THE VALUE RELEVANCE ON RETAIL TRADE INDUSTRY: EVIDENCE FROM SOUTHEAST ASIAN COUNTRIES

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1 International Journal of Civil Engineering and Technology (IJCIET) Volume 8, Issue 12, December 2017, pp , Article ID: IJCIET_08_12_058 Available online at ISSN Print: and ISSN Online: IAEME Publication Scopus Indexed THE VALUE RELEVANCE ON RETAIL TRADE INDUSTRY: EVIDENCE FROM SOUTHEAST ASIAN COUNTRIES Ary Yunanto, Daryono Doctoral Student, Faculty of Economics and Business, Universitas Diponegoro Lecturer, Faculty of Economics and Business, Universitas Jenderal Soedirman Sugeng Wahyudi, Imam Ghozali Lecturer of Faculty of Economics and Business, Universitas Diponegoro Udin* Doctoral Student, Faculty of Economics and Business, Universitas Diponegoro *Corresponding Author ABSTRACT The purpose of this study is to analyze value relevance of accounting information based on a sample of retail trade corporations listed on one of the following capital markets (such as Indonesia Stock Exchange, Malaysia Stock Exchange, and Thailand Stock Exchange). The results show that accounting information is value relevance to all the observed markets. The highest value relevance of accounting information in Malaysia (R =83%) and Thailand have the lowest relation with share price (R =68%), while in Indonesia value relevance of accounting information is in between (R =76%). The incremental explanatory power of book value and earnings differs across a year and across countries. Book value has modest incremental explanatory power in Malaysia and Thailand, but considerably stronger in Indonesia. Earnings have little incremental explanatory power in Indonesia, but significant incremental explanatory power in Malaysia and Thailand. Overall periods, the explanatory power common to book value and earnings is high in Indonesia and Malaysia but near to zero in Thailand. Key words: Value Relevance; Retail Trade Industry; Southeast Asian Capital Markets. Cite this Article: Ary Yunanto, Daryono, Sugeng Wahyudi, Imam Ghozali and Udin, the Value Relevance on Retail Trade Industry: Evidence from Southeast Asian Countries, International Journal of Civil Engineering and Technology, 8(12), 2017, pp editor@iaeme.com

2 Ary Yunanto, Daryono, Sugeng Wahyudi, Imam Ghozali and Udin 1. INTRODUCTION Accounting information is the content of information derived from the company's financial statements. It takes investors to assist in making decisions on an investment selection. The financial statements issued by a company should be able to disclose the actual company condition so that it is beneficial to the public interest. Information useful for decision-making should be information that has relevance. The value relevance can be seen from the existence of statistical relationships that measure whether investors actually use financial information in pricing, so the value relevance is measured by the financial statement information capabilities to change the stock price because it causes investors to improve their expectations (Francis and Schipper, 1999). Based on empirical findings, accounting measures such as book value and earnings have statistical relationships with stock price, therefore, are used in corporate valuation (Der, Polak and Masri, 2016). The main feature of most research in this field is that the value of relevance is measured by drawing conclusions from the strength of the model statistical explanation, that is, adjusted R-square or alternatively, drawing the conclusions of the coefficient significance in each model. Increasing and decreasing of adjusted R-square that indicates the value of investor's tendency in using accounting information as the basis of consideration to take investment decision in research about value relevance of accounting information. Previous research has used many samples consisting of entities representing a wide spectrum of industries. Hence, the results may be difficult to interpret because different industries have very different and differentiated characteristics it is difficult to determine how samples representing different industries combinations can provide conclusive evidence the value relevance of accounting numbers (Anandaraja, 2010). This study is different from the previous research. This study focuses specifically on one industry, namely the retail trade industry in Southeast Asian Countries. The underlying reason is that based on research from Kawazu (2013) concludes that the retail market in Southeast Asia demonstrates high growth rates and offers wide coverage for further growth in the future. In addition, total gross domestic product (GDP) in Southeast Asian Countries has grown, presenting significant economic growth potential. In cases where economic growth increases, this will lead to greater explanatory value relevance (Callao, Cuellar, and Jarne, 2006). 