[Download] Tải The role analysis of accrual management on loss – loan provision factor and fair value accounting to earnings volatility – Tải về File Word, PDF

The role analysis of accrual management on loss – loan provision factor and fair value accounting to earnings volatility

The role analysis of accrual management on loss – loan provision factor and fair value accounting to earnings volatility
Nội dung Text: The role analysis of accrual management on loss – loan provision factor and fair value accounting to earnings volatility

Download


This aim of research is to prove that the loan-loss provision and fair value accounting influence the earnings volatility and the accrual management role in moderating the effect of fair value accounting to earnings volatility. Data were obtained from the annual report of the Directory of Indonesia Capital Market and the Stock Exchange of Indonesia Website.

Bạn đang xem: [Download] Tải The role analysis of accrual management on loss – loan provision factor and fair value accounting to earnings volatility – Tải về File Word, PDF

*Ghi chú: Có 2 link để tải biểu mẫu, Nếu Link này không download được, các bạn kéo xuống dưới cùng, dùng link 2 để tải tài liệu về máy nhé!
Download tài liệu The role analysis of accrual management on loss – loan provision factor and fair value accounting to earnings volatility File Word, PDF về máy

The role analysis of accrual management on loss – loan provision factor and fair value accounting to earnings volatility

Mô tả tài liệu

Nội dung Text: The role analysis of accrual management on loss – loan provision factor and fair value accounting to earnings volatility

