Abstract
This study examines how the industrial competition affects earnings quality. Our study supports the idea of declining earnings quality when firms' risk increases. We expect that low industrial competition or high market concentration decrease firms' risk by generating more stable revenue for companies. This condition stimulates increasing earnings response coefficient (ERC). Generally, using data from Indonesia, our results show that market concentration affects the relation between earnings surprise and excess return. Further, we find that firms in industries with high market concentration generate higher ERC, especially for profit firms. It means, investors are more likely to use positive earnings data for firms in high market concentration industries in reacting earnings surprise. Our paper contributes to market concentration and ERC studies, especially in Indonesia as one of emerging markets. Low industrial competition improves earnings informativeness.
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