the effect of convergence with International Financial Reporting Standards
(IFRS) in Indonesia on earnings quality. According to International Accounting Standard Board
(IASB), the purpose of IFRS is to provide a single set of high quality, global accounting standards
that require transparent and comparable information in general purpose financial statements and
other financial reporting to help participants in the world’s capital markets and other users make
economic decisions (Pacter, 2015). Therefore, many countries desire to implement IFRS as their
accounting standards. There are two approaches to implementing IFRS — IFRS adoption and IFRS
convergence. Under the convergence approach, jurisdictions still maintain their local standards, but
substantially in line with IFRS.
Indonesia applied the convergence approach in implementing IFRS. Indonesian Institute of
Accountants, as the Indonesian standards-setter, required all listed companies and financial
institutions to converge from Indonesian Financial Reporting Standards (SAK) into IFRS. As a
result of the first phase of the IFRS convergence process, SAK as at 1 January 2012 is substantially
in line with IFRS as at 1 January 2009, but there are a number of differences, and several IFRS and
IFRIC Interpretations do not have SAK equivalents (Pacter, 2015).
Some studies have investigated information quality of IFRS; however, very few evidence on the
effect of IFRS convergence, especially for emerging countries. Sun et al. (2011) found evidence of
improved earnings quality following mandatory IFRS adoption on U.S. firms. Similar result is also
concluded by Nulla (2014) using Canada financial institutions. Study by Cheong, Kim, and
Zurbruegg (2010) for the countries of Australia, Hong Kong and New Zealand suggested that
adoption of IFRS may indeed provide more value-relevant information in financial statements for the
users of financial reports. According to Horton, Serafeim and Serafeim (2010), the IFRS adoption
improves the information environment, specifically, after mandatory IFRS adoption, forecast
accuracy and other measures of the information environment increase significantly. Houqe et al.
(2012) examined the effects of mandatory IFRS adoption and investor protection on the quality of
*
Maria Stefani Osesoga is an assistant lecturer at the Department of Accounting, Universitas Multimedia Nusantara,
Indonesia and a graduate student at Chinese Culture University, Taiwan. Email: epie_juve@yahoo.com.
**
Jinn-Yang Uang is a professor at the Department of Accounting, Chinese Culture University, Taiwan. Email:
mr_uang@yahoo.com.tw
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Proceedings of Annual Tokyo Business Research Conference
9 - 10 November 2015, Shinjuku Washington Hotel, Tokyo, Japan, ISBN: 978-1-922069-88-7
accounting earnings in forty-six countries (around the globe). The results suggest that earnings
quality increases for mandatory IFRS adoption when a country’s investor protection regime provides
stronger protection.
However, research in the area of IFRS convergence does not reach convincing results. For
example, Wu, Li, and Lin (2014) examine the effects of a series of harmonization and convergence
with IFRS on the timeliness of recognition of earnings in emerging Chinese markets. They find that
the timeliness of recognition of earnings reported under Chinese GAAP worsened after a series of
harmonization and convergence with IFRS in China. Wu, Li, and Lin (2014) provide evidence
indicating that harmonizing and converging national accounting standards with IFRS in emerging
capital markets may not necessarily increase accounting quality.
To investigate the effect of IFRS convergence on the quality of earnings reporting, this study uses a
sample, from manufacturing companies listed in the Jakarta Stock Exchange in the years from 2009
to 2014. The results show that earnings reported under the IFRS convergence period has a higher
earnings response coefficient than earnings reported under the period of previous Indonesian
GAAP. Our finding lends support to the contention that IFRS convergence can increase investors’
belief in earnings quality. Based on this, we suggest that converging national accounting standards
with IFRS in emerging capital markets may improve accounting quality.
The remainder of the paper is organized as follows. Section 2 describes the prior literature most
closely related to the research question in this study. Section 3 describes our research
methodology, including the calculation of abnormal return around earnings announcements, and
presents the sample selection criteria along with the variables we use in the study. Section 4
presents the results of the tests. Section 5 concludes the study.
2. Literature Review and Hypothesis Development
2.1 IFRS and Earnings Quality
The objective of IFRS implementation is to increase the quality of information in financial reports.
