Bond Business School Bond university,

-=ffig

BOND

UNIVERSIry

27th

Asian-Pacific conference

on

rnternational

Accounting

rssues

PROCEEDING

November

l-4r

Zlls

Gold

Coasto

Australia

Co-hosted by

Bond

Business School

Bond

university,

Gord

coast,

Australia

and

Craig

School

of

Business

zTrH

ASIAN-pACIFIC

coNFEREf{cE

ON

INTERNATIONAL ACCOUI\TING

ISSUES

CONFERENCE ADVISORS

Mark FIirst' Dean,

Bo'd

_{Business School, Bond university, Austraria}

Roberl Hatper, Dean, craig School of Business, _{california State University, Fresno, u.s.A.}

CONFERENCE

EXECATIVE

COXIMITTEE

MEMBERS

Keith Duncan, llead of Department. Accounting, Boncl _{Business School, Bond university,}

A'stralia

Ali

Peyvandi, _{chairman, Asian-Pacific conference}

on Intemational Accounting Issues, u.s.A.

Ke itha Dunstan, Pro _{Vice-chancellor (Learning and Teaching), Bond university, Australia}

A S IA ]V- PA C I F I C C O N F E R E N C E AD VIS O RY C O MX4 I TTE

E

ME MB E RS

Ali

Peyvandi (Chair.), _{Califbrnia State University, Fresno, U.S.A.}

Benjarnin Tai, California State University, Fresno, U.S.A. Marie-Jose _{Albert-Ilatt, Burgundy School of Business, Dijon,}

France

Dhia,\l Flashirn, car ifbrnia State University, Nortrrridge. u. s.A.

Bhabatosh Banerjee, Ur-riversity of Calcutta, India

CS Agnes Cheng, FIong _{Kong polytechnic University, Flong Kong SAR} Sr-rsela Devi. UNITAR _{International University, Malaysia}

Rong-Ruev Duh, National Tairvan [Juiversity, Taiwan Alan Dunk, University of Canbema, ALrstralia

Keitha Dunstan, _{Bond University, Ar-rstralia}

Alvaro Gasca Nen.

Ey.

Mexiccr

Sidney _{Gray, University of Syclney, Australia}

i

_{Siti Nurrvahyuningsiri Flarahap, universitas}

Indonesia, Indonesia

Barron H. Flarvoy, _{Howard University. U.S.A.}

Mostafa K. Hassan, Universitv of Sharjah, LJ.A.E. .Ioanna

IIo,

_{Unrversity of Calitbrnia, Irvine, U.S.A.}

Simon

llo,

I-lang Seng _{Managelnent College, Hong Kong SAR} In

Ki

.loo, _{Yonsei University, Korea}

Peter _{Kajiiter. Unrversity ol Mtinster, Germany}

DanLrja _{Kunpanitchakit, Chulalonghorn University, Thailand}

Rayrnonci _{Leung, Univcrsity tif the Fraser Valley, Canada}

Xing LiLr, _{Chongqing University, China}

Malc Massouci, _{Claremont McKenna College, U.S.A.} Shirley Polejer,vski, _{Unrversity of St. Thornas, U.S.A.} Behnaz _{Quigley. Marymount University, U.S.A.} Edson LLriz _{Riccio, University of Sao} paulo, _Brazil

Kathcrine Schipper, _{Duke University, U.S.A.}

Cindy Yoshiko Shirata, Ilosei University, Japan

Sylvia Veronica Siregar, Universitat Indonesia, Incronesia Tom Smith, l-he University of eueensland, Ar-rstralia

Tony van

Zijl,

Victoria Unive _{rsity of Wellington, New Zealand}

BOND

TINIVFRSIry

{

_t

ASIAN.PACIFIC

COAIFERENCE tsEST PAPER

AWARDS

COMMITTEE

Shu Lin (Chair), California State University, Fresno, U.S.A. Keith Dtincan, Bond University, Australia

Ellie (Larelle) Chapple, Queensland University ol Technology, Atrstralia

C OI{ F E TtE NC

E

ASS

ISTAI{TS

Crystal Cui, California State University, Fresno, U.S.A.

Adrian Gepp, Bond University, Ar-istralia

Vesna Bragagnolo, Bond University, Australia

Debbie Koehler, California State University, Fresno' U.S.A.

