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ABSTRACT
This paper focuses on three examining: the impact of Internet Financial Reporting
(IFR), the degree of information disclosure, and the scope of information through
internet on stock prices and abnormal return in Indonesian Stock Exchange. This
study compares stock prices and abnormal returns between companies with IFR
and without IFR, and between companies which disclose more information and
those which provide less information on their website. This study also compare
abnormal returns between companies that provide a large scope of information
disclosure and company that provides a small scope of information disclosure on
their website. This study use cross sectional data with event study methodology to
investigate all companies listed at the Indonesia Stock Exchange (IDX) until the
end of 2010. The result show first, that IFR by using Mann Whitney U test, has
significant impact on stock prices and abnormal returns. Second, the degree of
information disclosure through the internet, by using the Independent Sample t
test, also has significant impact on stock prices and abnormal returns. Finally, the
scope of information through the internet, by using Mann Whitney U test, has
insignificant impact on abnormal returns.
1. Introduction
The rapid development of information technology has an impact in
people's lives. Information technology has become a key enabler for a
business environment, which means that the business needs information
technology to be survived in an increasingly competitive world. In the past
few years, internet has become a part of information technology development.
Internet has several characteristic and advantages such as pervasiveness,
timeliness, low cost, and accessibility (Ashbaugh et al., 1999). In addition,
internet can spread the information more quickly, effective and efficient.
Internet has been used as a communication tool to provide information
about a company. Recently, internet provides a new mode of information
dissemination, including the dissemination of financial information that called
as IFR (Internet Financial Reporting). IFR refers to the usage of company’s
website to disseminate information about the financial performance of the
company. IFR is considered as a tool to spread the information more quickly
and widely (easily accessible), and to reduce the cost of producing hard copies
of financial statements (Barac, 2004). In addition, the publication of financial
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reporting through the internet is expected to provide significant benefits to
corporate reporting, including to facilitate access to potential investors and
stakeholders (Ashbaugh et al., 1999) . The disclosures of financial information
on the internet offer the same access for all investors (Wagenhover, 2003).
However, the internet financial reporting is a voluntary disclosure and
unregulated, which means, there is no compulsion to a company to disclose
their financial information on the internet eventhough the company has a
website. Lai et al., (2010) stated that there’s no international standard that
regulate the kind of IFR, which impact the differences in the content of
company website.
In Indonesia, The Indonesian Capital Market and Financial Institutions
Supervisory Agency (Bapepam-LK) has regulated the disclosure of
information or matters related to the public companies which may affect the
companies’ stock price in the Rule Number X.K.1: Disclosure of Information
that must be Made Public Immediately (Decision of The Chairman of
Bapepam No: Kep-86/PM/1996 on 24 January 1996). This rule is expected to
encourage the public listed companies to immediately announce the
information which has significant influence to their stock price, including the
financial reporting.
Most of the studies about IFR show that firms’ size is the most influence
factor to the information disclosure on the internet. Beside that, other factors
such as liquidity, leverage, and profitability have positif impact to the
information disclosure on the internet.
The study of Asbaugh et al., (1999), as one of the pioneer of IFR, found
that only firms’ size that influence in IFR practice and IFR is an effective
communication tool between firms and stakeholders. Craven and Matson
(1999), which researched large firms in England, concluded that firms’ size
has significant impact to IFR. There are some studies which have consistent
results to Craven and Matson (1999), such as Oyelere et al., (2000) on New
Zealand Stock Exchange, Larrán and Giner (2002) on Madrid Stock
Exchange, Bonsón and Escobar (2002) on 300 firms from many countries in
Eropa, and also Allam dan Lymer (2003) with firms in 5 developed countries.
In Indonesia, the study of IFR still has the same focus as the study abroad.
There are studies by Chariri and Lestari (2005) and Agustina (2008) which
result that firms’ size and type of industry are the most factors that influence
information disclosure on the internet. The other studies focus on
measurement of quality and content of financial and sustainability reporting
on firm’s website by Budi and Almilia (2009) that conclude that firms in
Indonesia have not optimize their website to disclose financial information.