According to Lev (1989), the quality of earnings information in financial reports can be measured by
using the Earnings Response Coefficient (ERC). Previous studies about ERC have produced
various definitions of the ERC. Cho and Jung (1991, as cited in Murwaningsari, 2008) defined the
ERC as the effect of each dollar of unexpected earnings on stock returns, and usually measured by
the slope coefficient of the regression of abnormal stock returns and unexpected earnings. Scott
(2000, as cited in Sayekti and Wondabio, 2007) defines ERC as a measure of the amount of
abnormal return of a security in response to an unexpected earnings reported by the company that
issued the securities. According to Ball and Brown (1968) and Kauffman (2009), differences in
actual earnings and earnings expectations may occur due to new information. The high value of
ERC indicates that the company's earning is useful information for investors in making decisions.
Lev (1989) also find the greater the noise in the company’s reporting system, the lower quality of
earnings, and the smaller the ERC value. ERC reflects the market response to the difference
between the company's actual financial earnings with the investors’ expected earnings. Sayekti and
Wondabio (2007) describe some of the factors that influence the ERC, which are the risk of stock
(beta), capital structure, persistence, growth opportunities, and the degree of information. In
addition, Teoh and Wong (1993) find that the auditor quality has impact toward ERC. The ERC of
Big Eight clients are higher than for non-Big Eight clients.
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Proceedings of Annual Tokyo Business Research Conference
9 - 10 November 2015, Shinjuku Washington Hotel, Tokyo, Japan, ISBN: 978-1-922069-88-7
2.2
IFRS convergence in Indonesia
Until the end of 2008, Indonesia’s accounting standards was referring to US Generally Accepted
Accounting Principles (US GAAP). However, because the government of the Republic of Indonesia
expressed its agreement with the members of the G20 at the meeting in Washington DC on
November 15, 2008 to promote the global trade, where one of the principles proclaimed was
"strengthening financial supervision and regulation", the reference of accounting standards
Indonesia must turn into the IFRS. As a follow-up of that agreement, the Indonesian Institute of
Accountants, as a professional organization that has the authority to make accounting standards in
Indonesia, on December 23, 2008 announced that the convergence of GAAP to IFRS would be
complete in 2012. This decision is supported by an agreement among members of G20 in
Pittsburgh on 24-25 September 2009, which stated that the authority who oversees the international
accounting rules should improve into the global standard by June 2011 to reduce the regulatory gap
between members of G20.
The Indonesian Institute of Accountants, in particular the Financial Accounting Standards Board
(DSAK), as a standard-setter, began the process of convergence in 2009. They targeted that by
year 2012, the entire IAS has no material differences with IFRS applicable as of January 1, 2009.
After the year 2012, the standards will be updated on an ongoing basis if there are changes to the
relevant IFRS.
The IFRS convergence is done gradually, so that the business entities are not surprised and could
follow this convergence. In addition, the convergence process is done gradually also to consider the
reaction of the community, whether they could accept and approve this IFRS convergence. This
convergence process took a lot of time, energy, and materials, but in terms of its cost and benefits,
this convergence process would provide enormous benefits to the economic development of
Indonesia.
2.3
Earnings Quality of IFRS Adoption and IFRS Convergence
Study by Armstrong, Barth, Jagolinzer and Riedl (2010) investigate the equity market reaction to
adoption of IFRS in Europe. They find that European investors and firms reacte positively to the
adoption of IFRS. Also, the information quality improves with lower information asymmetry in the
post-adoption period. Moreover, IFRS could improve the financial statement comparability, which
helps investors to evaluate potential investment in foreign capital market more easily. From cost
perspective, global accounting standards would reduce the cost of preparing worldwide
consolidated financial statements and the cost of reconciliation between different standards
(Doupnik & Perera, 2009).
Chua et al. (2012) find that the mandatory adoption of IFRS has generally enhanced earnings
quality, especially in the form of less earnings smoothing behavior. In addition, there is a higher
probability that larger losses are reported in the post-adoption period than in the pre-adoption
period; the value relevance of accounting data improved after IFRS adoption. All of the results
support that there is an improvement in accounting quality after Australian listed companies moved
from Australian GAAP to IFRS. Contrary to above studies, Cameran, Campa, and Pettinicchio
(2014) used a sample of Italian private firms from year 2005 to 2008. In examining the earnings
quality, they focused on earnings management and timely loss recognition. The results concluded
that IFRS do not improve financial reporting quality among private companies in Italy. In line with
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Proceedings of Annual Tokyo Business Research Conference
9 - 10 November 2015, Shinjuku Washington Hotel, Tokyo, Japan, ISBN: 978-1-922069-88-7
that study, Ames (2013) examined the impact of IFRS adoption in 2005 on accounting quality of
South African listed companies from period 2000-2011. He emphasized earnings management and
value relevance on measuring earnings quality. The results found that the earnings quality is not
significantly improve after IFRS adoption in South Africa companies.