AS IA N -PA C

I

F I C C O I\T F E RE AI C E RE VI E TYER^S

FOR

PA P E RS

Bliabatosh Banerjee, University of CalcLrtta, India K.C. Ciren. Calilornia State University, Fresno, U'S.A.

CS Agnes Cheng, Hong Kong Polytechnic University, Flong Kong SAR

Jacqueline Christensen, Bc'nd Univcrsity, Australia Susela Devi, UNITAR International Utliversity, Malaysia Rong-Ruey Duh, National Tairvan University, Taiwan

Keith Duncan, Bond University, Australia

Siti Nurwahyuningsih Llarahap, Universitas Indonesia, Indonesia

Vlostala K. Hassan, University of Shaijah' United Arab Ernirates

Lizhong Hao, Califomia State University, Fresno, U.S.A' Joanna Ho, University of Calilbrnia, Irvine, U.S.A. .lanice Hollindale, Bond University, Australia

Patricia Huif-, California State University, Frestto, U.S.A.

Peter Kaiiiter, University of Miinster, Germany Simone Kelly, Bond University, Australia

Danuja Kunpanitchakit, Chulalongkorn University, Thailand Raymond Leuug, University of the Fraser Valley, Canada Shu Lin, California State University, Fresno, U.S.A' Ray MacNamara, James Cook University, Australia Gary Monroe, University of New South Wales, ALrstralia Martin Nienhaus, University of' Mr.inster, Gennany

Denise Patterson, California State University, Fresno, U.S.A.

Ali

Peyvandi, California State University, Fresno, U.S.A. Shirley Polejewski, University of St. Thornas, U.S.A. Behnaz _{Quigley, Marymount University, U.S.A.}

Cindy Yoshiko Shirata, Hosei University, Japan

Sylvia Veronica Siregar, Universitas Indonesia, Indonesia

Timothy Sterns, California State Untversity, Fresno, U.S'A' Benjamin Tai, California State University, Fresno, U.S'A. Tony van Zi.jl, Victoria University of Wellington, New Zealand

Tamara Zunker, Bond University, Australia

-l

INSTITUTIONAL

OWNERSHIP AND EARNINGS OPACITY

T,uhrohtun Retno

Yulianti

Indra Kusumawardani

Lita

Yulita

Fitriani

universitas Pembangunan Nasional

"veteran"

Yogyakarta Indonesia

Abstract

The level of earnings opacity in Indonesia is very

high.

One cause of the high eamings opacity

of a country is concentrated ownership (Anderson et a1. 2006; Arderson et al. 2009)- Most

of

single majority shareholders in Indonesia are institutions, including govemment, bank, insurance,

pen"sion, and mutual fund, thus,

it

is assumed that each kind of single majority shareholders has different motivation towards corporate eamings opacity

level.

Therefore, the purpose

of

this study is to test the effect

of

institutional ownership on eamings

opacity.

Sarnple of this study

"orrrirt,

of all firms listed on Indonesia Stock Exchange in 2009-2013.

Regression analysis test hypothesis is used

in

this study. This study builds an index to nreasure eanriugs opacity. The

nndings suggest that: (1) the higher concentrated ownership by govenm-rent tends to have greater

ea.nin-gs

op*ity

(2) the higher concentrated or,vnership by bank tends to have greater eamings

opacit|

(:j

firms

with

conientrated ownership by pension fund teuds to have liigher earnings opacity

i+j

n.-r

with

concentrated ownership by mutual fund tends to have higher eamings opacity.

Keywords'. eatnings opacity, ittstittttional oy,nership, governn'LenL banli, instrrctnce, pensionftmd, mutualfuncl

Introduction

In open economic era and free trading like now, foreign investors who

will

be investing in public

"o*puny

will

consider the risk of information faced by them. One of

the information risks is the

highearnings opacity in public company in a country. Opaque eaming is the earning that is not

transparent, so

-it

might increase the information risks bome

by

investors. Higher eamings

opu"ity index of companies in a country may detain the flow of investn-rent and foreign funding

that may affect on social welfare of the country.