Research Journal of Finance and Accounting www.iiste.org<br />
ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)<br />
Vol.11, No.2, 2020<br />
<br />
<br />
The Role Analysis of Accrual Management on Loss-Loan<br />
Provision Factor and Fair Value Accounting to Earnings Volatility<br />
Prisila Damayanty<br />
Doctoral Program in Economics, Trisakti University<br />
Jl. Kyai Tapa No.20, RW.9, Tomang, Kec. Grogol petamburan, Kota Jakarta Barat, DKI Jakarta. Indonesia<br />
Tel: 62+ (021) 5666717. E mail :prisild@rocketmail.com<br />
<br />
<br />
Etty Murwaningsari<br />
Doctoral Program in Economics, Trisakti University<br />
Jl. Kyai Tapa No.20, RW.9, Tomang, Kec. Grogol petamburan, Kota Jakarta Barat, DKI Jakarta. Indonesia<br />
Tel: 62+ (021) 5666717. E mail :prisild@rocketmail.com<br />
<br />
<br />
The research is financed by researcher self<br />
Abstract<br />
This aim of research is to prove that the loan-loss provision and fair value accounting influence the earnings<br />
volatility and the accrual management role in moderating the effect of fair value accounting to earnings volatility.<br />
Data were obtained from the annual report of the Directory of Indonesia Capital Market and the Stock Exchange<br />
of Indonesia Website. There are 81 samples as a result of a banking company’s observation listed on the Stock<br />
Exchange in 2014-2016. The analysis of multiple moderated regression was used in this research. Finally, it<br />
showed that the loss-loan provision does not affect on earnings volatility, whereas the fair value accounting<br />
influenced earnings volatility positively. On the other hand, accrual management strengthens the influence of fair<br />
value accounting on earnings volatility<br />
Keywords: loss-loan provision, fair value accounting, profit volatility, and accrual management<br />
DOI: 10.7176/RJFA/11-2-16<br />
Publication date: January 31st 2020<br />
<br />
1.Preface<br />
The main theory used in this research is positive accounting that estimates and describes accounting practices by<br />
management in maintaining earnings stability. The focus of discussion is the accrual management which is<br />
assumed to have been carried out by the banking industry, as seen from the profit volatility reported. The results<br />
of this research are expected to be a contribution of positive accounting theory in Indonesia. Zimmerman (1990)<br />
stated that accrual management was an opportunistic form because managers would try to condition the earnings<br />
report for future periods into the current period. This assumption is known as income smoothing, which is a strategy<br />
of selecting an accounting process that suits the expected conditions. There was an allegation that income<br />
smoothing was also done by management to influence investors, because investors did not like the high-profit<br />
volatility, because the cases indicated uncertainty about the company’s future performance. Therefore,<br />
management strived to maintain earnings stability compared to profit gains that rose and fell sharply.<br />
As a result, banks are suspected of doing earnings management by doing income smoothing, by lowering<br />
profits in the years when the bank gets high profits and raising profits when the conditions are not good, so earnings<br />
are quite stable from year to year. Besides, banks also apply a loan loss allowance policy to manipulate earnings,<br />
compared to the recognition of other accruals, because the manager can determine the level of allowance for losses<br />
(Lambert, 1984). Greenawalt & Sinkey (1988) in their research found evidence that bank managers did take<br />
advantage of the opportunity in manipulating earnings.<br />
On the other hand, the relatively stable earnings actually can be controlled by a low level of profit<br />
volatility. This case can be done because the asymmetric information between bank management and investors<br />
happens, so bank uses a LLP (Loan Loss Provisions) strategy (El Sood, 2012). Perez (et al, 2008) stated that<br />
earnings management could be done using the loan-loss provisions method. Meanwhile, Wijayanti & Diyanti<br />
(2017) stated that income smoothing using LLP in conventional banks and Islamic banks had caused negative<br />
testing direction. Loss loan provision harms earnings before tax, presumably as a result of profit volatility using<br />
<br />
<br />
155<br />
Research Journal of Finance and Accounting www.iiste.org<br />
ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)<br />
Vol.11, No.2, 2020<br />
<br />
CKPN calculations in a fair value measurement.<br />
Chiahemba Ajekwe (2017) had observed the management of bank revenue and capital deposits by<br />
examining the effect of IFRS concept on the use of LLP. In his research, it was found that there was a significant<br />
progress in application of LLP for the income management and capital adoption periods of IFRS, just than<br />