The above studies focus on the investigation of financial reporting quality in countries directly
adopting IFRS. However, very few studies research into the effect of IFRS convergence, and the
results are mixed. For example, Wu, Li, and Lin (2014) examine the effects of a series of
harmonization and convergence with IFRS on the timeliness of recognition of earnings in emerging
Chinese markets. They find that earnings reported under Chinese GAAP have a lower earnings
response coefficient, but a higher future earnings response coefficient, than earnings reported
under IFRS before Chinese GAAP converged with IFRS in 2007. This indicates that earnings
reported under Chinese GAAP are generally less timely than earnings reported under IFRS before
convergence. They also find that the future earnings response coefficient of earnings reported
under Chinese GAAP continues to increase, indicating that the timeliness of recognition of earnings
reported under Chinese GAAP worsened after a series of harmonization and convergence with
IFRS in China. Taken together, Wu, Li, and Lin (2014) provide evidence indicating that harmonizing
and converging national accounting standards with IFRS in emerging capital markets may not
necessarily increase accounting quality.
However, Hardy and Ahalik (2015), a study investigating information quality of IFRS convergence,
use Indonesian listed companies in LQ-45 Index. Using abnormal accounting accruals as a
measure of earnings quality, he finds that there is a significant influence of IFRS implementation
towards a better earnings quality. To further investigate whether IFRS convergence in Indonesia
affects earnings quality of the firm in terms of investors’ market reactions. This study, therefore, sets
up the following hypothesis.
Hypothesis: IFRS convergence improves earnings quality in terms of market reactions.
3. Methodology
3.1
Data and sample
Data used in this study are manufacturing public firms listed in Indonesian Stock Exchange from
year 2009 until 2014. All data are obtained from JSXPCFS database.
Table 1 Sample selection
Manufacturing firms listed in Indonesia Stock Exchange from 2009 to 2014:
Firm-year observations from basic industry and
132
chemical sector: cement, ceramic, porcelain, glass,
metal, chemical
Firm-year observations from basic industry and
108
chemical sector: plastic, packaging, animal feeder,
wood, wood products, pulp, paper
Firm-year observations from consumer good industry
168
Less USD presentation
(24)
Less missing data
(30)
Final observations
354
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Proceedings of Annual Tokyo Business Research Conference
9 - 10 November 2015, Shinjuku Washington Hotel, Tokyo, Japan, ISBN: 978-1-922069-88-7
3.2
Empirical model
In order to test the hypothesis, the following regression is used. The dependent variable is
cumulative abnormal returns (CAR) surrounding the announcement of earnings. Abnormal returns
in this study are calculated using the market model, with 100-day estimation period from the 110th
day to the tenth trading day inclusive prior to the earnings announcement date. Control variables
include industry dummies (Basic industry and chemical sector-cement, ceramic, porcelain, glass,
metal, chemical; Basic industry and chemical sector-plastic, packaging, animal feeder, wood, wood
products, pulp, paper; and Consumer good industry), RISK, LEV, PERSIS, GROWTH, SIZE, BIG4,
and L/G.
CARit = λ0 + λ1UEit + λ2POSTit + λ3UEit xPOSTit + λ4RISKit + λ5LEVit + λ6PERSISit + λ7GROWTHit +
λ8SIZEit + λ9BIG4it + λ12L/Git +λ13 UEitxRISKit + λ14UEitxPERSISit + λ15UEitxGROWTHit +
λ16UEitxSIZEit + λ17UEitxBIG4it + ∑𝑛𝑚=1 𝛿 m INDm+ εit
Where
CARit
= cumulative abnormal returns surrounding the date of annual earnings
announcement;
UEit
= unexpected earnings;
POSTit
= IFRS convergence dummy (0=before IFRS convergence (2009-2011), 1= after IFRS
convergence (2012-2014));;
RISKit
LEVit
PERSISit
GROWTHit
SIZEit
BIG4it
IND
L/Git
= Market model slope coefficient;
= Total liabilities divided by total assets;
= Coefficient regression of earnings, calculated over the preceding 6 years;
= Market value to book value of equity;
= natural Log of total assets;
= Auditor size (o= auditor non-BIG4, 1= BIG4);
= Industry dummies;
= Loss/profit dummy (0=loss, 1=profit).