2. LITERATURE REVIEW OF CROSS-COUNTRY VALUE RELEVANCE STUDIES There are many studies using sample cross-countries. Graham and King (2000) examined the relation between stock price and earnings and book values among six Asian countries: Indonesia, South Korea, Malaysia, the Philippines, Taiwan, and Thailand. They found significant differences across the countries in the explanatory power of earnings and book values. Arce and Mora (2002) examined whether book value and earnings convey different information to stock valuation. The sample consists of listed firms from eight European countries (Belgium, France, Germany, Italy, The Netherlands, Switzerland, Spain and the UK). They found both earnings and book value convey additional information having incremental explanatory power to explain market prices. The exceptions are Germany, for both figures of earnings, and Spain, in the case of net income, which does not convey incremental information to book value. Black and White (2003) compared value relevance of book value and earnings in the United States, Japan, and Germany. The results found that book value is more valuable in Germany and Japan while earnings are more relevant in the United States. Callao, Cuellar, and Jarne (2006) study based on financial reporting and a stock market in 23 countries provides evidence for the value relevance of the final earnings figure in all of the markets considered and editor@iaeme.com

3 The Value Relevance on Retail Trade Industry: Evidence from Southeast Asian Countries establishes a direct relationship between earnings and prices. Anandarajan, Francis, Hasan and John (2011) examined value relevance used sample 813 banking institutions firms in 38 countries based on separate regressions of three different models. They found the overall model was also significant. These results support the findings of prior literature that indicates both book value and earnings have value relevance with respect to equity valuation. Recent studies, Camodeca, Almici and Brivio (2014) examined value relevance of accounting information in the Italian and UK stock market. They found that greater value relevance of accounting information in Italy than in the UK, even if this result must be explained according to the sample s characteristics. Pervan and Bartulovic (2014) used sample of 97 corporations listed on one of the following capital markets: Ljubljana Stock Exchange, Zagreb Stock Exchange, Sarajevo Stock Exchange, Banja Luka Stock Exchange and Belgrade Stock Exchange. Research results show that accounting information is value relevant to all the observed markets. Badenhorst, Brummer and Wet (2015) compared the value relevance of disclosed fair values of listed associates in South Africa, the United Kingdom (UK) and Australia. They found value-relevance differs between sample countries, especially when firms in the globalized financial services and mining industries are excluded from the sample, despite increased convergence in accounting standards. 3. RESEARCH METHODOLOGY This paper focuses retail trade publicly listed companies on Indonesia Stock Exchange, Malaysia Stock Exchange, Singapore Stock Exchange and Thailand Stock Exchange. The data was obtained from Osiris respectively based on 2012 to The research design and the organization of the analyses are based on three accounting themes related to the value relevance of earnings and book value: the relative importance of book value and earnings for valuation and the differences in value relevance of accounting information across retail trade industry on Southeast Asian Countries. Based on previous research in the area of the value relevance of accounting information, and in order to obtain answers to the question whether there is a correlation between accounting information and share prices, this study is conducted. The first is focused on an analysis of the relationship between share prices and accounting information on selected capital markets. In order to test the first research hypothesis share market value is expressed as a function of book value and earnings and to test the hypothesis methodology based on the previous work of Ohlson (1991) and Feltham and Ohlson (1995) is used: = (1) = share price three months after the end of fiscal year t, = book value per share at the end of year t, = earnings per share in year t, = other value-relevant information in year t. In relation to the first question, this study decomposes regression (1) into two regressions that consider the individual value relevance of book value and earnings. It is possible to define the total explanatory power of earnings and book value and in order to analyze the differences between value relevance of earnings and book value. The regressions considered are derived from regression 1: = + + (2) = + + (3) editor@iaeme.com