Based on the previous research,

it

shows that the level of company eamings opacity in Indonesia

is

very

high,

which

is

on the

32nd place

from 34

countries (Bhattacharya

et

a1., 2003),

Thereiore,

it

is important to conduct a study about factors affecting eamings opacity on public

companies

in

Indonesia, which one

of

them is the high ownership concentration

in

Indonesia. gasea _{on the previous} research (Anderson et al. 2006; Anderson et al. 2009), family ownership

affects

on

eamings opacity

in

public

companies

in

America,

so

this

study

may

broaden

researches about the reLtionship of ownership structure and eamings opacity. Different with the

I

institutional ownership on eamings opacity'

It

is because the majority of companies

in lndonesia

has single majority

,:rr"r"rr"ii".'i#

i. i"r*"ii"".

The previous studies

ibout

concentrated

ownership

i.

t

rdorr".la-""r""g

"ttr"rr

1r^":

(il

S;;fu

{JO!S.)

usea sample of all companies listed

on rndonesia Stock

il;il

iooo

-

zoo+,

witi"Jrrt

ot right cutoff

of

sox.

The level of public company ownership

;;;;;;,*i"r,

i,'

r,rdor";;;-;;;

hiefr, which

was 680/o

of

the sample' (2)

prabowo (2010) ,rr"a-tlt"

,u*ple

of all _"o-p-u""i"' usted"on Indonesia Stock Index (in

exception

of bank and

finance).-It;;Jthe

evidenlJ'ffi

""^p""i",

thut had controlling

shareholders

more rhan 50zo was

ioi"

"rrn

sample.

f:iru""rur"h

and.Lucyanda (2011)

used the sample

of

manufacturing

**p#",

fti"a

on f,'Ooit"tiu'Sto"tt Index

in

200b'

with

dengan majority

shareholder

"otof

tirJttua

share directf'

*"]!OX

or

more' It

found the evidence of ownership

concentration average that was 65 '8%'

This study is an advanced research from (201 1) that tests factors affecting on

earnings opacity

of

public company

i"

il;;;il.

The result

"rirrir

r*at

shorvs that

a small company tends to have

higher earnings opacity than a lurg"

"o-pu;;.

I

'ho*,

that the small company tries

to cover corporate

informatio'i'i;-

;;;ip"-;il;

order to avoid unprotltable

competrtion because

it

usually maxmizes its position in

competrti;";;"-ent'

The

research result also shows that a company with conclnltrur"d o*n"rship tenAs to have low eamings opacity

ievel' It

shows that

the

existence

of

majority shareholders.

in

the

compay ,-I1uy udd

the

function

of

cotporate

governance.

rrr"n,

tii,

,;"i;;"gg"rts

thai the existencl of c1ua1ified

auditor may also increase

the

eff'ectivity

of

corporate governance

in

the

transparency

of

corporate

llnancial repotls' Therefore, the research result is

ln"ott'iti""i

'"i'rt

irt"

'"s"u'"'

result of Anclerson et

al' in 2006 (Anclerson

"t "i.

200;;,

*rri"r,

i,

that

the high",

o*rr"rrhip

concentration is' t1-re higher eamings

opacity level

will

be.'llis

because

"o""oif'a

shareholders

will

use colporate earnings opacity

to get persottut

proii.

rt'r"""*rtn"'

2"l.t''Jffi6;i?

tt*"d

t1''" opposiie' that the

existence

of

singlemajority,r'","r'oro",sactuallyreducesearningsopacity.becauseitwiilconduct

monitoring function, so

it

can replace the iunction

of

hnancial

t"p31

transparen^cy' Based on

those matters, this study wants to

,"t"'i-itt"

effect

of

share

o*'t"'i'ip

on eamings opacity by identifying

typ". oi'ilJ1oritf

shareh"ra"^'in"i-mostly are insriturions incruded

in

rrve groups

which are goverrlment, bank'

i"""u""o p""*il"'

u"J*"tual

funds' _' L

j:

9::-Tse each type

of

single rnajority

,rtui"noiJ"rr'rt",

a different motivation on financial

reporti'g policy'

so

it

is

predicted

-uy

uti"i-"*ing.

opu"itv-ltt'"r'

Therefore'

it

is

necessary

to

have emprrical evidence whether types of institutional .rr"."n"ro"rs

will

affect

eamings opacity revel on public company

in

naoiJsia.