4. The Findings
4.1
Descriptive statistics and correlations
Table 2 presents descriptive statistics and Table 3 shows variable correlations. The mean of
CAR3D (-1,+1), cumulative abnormal returns from one day before to one day after the date of
earnings announcement, is -0.004, and the mean of CAR4D (-1,+2) is 0.000. The mean of UE is
0.02, indicating that on average our sample firms have positive unexpected earnings (good news).
The mean of POST is 0.5, showing that our sample has one half of observations in the post-IFRS
convergence period and the other half in the pre-IFRS convergence period. The mean of RISK
(0.459), indicating that our sample firms experience less market risk (i.e., less than 1). The means
of LEV, PERSIS, GROWTH and SIZE are 0.456, 0.307, 2.757 and 12.051, respectively. The mean
of BIG4 is 0.35, indicating that 35% of our sample firms are audited by BIG4 auditors. The mean of
L/G is 0.88, showing that the majority of our sample firms have positive earnings.
Table 2 Descriptive Statistics
CAR3D (-1,+1)
CAR4D (-1,+2)
N
354
354
Mean
-0.004
0.000
S.D.
0.505
0.062
Q1
-0.009
-0.009
Q2
-0.000
0.000
Q3
0.009
0.010
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Proceedings of Annual Tokyo Business Research Conference
9 - 10 November 2015, Shinjuku Washington Hotel, Tokyo, Japan, ISBN: 978-1-922069-88-7
UE
POST
RISK
LEV
PERSIS
GROWTH
SIZE
BIG4
L/G
354
354
354
354
354
354
354
354
354
0.021
0.500
0.459
0.456
0.307
2.757
12.051
0.350
0.880
0.609
0.501
0.608
0.254
0.557
6.066
0.675
0.477
0.330
-0.021
0.000
0.074
0.265
-0.035
0.604
11.563
0.000
1.000
0.007
0.500
0.402
0.461
0.251
1.143
11.973
0.000
1.000
0.061
1.000
0.809
0.592
0.687
2.722
12.479
1.000
1.000
Table 3 Correlation Matrix
Panel A: Correction Matrix Columns 1 – 6
(1)
(2)
CAR3D (-1,+1) (1)
1
CAR4D (-1,+2) (2)
1
UE (3)
-0.054
-0.024
POST (4)
0.067
0.067
RISK (5)
-0.127*
-0.128*
LEV (6)
-0.037
-0.047
PERSIS (7)
0.020
0.066
GROWTH (8)
0.018
0.015
SIZE (9)
-0.048
-0.051
BIG4 (10)
-0.039
-0.026
L/G (11)
0.070
0.117*
(3)
-0.054
-0.024
1
0.003
-0.127*
0.201**
-0.004
-0.016
0.014
0.045
0.107*
(4)
0.067
0.067
0.003
1
-0.017
0.001
0.000
0.060
0.128*
0.018
-0.068
Panel A: Correction Matrix Columns 7 – 11
(7)
(8)
CAR3D (-1,+1) (1)
0.020
0.018
CAR4D (-1,+2) (2)
0.066
0.015
UE (3)
-0.004
-0.016
POST (4)
0.000
0.060
RISK (5)
0.122*
0.104
LEV (6)
-0.046
0.070
PERSIS (7)
1
0.229**
GROWTH (8)
0.229**
1
SIZE (9)
0.237**
0.319**
BIG4 (10)
0.214**
0.280**
L/G (11)
0.057
0.082
(9)
-0.048
-0.051
0.014
0.128*
0.276**
0.186**
0.237**
0.319**
1
0.445**
0.108*
(10)
-0.039
-0.026
0.045
0.018
-0.051
0.154**
0.214**
0.280**
0.445**
1
-0.049
(5)
-0.127*
-0.128*
-0.127*
-0.017
1
-0.104
0.122*
0.104
0.276**
-0.051
0.121*
(6)
0.037
-0.047
0.201**
0.001
-0.104
1
-0.046
0.070
0.186**
0.154**
-0.298**
(11)
0.070
0.117*
0.107*
-0.068
0.121*
-0.298**
0.057
0.082
0.108*
-0.049
1
1. Pearson (above the diagonal) and Spearman (below the diagonal) correlation coefficients are
presented.
