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THE COMPARISON OF INCOME SMOOTHING AND MARKET REACTION BEFORE AND AFTER IFRS ADOPTION

(Empirical Study On Consumer Goods Industry Company)

THE COMPARISON OF INCOME SMOOTHING AND MARKET REACTION BEFORE AND AFTER IFRS ADOPTION

(Empirical Study On Consumer Goods Industry Company)

Name : Luthfi Yuliana NPM : 24211180 Major : Accounting Advisor : Dr. Dra. Peni Sawitri, MM

Introduction

Background

• IFRS is expected to increase the quality of accounting

information.

• If the quality of accounting information increases, then

the level of asymmetry will decreased and the market also reacted. If the level of asymmetry decreased, then the income smoothing practices also decreased. This research examined the comparison of income smoothing and market reaction before and after IFRS adoption.

Background

IFRS is expected to increase the quality of accounting information. If the quality of accounting information increases, then the level of asymmetry will decreased and the market also reacted.

• If the level of asymmetry decreased, then the income

smoothing practices also decreased.

• This research examined the comparison of income

smoothing and market reaction before and after IFRS adoption.

Problem Formulation

• Are there differences in income smoothing before and after the

IFRS adoption?

• Are there any differences in market reaction at the company of

income smoothing before and after the IFRS adoption?

Research Objectives

Examine and analyze whether there are differences of income smoothing before and after the IFRS adoption. Examine and analyze whether there are differences in market reaction at the company of income smoothing before and after the IFRS adoption.

Problem Formulation

Are there differences in income smoothing before and after the IFRS adoption? Are there any differences in market reaction at the company of income smoothing before and after the IFRS adoption?

Research Objectives

• Examine and analyze whether there are differences of income

smoothing before and after the IFRS adoption.

• Examine and analyze whether there are differences in market

reaction at the company of income smoothing before and after the IFRS adoption.

Research Hypothesis

H1 : There are differences income smoothing before and after the IFRS adoption. H2 : There are differences in market reaction at the company of income smoothing before and after the IFRS adoption.

Research Method

• Type and Source data: Secondary data in form the

financial statements is obtained from official website of IDX.

• Sample: 21 Consumer goods industry companies
• Operational variable:
• Status variable before and after IFRS adoption
• Income smoothing
• Market reaction (abnormal return)

Analysis Method: Wilcoxon test and paired sample t- test Type and Source data: Secondary data in form the financial statements is obtained from official website of IDX. Sample: 21 Consumer goods industry companies

• Operational variable:
• Status variable before and after IFRS adoption
• Income smoothing
• Market reaction (abnormal return)
• Analysis Method: Wilcoxon test and paired sample t-

test

Normality Test

Result and Discussion

Variable Normality Result Analysis Tool Income Smoothing Not Normal Wilcoxon Test Market Reaction Normal Paired Sample t-test Market Reaction Normal Paired Sample t-test

• Income Smoothing (H1)

Hypothesis Test Result

• Abnormal Return (H2)

Hypothesis Test Result

Discussion

• Hypothesis I

There is difference in income smoothing in period before and after IFRS adoption, and income smoothing is mostly done after IFRS adoption because:

• 1. If viewed from the characteristic of IFRS is principle-

based and fair value.

• 2. Different characteristics of the company or state of

each.

• 3. The application of IFRS that have not been fully applied.

Hypothesis I

There is difference in income smoothing in period before and after IFRS adoption, and income smoothing is mostly done after IFRS adoption because:

• 1. If viewed from the characteristic of IFRS is principle-

based and fair value.

• 2. Different characteristics of the company or state of

each.

• 3. The application of IFRS that have not been fully applied.

Discussion

• Hypothesis II

There is no difference in market reaction at the company of income smoothing in period before and after IFRS adoption, can caused by:

• 1. Stable earnings
• 2. More predictable

Hypothesis II

There is no difference in market reaction at the company of income smoothing in period before and after IFRS adoption, can caused by:

• 1. Stable earnings
• 2. More predictable

Conclussion and Suggestion

Conclussion

• There are differences in the number of companies

who doing income smoothing before and after IFRS adoption, so the hypothesis I is accepted.

• While, the market reaction at the company of income

smoothing that there are no differences before and after IFRS adoption, so the hypothesis II is rejected.

Conclussion

• There are differences in the number of companies

who doing income smoothing before and after IFRS adoption, so the hypothesis I is accepted.

• While, the market reaction at the company of income

smoothing that there are no differences before and after IFRS adoption, so the hypothesis II is rejected.

Suggestion

(For Next Research)

• Expanding the sample by adding other sectors.
• Adding to the period of the research both before and

after the IFRS adoption.

• Consider other factors, which may affect the practice
• f income smoothing.
• See further instruments in the financial statements

that may be used by management for income smoothing.

Suggestion

(For Next Research)

• Expanding the sample by adding other sectors.
• Adding to the period of the research both before and

after the IFRS adoption.

• Consider other factors, which may affect the practice
• f income smoothing.
• See further instruments in the financial statements

that may be used by management for income smoothing.

(For Investors)

• Carefully in understanding the information contained

in the financial statements, especially with regard to income smoothing.

• More attention to the various events that can affect

the rise and fall of stock prices in IDX.

(For Investors)

• Carefully in understanding the information contained

in the financial statements, especially with regard to income smoothing.

• More attention to the various events that can affect

the rise and fall of stock prices in IDX.

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