Abstract
This study aims to examine the moderating role of trading volume activity and cost of equity between earnings aggressiveness and earnings smoothing on return of stock. It includes the analysis of earnings persistent in strengthening the relationship between earnings aggressiveness, earnings smoothing, the cost of equity and trading volume activity as well as their effect on return of stock. The sample of study is 32 banking companies which pay dividends and which shares actively traded at the Indonesian Stock Exchange (BEI) whereby the period of observation took place from 2007 to 2011. The method uses a multiple linear regression analysis using SPSS as the data processing tools. The results of this study establish that the earnings aggressiveness and earnings smoothing simultaneously and significantly affect the trading volume activity. The earnings smoothing has a negative effect and is significant on the trading volume activity, while earnings aggressiveness has a positive effect and is significant on the trading volume activity. Meanwhile, the trading volume activity has positive effect and is significant on return of stock and the earnings persistence is moderating the relationship between earnings aggressiveness and earnings smoothing on the trading volume activity.
Highlights
Beaver (2002) states that the accrual is a major issue for many years
Penman and Zhang (2002) state that sustainable earnings have high quality and they are used as an indicator for future earnings which is referred as the persistence of earnings (Sloan, 1996; Dechow and Dichev, 2002; Francis et al, 2004)
Based on the tests’ results, this study has come to its conclusion, which is summed up in the following points:
Summary
Beaver (2002) states that the accrual is a major issue for many years. He emphasizes on the upcoming period accruals management whereby the companies make profits through some policy characteristics such as overstate earnings, loss avoidance and income smoothing, while in previous research some aspects of earnings management have been discussed which include: motivation and approaches in earnings management, discretionary and non- discretionary on component estimation. According to the agency theory, the motivation of accrual management can be grouped into two categories: opportunistic and signaling (Beaver, 2002). The motivation in opportunistic management through an aggressive accounting policy results in a higher profit rate than real income. Penman and Zhang (2002) state that sustainable earnings have high quality and they are used as an indicator for future earnings which is referred as the persistence of earnings (Sloan, 1996; Dechow and Dichev, 2002; Francis et al, 2004)
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