2.* Statistical significance at the 0.05 level (2 tailed); ** Statistical significance at the 0.01 level (2
tailed).
4.2
Multiple regression analysis
Table 4 presents the results of the regression analysis. As discussed before, the variables of
interest in this study are UE, POST, and UE×POST. The coefficient on the variable UE indicates
level of earnings response coefficient (ERC). POST is a dummy variable indicating IFRS
convergence. The coefficient of the interaction variable of ERC and IFRS convergence (UExPOST)
indicates that whether IFRS convergence improves the quality of earnings in terms of market
reactions.
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Proceedings of Annual Tokyo Business Research Conference
9 - 10 November 2015, Shinjuku Washington Hotel, Tokyo, Japan, ISBN: 978-1-922069-88-7
Panel A of Table 4 shows the regression results with the dependent variable CAR3D (cumulative
market returns from 1 day before to 1 day after earnings announcement). The regression model is
significant with F-value = 4.213 (p=0.001) and the explanatory power (adjusted R2) is 0.134. The
variable UE is positively associated with the dependent variable (coef.=0.019, t=1.577), which is
consistent with the ERC concept and previous studies (i.e., Teoh and Wong, 1993; Bae and Sami,
2005; Sayekti and Wondabio, 2007).The variable POST is positively associated with the dependent
variable (coef.=0.007, t=1.446). The interaction variable UExPOST is positively and significantly
associated with the dependent variable CAR3D (coef.=0.063, t=3.550), indicating that firms have
higher earnings response coefficients in the post convergence period, which leads to accept the
hypothesis.
For control variables, RISK is negative significantly associated with CAR3D (coef.=-0.008, t=-1.805),
in line with the previous studies (i.e., Bae and Sami, 2005; Sayekti and Wondabio, 2007), indicating
that firms with a high systematic risk have lower ERCs. LEV is negatively associated with CAR3D
(coef.=-0.007, t=-0.582), indicating that the higher financial leverage, the lower abnormal returns.
GROWTH is positively associated with CAR3D (coef.=0.000, t=0.137), indicating that firms with
higher growth opportunities have higher abnormal returns. SIZE is negatively associated with
CAR3D (coef.=-0.001, t=-0.163), signaling that bigger firms tend to have lower abnormal returns.
PERSIS is negatively related to CAR3D (coef.=-0.001, t=-0.307), indicating that firms with more
persistent earnings experience less abnormal returns. Finally, BIG4 is negatively associated with
CAR3D (coef.=-0.002, t=-0.348), showing that companies audited by big 4 accounting firms
experience lower abnormal returns.
Variable UExRISK is negatively related to CAR3D, showing that firms with a higher systematic risk
have lower ERCs. UExPERSIS is positively related to CAR3D, indicating that firms with higher
earnings persistence have higher ERCs. UExGROWTH is positively related to CAR3D, indicating
that firms with a higher growth opportunity have higher ERCs. Both UExSIZE and UExBIG4 are
negatively related to CAR3D, showing that bigger firms and firms audited by Big 4 auditors have
lower ERCs.
To further look at the impact of IFRS convergence on ERCs, we separate the whole sample into two
sub-samples, based on the time period of IFRS convergence. Group 1 is observations for firms
before converging with IFRS (IFRS=0) and group 2 for firms after implementing IFRS convergence
(IFRS=1). The empirical results are also presented in Panel A of Table 4. For both group one and
group two, UE is significantly associated with CAR3D (group one: coef.= 0.037, t= 2.572; group two:
coef.= 1.282, t= 3.032), indicating good news of earnings boosts market returns. However, the
second group has a higher earnings response coefficient (coef.= 1.282) than the first group
(coef.=0.037).
For a robustness test, we also use a four-day return window (CAR4D) as the dependent variable.
The results are presented in Panel B of Table 4. The main variable of interest UExPOST is
positively associated with CAR4D (coef.=0.055, t=2.480), which still accept the hypothesis. In
addition, for both group one and group two, UE is also significantly associated with CAR4D, with the
second group having a higher earnings response coefficient (coef.= 1.187) than the first group
(coef.=0.019). Taken together, our study suggests that IFRS convergence improves investor’s belief
in earnings information and thus leads to higher earnings coefficient
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Proceedings of Annual Tokyo Business Research Conference
9 - 10 November 2015, Shinjuku Washington Hotel, Tokyo, Japan, ISBN: 978-1-922069-88-7
Table 4 IFRS convergence and ERC
Panel A
Y= CAR3D (-1,+1)
(Constant)
UE
POST
UExPOST
RISK
LEV
PERSIS
GROWTH
SIZE
BIG4
L/G
UExRISK
UExPERSIS
UExGROWTH
UExSIZE
UExBIG4
Ind.dummies
All
Coef.