There are many studies about IFR, but still a few studies that focused on
the relation between IFR and stock prices. There was a study by Lai et al.,
(2010), who compared the firms with IFR and without IFR on Taiwan Stock
Exchange. The study concluded that IFR has significant impact on stock
prices and abnormal returns. In Indonesia, studies which focused on the
relation between IFR and stock prices carried by Hargyantoro (2010) that
concluded that IFR has significant impact on stock frequency. Another study
by Yulia (2011), that concluded that The Degree of Information Disclosure has
significant impact on stock prices.
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This study replicate the study of Lai et al., (2010). The reason of the
replication because there is still a little study about the impact of IFR on stock
prices in Indonesia and to re-examine the theory with different samples and
location whether the result is similar to previous study.
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2. Communication with previously unidentified users of information.
3. Supplementation of traditional disclosure practices.
4. Increase in the extent and types of data disclosure.
5. Improvement of the access that small companies have to potential
investors.
2.5 The impact of the degree and scope of information disclosure on stock
prices and abnormal return.
The important point of signaling theory is that without transparency of
information between buyers and sellers, buyers will bid up to the lowest price
so the sellers must lower the product quality to maintain profitability. This
economy behaviour, will lead to the loss of sellers with high quality goods.
This phenomenon is called selective admissions (Spence, 1973).
To avoid such situations in the investment market, Beaver (1968) stated
that the company will disclose as much information so investors are able to
distinguish between good companies and bad companies. Voluntary disclosure
of additional information that reveals both financial and non-financial services
through the internet will ultimately create greater transparency of information.
According to Ashbaugh et al. (1999), an essential element of IFR is the
degree or level of disclosure. The higher levels of information disclosure in
quantity or transparency will impact to decisions of investor. Easley et al
(2004) concluded in their study that investors are given more relevant
information to achieve higher return on their investment. This shows how the
quantity and quality of information affects stock prices.
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In addition, the channels of information’ disclosure, can be expanded in
scope on the internet by connecting multiple sites into one integrated reporting
system. Each website on internet provides information about the performance
of subsidiaries, divisions, or strategic business units. Thus, the network not
only provides information about the overall performance of the entity, but also
the performance of individual business units. Therefore, the hypothesis is as
follows.
Hypothesis 3: There are significant differences in stock prices between
companies that provide more information and those that
provide less information on website
Hypothesis 4: The abnormal return of companies that provide more
information will be higher than those that provide less
information on website
Hypothesis 5: The abnormal return of companies that provide a large
scope of information disclosure will be higher than those
that provide a small scope of information disclosure on
website.
H5 Abnormal Return
Scope of Information Disclosure
3 Research Methodology
3.1 Research Approach
This study is conducted to test the hypothesis (hypothesis testing) by
performing comparative testing of all the variables studied. This study is an
event study and literature research which carried out in cross-sectional that
involves a certain time with lots of samples that only can be used once within
a period of observation to test the comparative and relationships via the
internet publication of financial reporting, the degree of information disclosure
on websites and scope of information disclosure on websites on stock prices
and abnormal returns.
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this research is purposive sampling, with the following conditions for the
companies:
1. Have been listed on the Indonesia Stock Exchange until the end of 2010
2. Have websites and disclose financial reporting on their websites
3. Have exact dates of IFR publication on the websites;
4. Have complete data from IDX
5. Companies with significantly stable β for the periods before and after the
event window
6. Companies with matched companies (non IFR)
Of all 419 companies listed on the Indonesian Stock Exchange until the
end of 2010, there are 276 companies have websites but only 190 companies
that provide financial and non financial information on their websites. Of 190
firms disclosing financial and non-financial information on their websites,
only 32 firms are included in the final sample of the IFR companies and 32
samples of non IFR companies as control grup. Non IFR companies are
companies without website or with website but did not post financial
information.