4 Ary Yunanto, Daryono, Sugeng Wahyudi, Imam Ghozali and Udin Analyzing focus on the coefficients and the significance of regressions (1), (2) and (3), and then this study analyzes the incremental and relative information content. Because tests indicate the presence of heteroscedasticity in the error terms, White s adjusted t-statistics are reported. This study also computes the incremental of both book value and earnings and test the statistical significance of both measures using a two-step regression and t-test. This test is carried out in similar papers such as King and Langli (1998) and Arce and Mora (2002). 4. RESULT AND DISCUSSION 4.1. The value relevance of accounting information in the retail trade industry Table 1 reports summaries of regressions (1), (2), and (3) for all years and yearly data all countries. The research results all years regressions (1) shown indicate that accounting information on retail trade industry has value relevant to the observed capital markets. For Indonesia, accounting variables are positively and significantly related to stock price where combined book value and earnings explained about 76.2% of stock price variance. Furthermore, the results showed that book value significant with t-statistic of 5.24 and 7.83 for earnings. The coefficient book value is 1.79 and 2.92 for earnings. Based on regression (2) book value positively and significantly related to stock price. Book value explained about 59.9% to stock price. Similarly, earnings in regression (3) are also positively and significantly related to stock price with a regression coefficient of 61.2%. The yearly for basis regression (1) all the coefficients book values are positive and significant in four of five years. On the other side, all earnings regression coefficients are positive and significant. In regression (2) the yearly coefficients on book value are all positive and significant, as well as earnings. The coefficients for earnings from both regression (2) and regression (3) are positive and significant in all observed. In the Malaysia case accounting variables for all years are also significantly related to stock price. The combined on book value and earnings on regression (1) explained about 82.7% to stock price variance. The combined on book value and earnings in regression (1) explained about 82.7% to stock price variance. Book value is significant with t-statistic of 5.24 and the coefficient of Earnings have also significant at t-statistic of 8.11 and the coefficient of Based on regression (2) book value positively and significantly related to stock price. Book value explained about 59.9% to stock price. Earnings in regression (3) also positively and significantly related to stock price with a regression coefficient of 61.2%. On yearly basis, the coefficients of book value are positive for both regression (1) and (2) and significant only in 2014 and all yearly observed respectively. On the other hand, coefficients on earnings also positive for all yearly observed for both regressions (1) and (3). The value relevance analysis on the Thailand both accounting variables are also significantly related to share prices. The combined book value and earnings in regression (1) explain about 67.5% of the stock price variance, which is lower than Indonesia and Malaysia. Coefficients on book value are positively and significantly for four of five years on regression (1) and for two of five years on regression (2). The t-statistics on the book value coefficient are 1.88 and 7.58 for regressions (1) and (2) respectively. Coefficients on earnings are positive for all yearly observed for both regressions (1) and (3) and significant in all years respectively, while t-statistics on earnings are 7.58 and 7.76 for regressions (1) and (3), respectively editor@iaeme.com