0.000
0.019
0.007
0.063
-0.008
-0.007
-0.001
0.000
-0.001
-0.002
0.013
-0.023
0.101
0.008
-0.002
-0.077
t
0.005
1.577
1.446
3.550
-1.805
-0.582
-0.307
0.137
-0.163
-0.348
1.471
-3.156
4.454
1.147
-1.167
-4.889
(Included)
Number of Observations
F-value
2
R
2
Adjusted R
Panel B
Y= CAR4D (-1,+2)
(Constant)
UE
POST
UExPOST
RISK
LEV
PERSIS
GROWTH
SIZE
BIG4
L/G
UExRISK
UExPERSIS
UExGROWTH
UExSIZE
UExBIG4
Ind.dummies
Number of Observations
F-value
2
R
2
Adjusted R
354
4.213
0.176
0.134
All
Coef.
0.021
0.004
0.010
0.055
-0.012
-0.003
0.004
0.000
-0.004
-0.001
0.023
-0.026
0.119
0.006
0.001
-0.083
t
0.310
0.282
1.595
2.480
-2.064
-0.190
0.670
-0.180
-0.616
-0.070
2.128
-2.834
4.221
0.683
0.279
-4.202
(Included)
354
3.624
0.155
0.112
**
**
**
***
***
***
***
***
*
***
***
***
IFRS = 0
Coef.
t
-0.007
-0.087
0.037
2.572
-0.001
-0.201
-0.023
-1.277
0.003
0.490
0.001
0.668
-0.001
-0.156
-0.015
-1.540
0.034
2.326
-0.039
-3.814
0.131
3.835
0.017
1.594
-0.003
-1.470
-0.123
-5.292
(Included)
176
5.666
0.346
0.285
***
IFRS = 0
Coef.
t
0.007
0.070
0.019
1.057
-0.001
-0.135
-0.027
-1.174
0.008
0.918
0.000
0.307
-0.003
-0.274
-0.017
-1.363
0.032
1.765
-0.044
-3.380
0.181
4.238
0.017
1.267
0.000
0.087
-0.136
-4.662
(Included)
176
4.554
0.298
0.233
*
***
***
***
***
**
**
***
***
***
IFRS = 1
Coef.
t
0.092
1.363
1.282
3.032
-0.011
-2.006
-0.005
-0.294
-0.004
-0.621
0.000
0.534
-0.006
-1.054
0.009
1.205
-0.016
-1.465
-0.003
-0.072
-0.023
-0.570
-0.005
-0.466
0.119
3.088
-0.191
-3.349
(Included)
176
2.011
0.158
0.079
***
IFRS = 1
Coef.
t
0.112
1.294
1.187
2.192
-0.017
-2.441
0.003
0.137
0.002
0.287
0.000
0.131
-0.009
-1.246
0.014
1.428
0.002
0.143
0.037
0.656
-0.033
-0.645
-0.002
-0.136
0.110
2.240
-0.199
-2.717
(Included)
176
1.799
0.144
0.064
***
**
***
***
**
**
**
***
***
**
* Statistical significance at the 0.10 level; ** Statistical significance at the 0.05 level; *** Statistical significance at the 0.01 level
5. Conclusion
IFRS convergence is supposed to lead to a better financial report quality; however, extant empirical
studies produce inconclusive findings. This study uses a sample from manufacturing companies
listed in the Jakarta Stock Exchange in the years from 2009 to 2014, and finds that earnings
reported under the IFRS convergence period has a higher earnings response coefficient than
earnings reported under the period of previous Indonesian GAAP. This finding lends support to the
contention that IFRS convergence can increase investors’ belief in earnings quality. Based on this,
8
Proceedings of Annual Tokyo Business Research Conference
9 - 10 November 2015, Shinjuku Washington Hotel, Tokyo, Japan, ISBN: 978-1-922069-88-7
we argue that converging national accounting standards with IFRS in emerging capital markets may
improve accounting quality.
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