management of pre-IFRS periods. Unfortunately, level of earnings management was very low in the post-IFRS<br />
period. Tessema & Deumes (2018) stated that general companies made income smoothing through discretionary<br />
accrual decisions. In his research, Tessema also found evidence that the higher market volatility will increase the<br />
volume of earnings so that it will motivate the manager to do greater income smoothing.<br />
According to Ebach (2016), fair value accounting can induce higher profit volumes than historical cost<br />
accounting. The increase in profit volatility will adverse the company because it is considered a negative thing for<br />
investors, so low-profit volumes are considered more profitable. In his research, Ebach also found evidence that<br />
companies do earnings management to reduce earnings volumes. According to Heaton (2010), fair value<br />
accounting can increase the relevance of earnings volatility. Conversely, reducing the profit volumes can reduce<br />
it.<br />
Oktavianty (2015) stated that the increase of profit volatility was the effect of PSAK adoption 50/55 (2006<br />
revision) which provided a policy opportunity for management to discretion to maintain profit volume. By<br />
maintaining profit volume through the application of earnings management, the growth of the company’s value<br />
will be maintained. Thus, the difference among this research and previous research is that about the existence of<br />
accrual management that is expected to strengthen the effect of fair value accounting on earnings volatility. So,<br />
novelty in this research is an existence of accrual management in moderating earnings volatility. By the existence<br />
of accrual management, the management can arrange financial statements by following an individual or group<br />
goals, such as managing risk, so that the high-profit volatility does not occur. Meanwhile, the aim of study is to<br />
find out: 1) effect of the loan-loss provision on earnings volatility; 2) effect of fair value accounting on earnings<br />
volatility; 3) role of accrual management in moderating the relationship of them.<br />
<br />
<br />
2. Reference and Hypotheses Development<br />
2.1 Literature Review<br />
2.1.1 Positive Accounting Theory<br />
The theory underlying this research is about the motivation of management in conducting earnings management<br />
as follows: (Zimmerman, 1990)<br />
a) Bonus plan hypothesis, the investor is given a promise to get a bonus in connection with the performance of the<br />
company, especially related to profits earned by the company, so that motivation arises to recognize the company’s<br />
profits. Profit in the future is recognized as the company’s profit in the current period.<br />
b) In the debt covenant hypothesis, in conducting a debt agreement, the company is required to fulfill several<br />
conditions proposed by the debtor in applying for a loan. Several requirements are those for certain conditions<br />
regarding the company finances. This condition is reflected in the financial ratio.<br />
c) The political cost hypothesis, which explains the political consequences of management’s accounting policy<br />
choices.<br />
So, the motivation of managers to change financial statements do not have to use data manipulation methods,<br />
but it can use or choose accounting methods to manage profits and losses to be achieved to gain company objectives.<br />
2.1.2 Agency Theory<br />
This theory is the basis to understand the issue of accrual management and earnings volatility. The first detailed<br />
theoretical exploration was stated by Jensen and Mecking (1976). They mentioned that company managers are<br />
“agents” and “principal” shareholders. The shareholders, the principal, delegated business decision to managers<br />
who had became the agents. The problem arose as a consequence of ownership system that the agents did not use<br />
outonomy to make decisions exactly aimed to comply the principal will.<br />
The opportunistic behavior could be done because the information asymmetry when the management had better<br />
information than the principal so that the management could take advantage to get personal desires or for the<br />
benefit of the group. This theory is used in this study to see whether companies carry out accrual management to<br />
reduce profit volatility.<br />
<br />
<br />
<br />
<br />
156<br />
Research Journal of Finance and Accounting www.iiste.org<br />
ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)<br />
Vol.11, No.2, 2020<br />
<br />
2.1.3 Risk (Volatility)<br />
Hanafi (2014) stated that risk was adverse event or the possibility of obtained results deviate on expected.<br />
Therefore, a standard deviation can be measured by statistical tool. Uncertainty can be reflected by high<br />
fluctuations in movement. The higher fluctuations, the greater degree of uncertainty, such as the prices of some<br />
instruments are calculated based on the annual standard deviation. Tandelin (2010) stated that investors in investing<br />