5 The Value Relevance on Retail Trade Industry: Evidence from Southeast Asian Countries Table 1 Estimated regressions of models (1), (2) and (3) Indonesia All Years (5.24) (4.02) (7.83) (7.67) (0.09) (5.29) (4.59) (11.67) (2.82) (0.94) (4.45) (4.10) (2.76) (1.97) (3.72) (3.82) (3.85) (2.69) (5.02) (4.69) (1.73) (1.90) (4.36) (3.62) Malaysia All Years (2.81) (8.11) (5.72) (8.94) (0.73) (4.46) (3.00) (5.35) (1.24) (2.96) (2.62) (3.01) (1.76) (2.95) (2.64) (2.76) (1.07) (8.32) (2.45) (11.09) (0.83) (7.58) (2.51) (12.82) Thailand All Years (1.88) (7.58) (3.23) (7.76) (3.39) (2.91) (1.06) (2.92) (2.61) (4.29) (0.92) (4.48) (10.62) (4.90) (2.02) (3.21) (6.81) (4.87) (2.17) (2.83) (-8.02) (13.58) (1.27) (5.34) The above analyses reveal for all three countries, this study reveals both book value and earnings are strongly and positively related to stock price. The explanatory power of combined book value and earnings for stock price differs for each country, for all years explains significantly more of firm value in the Malaysia ( amounts 82,7%) than either Indonesia ( amounts 76.2%) and Thailand ( amounts 67.5%). Similar results were obtained for the explanatory power of earnings, for Malaysia ( amounts 79.2%), Indonesia ( amounts 61.2%) and Thailand ( amounts 62.8%). The explanatory power of book value for Indonesia ( amounts 59.9%) is slightly higher than Malaysia ( amounts 59.6%), while Thailand ( amounts 13.6%) has the lowest value The incremental value relevance of book value and earnings The incremental of book value (earnings) on earnings (book value) is computed as the difference between the R 2 of regression (2) and the R 2 of regression (3) (regression 1). The results about the incremental explanatory power of accounting variables for all years and each year are shown in Figure 1 and Table 2 difference information editor@iaeme.com

6 Ary Yunanto, Daryono, Sugeng Wahyudi, Imam Ghozali and Udin Incremental Explanatory Power of Book Value on Earnings R-Square Indonesia Malaysia Thailand Incremental Explanatory Power of Earnings on Book Value R-Square Indonesia Malaysia Thailand 1 Incremental Explanatory Power Common Book Value and Earnings R-Square Indonesia Malaysia Thailand Figure 1 Incremental explanatory power of book values and earnings over time The retail trade industry in Indonesia the incremental information content of book value significant fluctuation in over time (0% to 38%), there appears to be a decline in last years. Overall, incremental book value is 15% for all years. The incremental explanatory power of earnings more stable ranging from 7% to 17% across years with all years at 16%. Yearly data showed that book value provided information beyond that provided by earnings with the exception of 2012, where the information content of book value was 0%. The highest of incremental book values occurred in 2015 where it provided information incremental to earnings by 38%. The retail trade industry in Malaysia the incremental explanatory power of book value for all years is 3.5%. The incremental book value is relatively low in ranging from 0.4% to 15,5%, there appears to be a decline in recent years. The incremental information on earnings is higher and more stable ranging from 13% to 35% across years. The retail trade industry in Thailand the incremental explanatory power of book value for all years is 0.5%. The incremental book editor@iaeme.com

7 The Value Relevance on Retail Trade Industry: Evidence from Southeast Asian Countries value also is relatively low in ranging from 0.5% to 2.7%. The incremental information on earnings is higher and more stable ranging from 54% to 78% across years. Incremental earnings are substantially beyond that provided by book values to the extent that it reached a high of 78% in Across years in Thailand and Malaysia book value has lower incremental explanatory power than earnings overall. For Indonesia book value has higher incremental explanatory power than earnings overall, but for the 2012 and 2016s book value dominates. Finally, book value has modest incremental explanatory power in Malaysia and Thailand, but considerably more in Indonesia. Earnings have little incremental explanatory power in Indonesia, but significant incremental explanatory power in the Malaysia and Thailand. Table 2 Incremental value relevance of book value and earnings Total. Incr. (BV on E) Incr. (E on BV) Incr. (Common) Indonesia Adj Sig. (0.196) (0.382) (0.494) (0.222) Malaysia Adj Sig. (0.217) (0.795) (0.116) (0.918) Thailand Adj Sig. (0.006) (0.326) (0.480) (0.955) The incremental explanatory power of fundamental variables is shown in Table 2. For the retail trade industry in Indonesia and Malaysia there is no significant change in the total explanatory of book value and earnings, also incremental explanatory power of book value, earnings or common. In Thailand the total explanatory of book value and earnings increase overtime. The incremental explanatory power of book value, earnings, or their common explanatory power both book values have statistical no significant. 