Managerial Ability, Corporate Social Responsibility, Tone of Earnings Announcement and Market Reaction in Indonesia

Lies Indit Faidah; Bandi Bandi

Authors

Lies Indit Faidah Universitas Sebelas Maret Surakarta
Bandi Bandi Universitas Sebelas Maret Surakarta

Keywords:

market reaction, abnormal return, earnings announcement tone, managerial ability, disclosure of corporate social responsibility

Abstract

This study aims to provide empirical evidence and discuss the effect of earnings announcement tone on market reaction with managerial ability and corporate social responsibility as moderating variables. The market reaction was proxied by cumulative abnormal return (-2.04). This study used a sample of 924 companies that were included in the Indonesia Sharia Stock Index (ISSI) from 2014 to 2019 was carried out by the purposive sampling method. Multiple linear regression analysis was used to test the first hypothesis and moderated regression analysis was used to test the second and third hypotheses. The results showed that tone of earnings announcement had a positive effect on market reaction, managerial ability moderate or strengthen the relationship between earnings announcement tone and market reaction, and CSR did not moderate the relationship between earnings announcement tone and market reaction. The results of the study of control varibel showed that size had a positive effect on market reactions and ROA had no effect on market reactions

Author Biographies

Lies Indit Faidah, Universitas Sebelas Maret Surakarta

Mahasiswa Magister Akuntansi UNS Surakarta

Bandi Bandi, Universitas Sebelas Maret Surakarta

Guru Besar di Bidang Akuntansi Keuangan Universitas Sebelas Maret Surakarta

References

Angelovska, J. 2017. Investors’ behaviour in regard to company earnings announcements during the recession period: Evidence from the Macedonian stock exchange. Economic Research-Ekonomska Istrazivanja, 30(1): 647-660.

Arifin, L. 2017. Earning on response coefficient in automobile and go public companies. Journal of Economics and Business, 2(2): 215-238.

Arslan-Ayaydin, O. & Thewissen, J. 2016. When Corporate Social Responsibility Causes Tone Inflation in Earnings Press Releases: Evidence from the Oil and Gas Industry. Energy and Finance: Sustainability in the Eenrgy Industry: 83-106.

Arslan-Ayaydin, Ö., Boudt, K., & Thewissen, J. 2016. Managers set the tone: Equity incentives and the tone of earnings press releases. Journal of Banking and Finance, 72: S132-S147.

Ball, R., & Brown, P. 1968. An empirical evaluation of accounting income numbers. Journal of Accounting Research, 6: 159-178.

Brigham, E. F., & Houston, J. F. 2001. Manajemen Keuangan. Buku 1 edisi 8. Jakarta: Erlangga.

Cheng, M., & Christiawan, Y. J. 2011. Pengaruh Pengungkapan Corporate Social Responsibility Terhadap Abnormal Return. Jurnal Akuntansi Dan Keuangan, 13(1): 24-36.

Davis, A. K., Ge, W., Matsumoto, D., & Zhang, J. L. 2015. The effect of manager-specific optimism on the tone of earnings conference calls. Review of Accounting Studies, 20(2): 639-673.

Davis, A. K., Piger, J. M., & Sedor, L. M. 2012. Beyond the Numbers: Measuring the Information Content of Earnings Press Release Language. Contemporary Accounting Research, 29(3): 845-868.

Davis, A. K., & Tama-Sweet, I. 2012. Managers’ Use of Language Across Alternative Disclosure Outlets: Earnings Press Releases versus MD&A. Contemporary Accounting Research, 29(3): 804-837.

Demerjian, P., Lev, B., & McVay, S. 2012. Quantifying managerial ability: A new measure and validity tests. Management Science, 58(7): 1229-1248.

Demerjian, P. R., Lev, B., Lewis, M. F., & McVay, S. E. 2013. Managerial ability and earnings quality. Accounting Review, 88(2): 463-498.

Demers, E. A., & Vega, C. 2014. Understanding the role of managerial optimism and uncertainty in the price formation process: Evidence from the textual content of earnings announcements.

Effendi, Muh. Arief. 2016. The Power of Good Corporate Governance: Teori dan Implementasi. Edisi Kedua. Salemba Empat. Jakarta.

Fanani, Z., & Merbaka, Z. R. 2020. The Effect of Managerial Ability and Tone of Earnings Announcements towards Market Reactions. Jurnal Akuntansi Dan Keuangan, 22(1): 10-17.

Hartono, J. 2015. Teori Portofolio dan Analisis Investasi. Edisi Kesepuluh. Cetakan Pertama. BPFE. Yogyakarta.

Henry, E. 2008. Are investors influenced by how earnings press releases are written? Journal of Business Communication, 45(4): 363-407.

Khlif, H., & Souissi, M. 2010. The determinants of corporate disclosure: A meta-analysis. International Journal of Accounting & Information Management, 18(3): 198-219.

Kim, Y., Park, M. S., & Wier, B. 2012. Is earnings quality associated with corporate social responsibility? Accounting Review, 87(3): 761-796.

Lorraine, N. H. J., Collison, D. J., & Power, D. M. 2004. An analysis of the stock market impact of environmental performance information. Accounting Forum, 28(1): 7-26.

Loughran, T., & McDonald, B. 2011. Internet appendix for “When is a liability not a liability? Textual analysis, dictionaries, and 10-Ks.” Journal of Finance, 66(1): 35-65.

Loughran, T., & McDonald, B. 2015. The Use of Word Lists in Textual Analysis. Journal of Behavioral Finance, 16(1): 1-11.

Lu, Y., Cahan, S., & Ma, D. 2019. Is CSR performance related to disclosure tone in earnings announcements? Accounting Research Journal, 32(2): 129-147.

Luo, Y., & Zhou, L. 2017. Managerial Ability, Tone of Earnings Announcements, and Market Reaction. Asian Review of Accounting, 25(4): 454-471.

Restuti, M. M. D., & Nathaniel, C. 2012. Jurnal Dinamika Manajemen. Jurnal Dinamika Manajemen, 3(1), 40–48.

Rogers, J. L., Van Buskirk, A., & Zechman, S. L. C. 2011. Disclosure tone and shareholder litigation. Accounting Review, 86(6): 2155-2183.

Spence, M. 1973. Job market signaling. Quarterly Journal of Economics, 87(3): 355-374.

Suwardjono, T. A. 2005. Perekayasaan pelaporan keuangan. Yogyakarta: BPFE.

Tama-Sweet, I. 2014. Changes in earnings announcement tone and insider sales. Advances in Accounting, 30(2): 276-282.

Twedt, B. 2012. Reading Between the Lines: An Empirical Examination of Qualitative Attributes of Financial Analysts’ Reports. Journal of Accounting and Public Policy, 31(1): 1–21.