are always rational. Rational investors tend to avoid uncertainty or risk.<br />
2.1.4 Accrual Management<br />
Healy (1984) found that managers would choose accounting procedures through accrual management to maximize<br />
the value of their bonus rewards. This scheme seems to be an effective way to influence accrual managerial<br />
decisions and accounting procedures. They have significant relation especially about incentives in earnings<br />
managers report based on their bonus contracts. Beaver & Engel (1996) divided accruals into normal accrual and<br />
non-discretionary accrual. Both of them are namely total accruals. Nondiscretionary Accrual is the recognition of<br />
accruals that is reasonable by following generally accepted accounting regulations, while Discretionary Accruals<br />
(Abnormal Accruals) are the accrual recognition which becomes the choice of management policy<br />
2.1.5 Loss-Loan Provision (LLP)<br />
LLP is an accrual that has an important role for commercial banks. Loan loss provisions are known as an allowance<br />
for impairment losses or CKPN. Loan-Loss Provisioning is the provisioning of losses on credit portfolios which<br />
its fund has decreased in economic value. Based on the accounting standard guidelines, after the revised PSAK 55<br />
in 2006, the term PPAP was changed to Allowance for Impairment Losses or LLP / CKPN. In LLP / CKPN, the<br />
formation or provision of funds is assessed from the results of debtor credit evaluations conducted by banks. If<br />
according to the bank there is objective evidence that credit from the debtor has decreased (impaired), then the<br />
bank must establish funds or reserves for credit. Meanwhile, Takeda et al. (1999) stated that loss loan provision is<br />
a serious problem influencing bank income. Managers have an interest in using the loss loan provision to adjust<br />
income as information for investors about the company’s future<br />
2.1.6 Fair Value Accounting<br />
It is believed that fair value accounting to be more relevant than the historical cost approach. It can reflect the<br />
expected future. This is to adjust investor risk and cash flow more precisely than. (Fiechter, 2011)<br />
Fair value accounting based on PSAK no. 55, is the value of an asset that can be exchanged or an obligation<br />
that can be resolved through a reasonable transaction involving parties who wish and have adequate knowledge.<br />
Fair value is the amount of rupiah agreed upon. IFRS for an object in a transaction should be carried out by parties<br />
who wish to be free without pressure or coercion, so the case does not cause more revenue volatility. For adopters,<br />
there is evidence of more volatile income. (Suwardjono, 2008)<br />
2.2 Hypothesis Development<br />
2.2.1 Loan Loss Provisions on Profit Volatility<br />
Farook et al (2014) stated that high-profit volatility would harm the company, thus impacting bank performance,<br />
such as increasing the risk of banking reputation. In this case, the bank’s management has an interest in maintaining<br />
the bank’s volume. Ozili (2017) stated that banks in Africa used LLP to manage income funds as a part of capital<br />
market strategy, so it could reduce the profit volatility. Based on these findings, the following hypotheses are<br />
prepared: H1: Loan loss provisions have positive impact on earnings volatility.<br />
2.2.2 Fair Value Accounting to Profit Volatility<br />
Ebach (2016) stated that fair value accounting induced higher profit volatility than historical cost accounting. As<br />
a result, policies needed to be taken to reduce it. Barth, Landsman & Wahlen (1995) in their research found the<br />
evidence that the application of FVO (fair value option) caused profit volatility to be higher than the use of<br />
historical cost earning. Azira (2012) stated that the profit volatility of the banking sector increased due to the<br />
revision of PSAK 50/55 (revised 2011), so the following hypotheses were prepared: H2: Fair value accounting has<br />
positive impact on earnings volatility<br />
2.2.3 Accrual Management moderates the relationship of Fair Value Accounting to Earnings Volatility<br />
Wijayanti & Diyanti (2017) stated that the earnings volatility and their assumptions about management discretion<br />
proved to be valid, such there was income smoothing behavior in conventional banks. Barth (1995) in research<br />
found banks that used the fair value accounting method had high volatility compared to historical methods. Large<br />
earnings volatility will cause difficulties for investors to measure next earnings so that earnings estimates are<br />
<br />
<br />
<br />
157<br />
Research Journal of Finance and Accounting www.iiste.org<br />
ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)<br />
Vol.11, No.2, 2020<br />
<br />
inaccurate. Therefore, banks suspected of carrying out accrual management had a moderation role to obtain a stable<br />
