The Effect of Convergence to International Financial Accounting Standards on Information Asymmetry–Evidence from Indonesian Companies Listed in the IDX from 2015–2019

Abstract

AbstractSince 1994, Indonesian financial accounting standards has referred to as International Accounting Standards/IAS (or International Financial Reporting Standards/IFRS started in 2001). Then, as a G20 member commitment, Indonesia took a more major step by developing standards that have been convergence to IFRS since 2009. A special breakthrough was done in 2015 as the gap between the IFRS, and Indonesian Financial Accounting Standards is only one year. Higher quality of accounting standards and financial reporting information is expected to decrease the information asymmetry in the capital market. This study aims to examine the effect of IFRS convergence on changes in information asymmetry. This study's sample consisted of 725 companies listed on the Indonesia Stock Exchange between 2015 and 2019 across industries. The cost of capital was used as a proxy for information asymmetry. This study shows that IFRS convergence has no significant effect on changes in information asymmetry. Macro control variables, i.e., inflation rate and market rate of return, also have no significant effect on changes in information asymmetry. However, the firm-specific control variables, i.e., firm size, leverage, and ROA, have a significant positive effect on information asymmetry, while beta has a significant negative effect. It argues that Indonesian investors could not make a difference in the quality of financial reporting.