The distribution of sample for each hypothesis is as follows.
a) For hypothesis 1 and hypothesis 2, the number of sample used are 64
companies consisting of 32 companies which have implemented IFR and
32 companies which have not applied IFR.
b) For hypothesis 3 and hypothesis 4, the number of sample used are 32
companies which have implemented the IFR. They are divided into two
groups, namely (1) TPI1: companies which have more information
disclosure on the website (> 20) containing of 17 companies and (2) TPI2:
companies which have less information disclosure on the website (<20)
containing of 15 companies.
c) For hypothesis 5, the number of sample used are 32 companies which have
implemented the IFR. They are divided into two groups, namely (1) LPI1:
the companies which have more scope of information disclosure on the
website (> 1) containing of 10 companies and (2) LPI2: the companies
which have less scope of information disclosure on the website (<1)
containing of 22 companies.
This study use 111 trading days consisting of 100 days estimation period
and 11-day period covering 5 days before the event day, an event day (the day
of financial statements publication) and 5 days after the event day. That period
is used to indicate whether or not there is an advantage signal in the short term
and in the liquidity of stock trading due to the publication of financial
statements. Period 5 days before the event day is used to determine whether
there is a information leakage within the company while the period of 5 days
after the event day to determine the speed of market reaction, as presented by
Ghufron (2006) in Yulia (2011).
3.3 Measurement
1. Stock prices: stock prices are used for hypothesis 1 and 3. Stock prices are
calculated by cummulative ratio of stock prices’ returns in 5 days after event
window. Here is the formula for calculating the return of stock prices
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Where, Rit is the return of security I during period t, measured as the change
of current stock price (Pt) to the previous closing price (Pt- 1 ) and divided by
previous closing price.
2. Abnormal returns: abnormal returns are used for hypothesis 2, 4, and 5. An
abnormal return is calculated by using market-adjusted model that assumed as
the best formula to measure abnormal returns. This hypothesis use “event
study” during 11 days, with a 5 days before, 1 event day and 5 days after event
date. Here is the formula for calculating abnormal return.
4 Results
1. The relationship between IFR and Stock Prices
Hypotesis 1 is tested by normality test to determine kind of hypotesis
testing. Normality test shows if level of significance < 0,05, that means
distribution of data is not normal. Based on this result, we used Mann Whitney
U test. The result of Mann Whitney U test is significance (0,041<0,05), shows
that hypotesis 1 can be accepted.
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Hypotesis 2 is tested by normality test to determine kind of hypotesis
testing. Normality test shows if level of significance < 0,05, that means
distribution of data is not normal. Based on this result, we used Mann Whitney
U test. The result of Mann Whitney U test is significance (0,003 < 0,05),
shows that hypotesis 2 can be accepted.
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6. Discussion
The test results will be discussed as follows.
1. The Results of Hypothesis 1 and Hypothesis 2
The test results regarding the influence of Internet Financial Reporting
(IFR) on stock prices and abnormal stock return show that there are
significant differences between stock prices and abnormal stock returns of
companies who applied IFR practices and those which not applied the IFR
practices. The results of this study support the results of research performed by
Lai et al. (2010)., which stated that the stock prices will move when there is
useful information entering the market.
In accordance with the efficient market theory that if the market is efficient
and balanced, then the useful information would cause investors to react
quickly, as reflected in the stock price changes. The test results performed on
two groups of companies, companies that have applied and who have not
applied IFR, shows that the company's stock price is more responsive after the
publication of financial reporting via the Internet, so there are significant
differences between stock prices and abnormal stock returns of companies
who applied IFR practices and those which not applied the IFR practices.
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5%). The results of this study do not support the results of the study Lai et al.
(2010), who found that there is no significant effect between the Scope of
Disclosure with the abnormal return. This shows that companies in Indonesia
have not considered the scope of the information disclosure on the website as
something important. It is characterized by abnormally low returns of the
companies which have broader scope of information disclosure than those
which have smaller scope of information disclosure.
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