The Combined Effects of Financial Derivatives and Discretionary Accruals on the Value Relevance of Earnings and the Book Value of Equity

Etty Murwaningsari; Sidharta Utama; Hilda Rossieta

Etty Murwaningsari Universitas Trisakti
Sidharta Utama University of Indonesia
Hilda Rossieta University of Indonesia

Keywords: discretionary accruals, financial derivatives, Earnings, Book Value of Equity

Abstract

This study aimed to understand (1) the association between the use of discretionary accruals and financial derivatives, taking into consideration the implementation of revised PSAK 55 (1999), which was adopted from SFAS 133; (2) the combined effects of derivatives and discretionary accruals on the value relevance of earnings and equity. The analysis used panel data regressions and the Wald test over the period from 2001-2008. The results showed a positive or complementary association between derivatives and discretionary accruals. The positive association implied that managers tended to intensify the use of discretionary accruals to offset a higher use of derivatives. Price and return models demonstrated negative significant effects of derivatives on the value relevance of earnings. The return model showed negative significant effects of discretionary accruals on the value relevance of earnings but negative effects on the value relevance of equity with the price model.

Author Biographies

Etty Murwaningsari, Universitas Trisakti

MURWANINGSARI, Etty, a full-time lecturer and Vice Dean of Academic at the Faculty of Economics, Trisakti University. She earned her Doctor in Accounting from Faculty of Economic University of Indonesia (FEUI) in 2011, Master of Management majoring in Financial Management from Trisakti University in 1995, and Bachelor Degree in Accounting from University Airlangga, Surabaya in 1981. She has written articles published in several journal and her research has been presented in several conferences such as American Accounting Association (AAA) Annual Meeting in Washington D.C, USA (2012), and in Denver, Colorado, USA(2011), Asian Pacific Conference on International Accounting in Gold Coast, Australia (2010) and in Las Vegas, Nevada, USA (2009).
Author’s contact detail: Faculty of Economics, Trisakti University, Jalan Kyai Tapa (Grogol) Jakarta 11440, Indonesia; Phone: (62-21) 566-8632, 566-3232 (Hunting); e-mail: etty_nasser@yahoo.com.

Sidharta Utama, University of Indonesia

UTAMA, Sidharta is a full professor at the Faculty of Economics University of Indonesia (FEUI) and currently serves as a secretary of the Board of Trustees at the University. He is a member of the International Accounting Education Standards Board (IAESB), a member of the Board of Trustees —Indonesia Institute for Corporate Directorship (IICD), the National Council —the Indonesian Intitute of Chartered Accountants (IAI), the management board of Transparency International Indonesia, and the Board of Advisory for Financial Accounting Policy of the Indonesia Central Bank. He is also an independent commissioner and a member of audit committee in several publicly listed companies in Indonesia. He obtained his Undergraduate Degree (1987) majoring in Accounting from FEUI, MBA Degree (1990) majoring in Finance and Information System from Indiana University, and Ph.D. Degree (1996) majoring in Accounting from Texas A&M university. He is a Chartered Accountant from IAI and Chartered Financial Analyst from CFA Institute.
Author’s contact detail: Faculty of Economics, University of Indonesia (FEUI), Depok, Jakarta, Indonesia. Email: sidhartautama@yahoo.com.

Hilda Rossieta, University of Indonesia

ROSSIETA, Hilda is a lecturer at the Faculty of Economics University of Indonesia (FEUI). She obtained her Ph.D. (2006) in Accounting and Finance from Manchester Business School The University of Manchester, Manchester, United Kingdom; M.Comm. (Master of Commerce) (1992) in Management Accounting from The University of New South Wales, Sidney, Australia; Undergraduate Degree (1984) from University of Indonesia (FEUI). She has written articles and papers and has presented her research works in international as well as national conference/seminars regarding accounting, corporate finance and good governance research.
Author’s contact detail: Accounting Department Building, 2nd Floor, Jl. Prof. Dr. Sumitro Djojohadikusumo, Kampus Widjojo Nitisastro, Depok, West Java, Indonesia 16424; Phone: +62-81387567895; E-mail: enjum9@gmail.com, and hilda.rosieta@ui.ac.id.

References

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