Value Relevance of Firms’ Reportable Segment Profit or Loss Reconciliation

Nuryani, Nunung and Heng, Tan Thing and Ferah, Phan (2017) Value Relevance of Firms’ Reportable Segment Profit or Loss Reconciliation. Social Science Research Network, 2 (3). pp. 26-31. ISSN 1556-5068

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Objective – The International Financial Reporting Standards (IFRS) No.8 adopted in Indonesian GAAP (Statement No. 5, 2012) requires a company to provide a reconciliation of the total of the reportable segments’ profit or loss of the firm’s profit or loss. The objective of this standard is to improve the value relevance of information in the financial statement. This study aims to investigate the value relevance of the segment reconciliation and the determinants of segment income dissimilarity, i.e. agency cost, proprietary cost, and audit quality. Methodology/Technique – Data used in this study was a secondary data obtained from 142 manufacturing companies listed in Indonesia Stock Exchange (IDX) for the period 2009 to 2013. Purposive sampling method yielded 59 firms. Two research models were used to test proposed hypotheses. Findings – The results show reconciliation of total of segments’ profit or loss of the firms’ profit or loss positively affects the market value of equity; this means segments’ reconciliation disclosure has value relevance for the investment decisions. In addition, this paper provides evidence that audit quality negatively affects the segment income dissimilarity, while agency cost and proprietary cost have no effect. This is consistent with hypothesis that firms audited by the Big Four tend to avoid disclosure of dissimilarity between firms profit or loss and segment profit or loss. Novelty – Our findings show that audit quality (Big 4 accounting firms) plays an important role in reducing dissimilarity between the sum of segment profit and firm profit (segment profit dissimilarity).

Item Type: Article
Keywords: Segment Reconciliation; Value Relevance; Agency Cost; Proprietary Cost; Audit Quality
Subjects: 300 Social Sciences > 330 Economics > 332 Financial Economics (Shares, Investment)
500 Science and Mathematic > 510 Mathematics > 519 Probabilities and Applied Mathematics
Divisions: Faculty of Engineering & Informatics > Information System
Depositing User: Administrator UMN Library
Date Deposited: 23 Nov 2021 02:37
Last Modified: 22 May 2023 05:29

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