ANALYZING FACTORS THAT INFLUENCE EARNINGS RESPONSE COEFFICIENT IN THE MANUFACTURING COMPANY LISTED IN INDONESIA STOCK EXCHANGE DURING 2006-2010

Abstract

In the equity market, the stock price is very volatile. According to Bagehot (1971), the stock price is determined by the information or issues. The stock price influenced significantly by the information of earnings announcement (Jang et al, 2007). The information of earnings announcement tells the public how the performance of company and helps the public to predict the future performance of the company. Thus, the information is a determinant factor of stock price changes. the response on the stock price by the information of earnings announcement can be measure through Earnings Response Coefficient (ERC), based on Nayar and Rozeff (1992). According to Scott (2003), Earnings Persistency, Firm Size, Growth Opportunity, Leverage and Systematic Risk influence the ERC which impacts on the stock price. Meanwhile, Subiyantoro (1997) has tested that Liquidity also one of the stock price determinant factor. Thus, researcher takes five independent variables which are Earnings Persistency, Firm Size, Growth Opportunity, Leverage and Liquidity and ERC as the dependent variable. The objective of this research is to examine the influence earnings persistency, firm size, growth opportunity, leverage, and liquidity on the stock return around the earnings announcement. This research uses the non-probability sampling, specifically the purposive sampling. The sample is eliminated with some criteria. The total sample is 47 manufacturing companies which were listed in Indonesia Stock Exchange from 2006 – 2010. The analytical technique used is the multiple linear regression. The instrument of hypothesis testing is T-test, F-test, and Coefficient of Determination. The result examined shows that simultaneously all independent variables give significant influence on ERC. Partially, Growth Opportunity gives negative influence on ERC. In contrast to Mulyani et al (2007), they found that Growth Opportunity gives positive influence on ERC. However, Growth Opportunity and ERC may have negative correlation because the information of earnings announcement may not be reliable since there would be the intervention of management. Earnings Persistency and Liquidity give positive influence significantly on ERC. Higher Earnings Persistency and Liquidity lead to higher ERC. Meanwhile, the Firm Size and Leverage do not influence the ERC significantly.