The finding

il;,ha,

th9.

lrisher

of

co-ncentrated

ownership by government, bank, pension

T:d,

ur*

-ii.*r

fund

will

increase the level

of

eamings opacity'

This

str,rdy couldn't

find

evirlence

the

effect

of

insurance company olvnership

on

earnings

opacity. The result of this study is

"rp"",J1o

give input to Financial

Seivices Authority (FSA)

about the regulations regarding

trr"

mp.rt*"?

or

"ur,'i,'gs transparency

to

protect minority shareholder.

Concentrated Ownership and Earnings Opacity

Some previous researcGs have

p,ot'L-iftut

ownership concentration

affects accountancy

information

q"^rirv.-ciu"rr"rr.

"t

"t.'iitooi*hu,

prorr"n that most

"f

":lli:y's

shares

in

a

country

"ur"go.,J3J

br";:J;;';

,t.''itii69

io

't'u.r".to*

investor protection level (such as Indonesia, The phillipines, Korea,

l"pj",

uia

rr*un),are

owned

by

family'

According to

Arping

and sautner (2010),

cEo

p;;r

can facilitate

in

preventing opaque

environment for personal interest. CEO domination indicates how much the power of decision maker concentrated on the hand

of

cEo.

Finkelstein

(lggz)

identifred four sources

of

cEo

powef,

which

are: structural power, ownership powef, expert power' and perestige power' Anderson et al.

(20061;;t**A

that family may cieate-corporate opacity or still in the company because

they

are able

to

exploit the opacity

io

ptod"""

private

profit

on

cost

of

majority

investors.

Zuhrohtun (2011) tested factors affecting earnings opacity on public companies

in

Indonesia'

The result of this research has proven that smail

i-pu"y

iends to have higher eamings opacity

compared to

larger;il""y,

tliat shows-that small _"o*putty tries to cover corporate information from extemal par-tiesio-u,roiO nnprofitable competitio;because

it

usually tries to maximize its position

in

competitivl environment. The research result also shows that

a

company with

concentrated o*rr"rrt

if

ilrro.

,o

have

low

eamings opacity.,

It

shows that the existence

of

majority shareholders in the company may add the"funciion Lf corporate govemance' especially

in

increasing

"orpo*,.

financiai reporting transparency^'

This

research then shows that the

existence of clualified auditor is also ubl"

tJirl"..ase

the effectiveness of corporate govemance in

cotporatefinancialreporlingtransparency.policy.Sinele.l-ajlritysharelroldersinlndonesiaare

institutions, i,-r"frOing

gou"L-"ni

t unt, insurance, pension, and mutual

funds'

Therefore' this

research predicts tna? Jach single n-'u.lority ,nu."hoid"r, has diff-erent 'rotivation on the ievel

of

ccrporate eamings oPacitY'

Cheng and Reitenga (2001) tested

the

effect

of

institutional investor size

on

management

performance. The

1."r"ur.h differentiated betr'veen large/small institutional investors and

active/passive institutional

investors. They

estimated

that

small

institutt:ltit-:l""ttors

are

encouraged

to

maximize shoft-tenn perlonnance and encourage managers

to

increase curent

earnings.

on

the

.onr*ry,

large institutional investors arrange important resources' collect information, and try to maximize cotporate performance in the future' The power of disciplinary

from the investors can be reached

u,

long they are able.

to

resist managcr's

decision'

The

research result implies that the existenc"

of

1u.g" active institutional investors

in

a company

might

limit

manipulation

of

discretionary

u""*u-i'

when there is imporlant difference between

expected earnings and resulted

ea,nings.

Other-wise, they boost the increase

of

management

profit

with

discretionary acctuals when the company is under pressure on shofi-tetm eamings' Institutional investors

*itt

t

" neutral rvhen the initial

pressure on result is low'

Share Orvnerhip by Government and Earnings Opacity

Government u, u

,ligt"

n*.1ority shareholder is"motivated to monitor company to achieve public

purpose, which is soJial

*"tfur"

(Shleiver &Visny, i999; Eng&Mak, 2003) and add the function

of

corporate governance (Blanciiard &Shleiver, 2000), so

the

existence

of

goverrtment can replace extensive

;;1or";"

in

the company

in

order

to

increase earrrings opacity'

on

the contrary, the existence of govemment in the company can sacrihce coryorate r'vealth for political

benefit (Wang

asr."ii"r,

iooal,

and achieve potiicut pulposes at the expense

of

social welfare (Bennedsen, 1999), so the company tenils

to

use earnings opacity

to

cover

its

politicion's relationship and interests. Because the legal enforcement in-Indonesia is stil1 low'

it

is predicted

that the existence of government as

,irtgi"

majority shareholders

will

increase earnings opacity'

so the second hypothesis is as the following:

Share Ownership by Bank and Earnings Opacity

Bank

will

take credit O""lrion based onlhe information from accountant' Based on this fact'

ffiil;#;;g"'

*'ri

u"

Lr,"o.',ug"d.to

manage.'".'lYP."'l"AT::

"T:3::*:,,i:^*::i^1

:i#iffffi*?i"

*"itir,;;;'d';;'k.

su.ulJ*i, (2004

states that companv having financial ^ q^*^L^.', _{",hcn hcnL iq} the

i:?fi;,

;ffi;;#;;;;;;

_"",porate financial'performan""t

::T:1"-y..y::j*"':,.y:

ffi;;;?,h";;d;;;6i;fih"n,it

wilr be more piofitable to get relevant information source

1 ,r ^^-..^i.^^^ *^-^nomonl qc

;;;;

";;;;;?;cial

situation, so that the managers

will

conduct eamings management as ' ,1: _{^.^-7 +L^r +L^ ^-.i.+anna n{}

ffi

_L'e

il;i#,n#;;";ate

_{Dr6'or vr}

r'vu

-"-1;^";;;';ra.t

capaciiy towards bank.

rileret"*:

ll

_L:

l:"0'_:,:1.^,li

l5:f

::::::

::

*111

ir

ity,

so the third hlpothesis is as bank as singie majority shareholder

will

increase earungs opacl

the

following:

'"o ^r'nershin hv

bank

s opacity level'

H2:

The higher share ownership by bank

will

increase eanlrng

Share Olvnership by Insurance Company and Earnings Opacity

Insurance company

*tgh;;

to teep Uottr existing busi'ess relation and potentiai relation with

a cotnpany, so

it

is

l"fs

"ncorrruged 1o resist

management clecrsion' Insurance companies are

usually named as grey instritutional investors. They deal rvith high uronitoring expenses because

they may ruin the relationship with corporate management and lose business potential (Bricley et

a1., 1988). Theretbre,

it

is

suspected tirat they

clJnot

limit

manageurent discretion' so

it

will

rncrease earnings

opacity.

_{-, -} r^-.^r ,r- .^

H3:

The higher share o*n"rship by insurance company

\vili

increase the level ol eamings

opacitY

Share Orvnership by Pension Fund and Earnings Opacity

eiu

(200a) suggests' i1ruf

p"nrion

fuird controls corporate manager lnaneuver to. protect their share ownership. Black (f 'qqO) states that pension fund is the most active institutional investor because

of

its

imporlance

oi

containm",tt

u"d

independence towarcis

its

relationship with corporate managef. Contrary

to

investment fund that

is

oriented to the efforls

in

maximizing short-tenn earnings, pension fund

is

more interested

in

marimizing long-tenn eamings' Del Guercio and Tkac tzO'OOj stated that pension fund is paid in its respo'sibility to be able to

ensure the pension payment, so they try to encourage coryorate manager to

limit

discretionary accruals

management. Pension

fundis

affected Uy

,io,ttoi

companies or state agellcy' and mutual fuird'

they do not want

to

offend their clicnts'compTnies, so

it

can

be

said that pension fr"rnd is

controlled by corporate management. An institution selling product and hnancial serwices (such as bank and insurance) has u"rge to inactively resist a company that

will

be its potential client

(cox

and rhomas,

iooal

Theiefore,

it

i,

pr"dicted that the existence of pension fund as single majority shareholders

will

increase eanrings opacity'

H4:

The higher share ownership by pen"sion

funi

will

increase the level of eamings opacity Share orvnership by Mutual Fund and Earnings Opacity

Ramaswamy and

ieliyath

(2002) classified investment fund among rejections

on

pressures because this institution does not have business relation with corporate manager' and because

of

fiduciary responsibility to its customer, investment fund

will

lirnit manager discretion' Badrinath

/

by administrator. The involvement

of

investment fund

in

corporate capital

will

encourage the action of earnings management. Thus,

it

is predicted that the existence of mutual fund as single

majority shareholders

will

increase earnings opacity.