profit. Based on these findings, a hypothesis is formulated: H3: Accrual management moderates the relationship<br />
of fair-value accounting and earnings volatility.<br />
<br />
<br />
3. Method<br />
Study uses secondary data on audited financial statements published by the IDX Capital Market Reference Center<br />
(CRMC) and the Indonesian Capital Market Directory (ICMD). Population was banks that had obtained go public<br />
level and were listed in Indonesia Stock Exchange 2014 to 2016. Thus, it was obtained as much as 81 data, as<br />
follows :<br />
Table 1. Number of Populations and Banking Company Samples<br />
No Note Number of<br />
Companies<br />
1 Banking companies listed on the IDX (research population) in 2014 34<br />
2 Companies that were suitable with the criteria of determined samples 27<br />
3 Number of data in the study period (number of companies x 3 years of 81<br />
the study period)<br />
Source: Stock-Exchange Data Elaborated<br />
<br />
The independent variable used is Loss Loan Provisision. Meanwhile, to determine the amount of allowance or<br />
reserve funds from a bank’s credit, it is based on the calculation of CKPN. (Azira, 2012).<br />
The next independent variable is fair value of accounting. Calculation of fair value is based on (Reni &<br />
Anggraini, 2014). Furthermore, the unrealized gain or loss due investment valuation is proxied by smoothes<br />
unrealized gain or losses. Smoothes unrealized gain or losses = α (URGL) / α (CFO).<br />
The dependent variable is the earnings volatility that is operationalized as a rapid increase and decrease of risk<br />
in standard deviation of operating income. With its formula √ (∑X-Xrata2) / (n-1), the total operating profit is<br />
reduced by the average operating profit of the company divided by n-1. (Djadang, 2018.)<br />
The moderating variable is accrual management which is measured using (Murwaningsari, 2012). The choice<br />
of model to estimate accrual management can use Jones modification. The research model is moderating regression<br />
analysis which is proxied by discretionary accrual using NDAt = β0 + β1Cot + β2LOANt + β3NPAt + β4∆NPAt<br />
+ 1 + ε (Beaver & Engel, 1996).<br />
The control variable is SIZE measured by company assets. Debt to Assets Ratio (DAR) is measured as total<br />
debt per total company assets. Debt to Equity Ratio (DER) is measured as the total debt per total equity. The Return<br />
on Assets (ROA) is measured by net income per assets, while OPM (Operating Profit Management) is measured<br />
as operating income per sales.<br />
Data analysis model uses moderating regression analysis with the equation:<br />
Vol_ profit = β0 + β1.LL + β2.NW + β3.NW * MA + β4.SIZE + β5.DAR + β6.DER + β7.ROA + β8.OPM + ε it<br />
Note: Vol_laba: Earnings Volatility, LL: Loan Loss Provision, NW: Fair Value, MA: Accrual Management, SIZE;<br />
Company Size, DAR: Debt to Assets Ratio, DER: Debt to Equity Ratio, ROA: Return on Assets, OPM: Operating<br />
Profit Management.<br />
<br />
<br />
<br />
<br />
158<br />
Research Journal of Finance and Accounting www.iiste.org<br />
ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)<br />
Vol.11, No.2, 2020<br />
<br />
4. Result and Discussion<br />
4.1 Description<br />
Table 2. Variables<br />
Variabel Mean Minimum Maximum Std dev<br />
<br />
<br />
Vol_LAB<br />
2348730,60 19486 27952839 5505102,84<br />
A<br />
LL 12,32 5,98 19,05 2,52<br />
NW ,37 ,01 2,55 ,47<br />
MA 5970506,13 37330 78080746 10246087,47<br />
SIZE 178966284,72 4828575 1038706009 258684344,61<br />
DAR ,85 ,73 ,92 ,04<br />
DER 6,62 ,50 11,60 2,31<br />
ROA 3,91 -3,90 207,00 23,16<br />
OPM 17,56 -51,60 54,23 13,99<br />
Note:<br />
Vol_laba: Earnings Volatility, LL: Loan Loss Provision, NW: Fair Value, MA: Accrual Management, SIZE;<br />
Company Size, DAR: Debt to Assets Ratio, DER: Debt to Equity Ratio, ROA: Return on Assets, OPM: Operating<br />
Profit Management<br />
Data analyzed in many 81 that fulfilled the criteria for the purposive sampling of banking sector companies<br />
during the period 2014 – 2016. This analysis engaged during the observation period from 2014 – 2016. They have<br />
a volatility value of 2,348,730. Among these companies, some of them have a minimum value of 19,486. The<br />
difference in earnings volatility, with the smallest value of 230,0272 and the biggest value of 27,952,839, indicated<br />
that the earnings volatility between the banking companies varies, while the standard deviation between companies<br />
is 5,505,102.84.<br />
4.2 Classic Assumption Test Results<br />
The results of the normality test show regression points spreaded, which mean that all data are normally<br />
distributed. There are exist in no strong correlation and no multicollinearity symptoms occur. From the VIF value<br />

Download tài liệu The role analysis of accrual management on loss – loan provision factor and fair value accounting to earnings volatility File Word, PDF về máy