Analysis Of The Effect Of Accrual Information On Banking Stock Trading Costs In Indonesia

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Introduction

In the modern era of finance, accrual information has become a crucial aspect that affects the cost of stock trading, particularly in the banking sector. The Indonesian banking sector, being a significant player in the country's economy, has seen a substantial increase in stock trading activities in recent years. However, the cost of trading shares in the banking sector remains a concern for investors. This study aims to investigate the effect of accrual information on the cost of trading shares in the Indonesian banking sector, listed on the Indonesia Stock Exchange (BEI), during the period of 2014 to 2018.

Research Methodology

The data used in this study are secondary data taken from the annual report published by each bank and information from Yahoo! Finance. This study uses a period of five years, from 2014 to 2018, to get a more comprehensive picture of the effect of accrual information on the cost of trading shares in the Indonesian banking sector. The research methodology employed in this study is a multiple linear regression method on panel data, which evaluates the relationship between independent variables (abnormal accrual and normal accrual) to the cost of trading shares measured through quoted spreads and effective spreads.

Research Result

The results of the study showed that there was a positive and significant relationship between accrual abnormal and stock trading costs. This applies to both types of trading costs measurements, namely Quoted Spread and Effective Spread. In other words, the higher the accrual abnormal of a bank, the greater the cost of trading shares that must be paid by investors. Furthermore, this study also found that normal accrual has a positive and significant influence on stock trading costs. These findings indicate that although accrual abnormal is often a major concern, normal accrual also plays an important role in determining trade costs that must be borne by investors in the stock market.

Analysis and Implications

Accrual information is a crucial tool for investors in making investment decisions. Abnormal accruals are often associated with earnings management, where companies try to show better performance than the truth. This can cause inaccurate information that has an impact on investor perceptions and, in turn, in the cost of trading shares. The uncertainty caused by inaccurate information can cause a greater spread between the purchase and selling price, thereby increasing transaction costs for investors.

On the other hand, normal accrual reflects more stable and reliable operational performance from a company. If investors believe in the quality of profit being reported, they might be more likely to make transactions, thereby reducing stock trading costs.

From the results of this study, it is important for investors and regulators to understand the implications of accrual information in decision making in the capital market. For investors, increasing understanding of accrual information can help in identifying banks with more transparent performance and reducing risk in investing.

The Role of Accrual Information in Earnings Management

Earnings management is a common practice in the corporate world, where companies try to manipulate their financial statements to show better performance than the truth. Abnormal accruals are often used as a tool for earnings management, where companies try to hide their true financial performance. This can cause inaccurate information that has an impact on investor perceptions and, in turn, in the cost of trading shares.

The Importance of Accrual Information in Investment Decision Making

Accrual information is a crucial tool for investors in making investment decisions. By understanding the accrual information, investors can identify banks with more transparent performance and reduce risk in investing. Accrual information can also help investors to make more informed decisions about their investments, thereby reducing the risk of losses.

Conclusion

Overall, this research emphasizes the importance of accrual information in influencing the cost of trading shares in the Indonesian banking sector. With a positive relationship between accrual abnormal and stock trading costs, as well as normal accrual roles that are no less significant, investors are expected to be more careful in analyzing financial statements and considering accrual information as one of the important indicators in investment decision making.

Recommendations

Based on the findings of this study, the following recommendations are made:

  • Investors should pay attention to accrual information when making investment decisions.
  • Regulators should ensure that companies provide accurate and transparent financial information.
  • Companies should avoid using abnormal accruals for earnings management purposes.
  • Investors should consider normal accrual as an important indicator in investment decision making.

Limitations of the Study

This study has several limitations, including:

  • The study only focuses on the Indonesian banking sector.
  • The study only uses secondary data.
  • The study only uses a multiple linear regression method on panel data.

Future Research Directions

Future research directions include:

  • Investigating the effect of accrual information on stock trading costs in other sectors.
  • Using other research methods, such as event study or content analysis.
  • Investigating the impact of accrual information on investor behavior.

References

This study uses the following references:

  • [1] Beaver, W. H. (1968). The information content of accounting earnings. Journal of Accounting Research, 6(2), 67-92.
  • [2] Dechow, P. M. (1994). Accounting earnings and cash flows as measures of firm performance: The role of accounting accruals. Journal of Accounting and Economics, 18(1), 3-42.
  • [3] Healy, P. M., & Wahlen, J. M. (1999). A review of the earnings management literature and its implications for standard setting. Accounting Horizons, 13(4), 365-383.

Appendix

This appendix includes the following:

  • List of variables used in the study.
  • List of banks used in the study.
  • List of data sources used in the study.

Conclusion

Q: What is accrual information and how does it affect stock trading costs?

A: Accrual information refers to the financial information that is reported by companies, such as earnings and cash flows. Accrual information can affect stock trading costs because it can influence investor perceptions and decision-making. When companies report inaccurate or misleading financial information, it can lead to uncertainty and increased transaction costs for investors.

Q: What is the relationship between accrual abnormal and stock trading costs?

A: The results of this study show that there is a positive and significant relationship between accrual abnormal and stock trading costs. This means that the higher the accrual abnormal of a bank, the greater the cost of trading shares that must be paid by investors.

Q: What is the role of normal accrual in stock trading costs?

A: Normal accrual reflects more stable and reliable operational performance from a company. If investors believe in the quality of profit being reported, they might be more likely to make transactions, thereby reducing stock trading costs.

Q: How can investors use accrual information to make informed investment decisions?

A: Investors can use accrual information to identify banks with more transparent performance and reduce risk in investing. Accrual information can also help investors to make more informed decisions about their investments, thereby reducing the risk of losses.

Q: What are the implications of accrual information for regulators and companies?

A: Regulators should ensure that companies provide accurate and transparent financial information. Companies should avoid using abnormal accruals for earnings management purposes.

Q: What are the limitations of this study?

A: This study has several limitations, including:

  • The study only focuses on the Indonesian banking sector.
  • The study only uses secondary data.
  • The study only uses a multiple linear regression method on panel data.

Q: What are the future research directions for this study?

A: Future research directions include:

  • Investigating the effect of accrual information on stock trading costs in other sectors.
  • Using other research methods, such as event study or content analysis.
  • Investigating the impact of accrual information on investor behavior.

Q: What are the practical implications of this study for investors and regulators?

A: The practical implications of this study are that investors should pay attention to accrual information when making investment decisions, and regulators should ensure that companies provide accurate and transparent financial information.

Q: What are the potential risks and challenges associated with accrual information?

A: The potential risks and challenges associated with accrual information include:

  • Inaccurate or misleading financial information.
  • Uncertainty and increased transaction costs for investors.
  • Earnings management and other forms of financial manipulation.

Q: How can investors and regulators mitigate the risks and challenges associated with accrual information?

A: Investors and regulators can mitigate the risks and challenges associated with accrual information by:

  • Using accrual information to make informed investment decisions.
  • Ensuring that companies provide accurate and transparent financial information.
  • Implementing effective regulatory frameworks to prevent earnings management and other forms of financial manipulation.

Conclusion

In conclusion, this Q&A article provides a summary of the key findings and implications of the study on the effect of accrual information on banking stock trading costs in Indonesia. The study highlights the importance of accrual information in influencing stock trading costs and provides practical implications for investors and regulators.