H5:

The higher share ownership by mutual fund

will

increase the level of earnings opacity Research Method

Thc research sample are 548 firms listed on the lndonesian Stock Exchange from2009-2013 that issued yearly financial reports per 31 December. This research uses data pooling wlth the total observations are

2,j46.lhis

study omitted 367 hence the final observations arc2,313. The yearly financial reports were obtained from the Indonesian Stock Exchange. Meanwhile, trading volume and bid ask spread data were collected from Bloomberg.

Independent variables in this study are govemment ownership (GovOwn), bank ownership (BankOwn), insuiance comphany ownership (InsuranceOwn), pension fund otvnership (PensionOlvn)' mutual fund ownership _{itr.lutualOwn)} and firm size (Size). Hence the dependent variable is earnings opacity index

(lndex_Op). The ownership is measured using the highest percentage of companies share that owned by instituiional shareholder. Single majority Ownership is measured using dummy variable, 1 if _{, 0 otherrvise}

(DsingleOwn). Firm size is proxied with natural log of total asset.

Earnings opacity is the earnings reporle<l by firms that fail to provide infonnation on the real economic

ea.nings distribution (Bhattacharya et al., 2003). The eamings opacity

in

this study is rleasured by

earnilgs opacity index established tiom tr,vo nain elements of earnings opacity natnely intemal and external eamings opacity. Internal eamings opacity is measured by earnings aggressiveness and inconle

smoothing. On the other hand, external earnings opacity is measured by bid-ask spread and trading volume. From those four measurement tools, eamiugs opacity index is established. This study categorizes

all eamings opacity proxy into scales. The most opaque

fims

are graded 10 and the least opaque is

graded

l.

All

four categories are added and scaled by thctor 40 (the possible total value) to make index

iattging from 0.1 to 1. The higher the index means the higher the earnings opacity. This index gives

relalively robust rneasure from opacity because

it

calculates all earnings opacity measurement. This measurement is a modification from the opacity index from Anderson et al. (2009) and Bhattacharya et al. (2003).

The

followings

are the

measurements fi-om internal and extemal eamings opacity. Earnings aggressiveness (Bhattacharya et al., 2003) is calcuiated using scaled accruals. Scaled acctuals are defined

AS:

ACC;,= (ACA,-ACLi,-ACA$],, + ASTDT, + ADEP' +ATPr/ / TA,-l (1) Notes:

ACC;1: ACA;.;

ACL":

ACASI{1,:

ASTDl: DEPI:

ATPi.: TA1-1:

scaled accrual company i period t total change ofassets company i period t

change olcurrent debt company i period t

change ofcash ofcompany i period t

change of long-term debt proportion included in short-term debt company i period t

depreciation and amorlization cost company i period t

f

operation (Leuz et lncome smoothing, a1.,2003), which is with calculated the following using the correlation formula: change in the accrual and cash flow from

PL i,= p _[AAcc,

ACFO]

(2)

Notes:

PL

i

: income smoothing of company i period t AAcc

1,

: accrual change of company i period t

ACFO

it

: change of operational current cash of company i period t

p

: correlation level

External eamlngs opacity is developed frorn trading volume and bid-ask spread. Volume of share trading, is proxy of asymmetric information and uncertainty (Leuz and Verrecchia, 2000; Anderson et a1., 2006),

which is calculated by natural log of average volume of claily share trading during the fiscal year. Bid ask spread (Anderson et al., 2006) is the proxy of asymmetric infonnation among investors. Bid ask spread is defined as follows:

Bitl Ask Spread: (bid price-ask price)/cn,erege bitl ancl ask

price

(3)

Tlie calculation for bid-ask spread is caried out by counting the average of all trade for each colnpany every Wednesdays of the third week, tl.ren the result is calculated to find the mean during tl're year based on the 12 obserwations. Due to too many observations related to the share trade data. tl.ris research lirnits

the analysis to a typical trade day of each rnonth. The monthly data are then calculated fbr its nean every year. This study chooses the tliird Wednesday in each rnonth to elirninate the loss of data because of holidays and to minimize the weekly effects.