5. CONCLUSIONS AND FUTURE RESEARCH This study examines value relevance the accounting information of trade retail industry in three Southeast Asian countries, such as Indonesia Stock exchange, Malaysia Stock Exchange and Thailand Stock Exchange. The results indicate that accounting book value and earnings are positively and significantly related to stock price across all three countries consistent with Anandarajan, Francis, Hasan and John (2011) results for sample banking firm in three countries. The results show significant differences in the relation between accounting information and stock price across the three countries. However, the differences of the incremental information content of book value and earnings, within across countries were relative. The differences actually not as simple and addition, the data availability to study period was limited to 5 years in investigating the value relevance of accounting information. Possible area for future research would investigate the changing in the value relevance for a long time and the other factors that can affect the value relevance, such as macroeconomics factor and regulatory retail trade in each country editor@iaeme.com

8 Ary Yunanto, Daryono, Sugeng Wahyudi, Imam Ghozali and Udin REFERENCES [1] Arce, M., & Mora, A. (2002). Empirical evidence of the effect of European accounting differences on the stock market valuation of earnings and book value. The European Accounting Review, 11, [2] Anandarajan, A., Francis, B., Hasan. I., and John, K., (2011). Value relevance of banks: global evidence. Rev Quant Finan Acc, 36, [3] Black E. L, and White, J. J. (2003). An international comparison of income statement and balance sheet information: Germany, Japan, US, Europe. Account Rev, 121, [4] Callao, S., Cuellar, B., and Jarne, J. I. (2006). International differences in value relevance of accounting data and explaining factors. International Journal of Accounting, Auditing and Performance Evaluation, 3, [5] Camodeca, R., Almici, A. and Brivio, A. R. (2014). The value relevance of accounting information in the Italian and UK stock markets. Problems and Perspectives in Management, 12(4-2) [6] Feltham, G., & Ohlson, J. A. (1995). Valuation and clean surplus accounting for operating and financial activities. Contemporary Accounting Research, 11, [7] Francis, J & Schipper, K. (1999). Have Financial Statements Lost Their Relevance?. Journal of Accounting Research, 37 (2), [8] Der. B. A., Polak. P., and Masri. M. (2016). Investigation on the value relevance of accounting information: evidence from incorporated companies in the Singapore capital market. Investment Management and Financial Innovations (open-access), 13(3) [9] Devalle, A., Onali, E., and Magarini, R. (2010). Assessing the value relevance of accounting data after the introduction of IFRS in Europe. Journal of International Financial Management &Accounting, 21(2), [10] Graham R. C., & King R. D., (2000) Accounting practices and the market valuation of accounting numbers: evidence from Indonesia, Korea, Malaysia, the Philippines, Taiwan, and Thailand. Int J Account, 35(4), [11] Kawazu, N. (2013). Consumer Trends and Expansion of Retail Markets in Growing ASEANEconomies. NRI Paper No. 182, March 1, [12] King, R. D., & Langli, J. C. (1998). Accounting diversity and firm valuation. The International Journal of Accounting, 33, [13] Pervan, I., & Bartulovic, M. (2014). Value relevance of Accounting Information: Evidence from South Eastern European Countries, Economic Research-Ekonomska Istrazivanja, 27(1), [14] Prof. Prashant Kotasthane and Prof. (Dr.) Dhananjay Mandlik, A Study on Adequacy of Promotion Efforts of Furniture Retail Outlets For Household Furniture In Pune Region. International Journal of Advanced Research in Management, 6(3), 2015, pp [15] M. Farook Hussain and Dr. R. Khader Mohideen. An Empirical Study on Organized Retail Outlet and Consumer Perception towards Retail Stores in Tiruchirappalli City. International Journal of Management, 7(2), 2016, pp [16] K. Jegan and Dr. N. Kannan, Customer Expectation and Perception Towards Organized and Unorganized Retail. International Journal of Management, 8(3), [17] 2017, pp Swati Vijay. A study of Economical impact of Entry of organized retailers on unorganized retailers with special reference to Maharashtra state. International Journal of Management, 7(4), 2016, pp [18] Badenhorst, W. M., Brummer, L. M. and Wet. J. H.v.H.de (2015): The value-relevance of listed associates: a cross-country investigation, South African Journal of Accounting Research, DOI: / editor@iaeme.com