Value Relevance of Firms' Reportable Segment Profit or Loss Reconciliation

Abstract

Objective - The International Financial Reporting Standards (IFRS) No.8 adopted in Indonesian GAAP (Statement No. 5, 2012) requires a company to provide a reconciliation of the total of the reportable segments' profit or loss of the firm's profit or loss. The objective of this standard is to improve the value relevance of information in the financial statement. This study aims to investigate the value relevance of the segment reconciliation and the determinants of segment income dissimilarity, i.e. agency cost, proprietary cost, and audit quality. Methodology/Technique - Data used in this study was a secondary data obtained from 142 manufacturing companies listed in Indonesia Stock Exchange (IDX) for the period 2009 to 2013. Purposive sampling method yielded 59 firms. Two research models were used to test proposed hypotheses. Findings - The results show reconciliation of total of segments' profit or loss of the firms' profit or loss positively affects the market value of equity; this means segments' reconciliation disclosure has value relevance for the investment decisions. In addition, this paper provides evidence that audit quality negatively affects the segment income dissimilarity, while agency cost and proprietary cost have no effect. This is consistent with hypothesis that firms audited by the Big Four tend to avoid disclosure of dissimilarity between firms profit or loss and segment profit or loss. Novelty - Our findings show that audit quality (Big 4 accounting firms) plays an important role in reducing dissimilarity between the sum of segment profit and firm profit (segment profit dissimilarity) Type of Paper: Empirical Keywords: Segment Reconciliation; Value Relevance; Agency Cost; Proprietary Cost; Audit Quality. JEL Classification: M41, M42.

Pengaruh Pengungkapan Informasi Segmen Operasi Terhadap Ketepatan Peramalan Laba

“…Dengan adanya rekonsiliasi antara angka-angka yang dilaporkan seluruh segmen dengan angka total konsolidasi (segmen rekonsiliasi) dapat mengurangi asimetri informasi antara perusahaan dan pemegang saham dan meningkatkan ketepatan peramalan laba perusahaan. Hal ini didukung oleh beberapa penelitian terdahulu (Alfonso et al, 2012;Nuryani et al, 2017) yang menunjukan adanya relevansi nilai pengungkapan informasi rekonsiliasi segmen.…”

“…Akibatnya, uji hipotesis (uji t) tidak dapat digunakan dan dapat disimpulkan ketiga variabel independen tidak memiliki pengaruh terhadap variabel dependen. Hasil ini tidak mendukung hipotesis penelitian yang diajukan dan tidak konsisten dengan hasil penelitian terdahulu (Alfonso et al, 2012;Baldwin, 1984;Blanco et al, 2014;Heo & Doo, 2018;Nuryani et al, 2017). Hasil ini juga tidak mendukung teori pasar efisien (efficient market theory) yang menyatakan bahwa pasar akan bereaksi atas informasi yang disediakan perusahaan, dalam hal ini pengungkapan informasi segmen.…”