Abstract
Earnings quality can be determined from the market or investor reaction to information in the published financial statements. But there are some factor, which can be considered to be biased for investors in determining their investment in a company. Market reaction can be proxy by earning response coefficient. This study aims to examine the effect of tax avoidance, foreign direct investment and capital intensity on earnings response coefficient. The population in this study is companies from manufacturing sector listed on the Indonesia Stock Exchange (IDX) for the period 2017-2019. Data obtained from the IDX website, Yahoo Finance and website of certain companies. The population of this study are 135 observation data. The hypothesis in this study were tested by multiple linear regression analysis. The result of this research are: 1) foreign direct investment and capital intensity have a positive effect on earnings response coefficient. 2) tax avoidance has no influence on earnings response coefficient.
Highlights
The structure of the company in this modern era has a separation of authority between management and shareholders
According to investors' perceptions, tax avoidance will reduce the quality of revenue information, reflect the lack of good corporate governance, lack of transparency and incur agency and legal costs, the costs incurred are greater than the tax savings made
This study aims to determine the effect of tax avoidance, foreign direct investment and capital intensity on earnings response coefficient
Summary
The structure of the company in this modern era has a separation of authority between management and shareholders. Quality earnings on financial statements can be a signal from management to investors that the company has a good performance (Godfrey et al, 2010). The result of an ERC is determined by the investor's response to the announcement of earnings from financial statements. A high ERC can indicate the earnings provided are informative, which can increase firm value and stock returns. Fewer investors will invest their funds in the company This contradicts, with research by Mukhlasin and Annisa (2018), which states that tax avoidance has a negative influence on earnings response coefficients. Several other factors can affect the earnings response coefficient, such as foreign direct investment and capital intensity. This study was conducted to re-examine the effect of tax avoidance, foreign direct investment and capital intensity on earnings response coefficient
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