'fhis _{study uses multiple regression analysis with clummy variable as the adclitional analysis to test}

hypotheses. The regression model is:

Index

OP;,:

0o

+

9r GovOwnl, + p, BankOwni,

+

0l lnsuranceOwni,

*

0+ PensionOrvn;,

f

B5 MutualOwni, + Fo DSingleOwn;,+ p7 Size11*

e

(4)

Notes:

GovOwn;,

:

the percentage of share that owned by government of company i period t

BankOwnit

:

the percentage of share that owned by bank of company i period t

InsuranceOw;

:

the percentage of share that owned by insurance company of company i period t PensionOwn;1

:

the percentage of share that orvned by pension fund of company i period t

MutualOwnl

:

the percentage of share that owned by mutual fund of contpany i period t

DSingleOwni,

:

dummy variable, 1 if the institutional ownership as a single majority ownership and 0 otherwise

Size;1

:

total asset of company i period t

Analysis and Discussion

The hypotesis 1,2, 3, 4, and 5 are test using multiple regression analysis (equation 4). The result

is presented in Table 1.

Table 1 . Regression Analysis Result

DSingleOwnl,+

B7 Size;,+ s

Variable C GovOwn BankOwn InsuranceOwn PensionOwn MutualOwn DSingleOwn Size Coefficient t-statistic 0.414031 0.067185 0.052449 -2.87E_05 0.000129 0.000r 31

-0.000255

6.092322***

2.2000 1 8**

-1.659810* 0.602ss0 0.069330* 0.526715* 0.008750* N

Adj R2

F-statistic -00)))t< -1.667060 2,373 0.062 2.105-*

Based _{on Table}

l'

Govow'variable

has.p.ositive _coefflcient

0.0671g5 and significant.

It

_means the firsr hvpothesis_is.ruppo,t"a.

ii,"'

jri*t,,",

,h;ili;;'lil"g

by governlnent _increase

rrre

earnings _{opacitv. Bankown}

v"ri.rri"

"jr;

h",

,

,i;;;;;;t

iositive

coefficienr, o.osz++q.

trr*

the second hvporhesis _{,l_r"}

'r;;;;;;."ir,. nrr,.ftd':J;ship-

w'r

i,,"r"ur"

irr.

_eamings

f;::'fffi'iT.:1il::;::f:a::r"o'iubr;h;;;;;;"

coerncient _{ancr not signincant rt} nnanci a r s ec t or tn oi ro

" _ u h, *h

;

*

_";

"j",#ff,[",i,

f,x";],!i:i

iru?;*

"*

:h,:n:;

with manager to _{protect their}

rrurin"..."rrrr,

i;roig;ffJ,J"r.with

Bricre,

.i-.r

_{rr988) that}

;,il .ffi;ilii:L,i:*J,il,'t::*Xo,iug

""p.n-,";

b;;,"

th"y

-;y;in-the

_rerationship

iryif'!?'n:::ili,ll"&!rilt*sixi',r*qT"ijfil:d:ir"ff

i",T;#

variable has _{positive coerncienr}

o.dooiil'',"d

signinc.ant

ffif,iflliffi:tJl.JJ#*lJ

The _{higher rnutuar nr1{g^ryne.snto}

t"r"rr:rrr"

"i-i"_r;

";;ir

rever.

ihe

_{size,ru.iubr" hu, u}

:Tff|..lry"#""ffilitt#?*1i:'.:'frncant

r' ,'al""iJ,',r';t

size

do,'o,,,-*,"iln

eamings and significant.

rhis

i"ai.ut",

ir'u,ini;#;.'#[?J:,ti""?wn

has ,r,"

"o"mJi*t

or0.1f6

ownership _{as single majority}

"r"".rr"p

^i

.tiff-r.nt

frorn that

ol""n

trrms that has institutional

I non-single majority.

!:::,*!rslto.t,st.1gy65.11u,,restt/t./bt'e(|Il(1iolt4.lic1tttttiott4contoill"7;ll).^.''.]. noilk ottuct\ltip _{rB,ttrAottrrl i,,r,,,,,,,r"','^,',',,',f,",,,', ::!"':','i,,} 1

-tottroittsT iil,l,put,lctrt tttt.irrb/e,

.tigrti/ic,ttrt,,, _{tt'" t,iri,,:,',,,,,"r.st'rtr'tic'tl^} sigrtir;,4111 _{tt )tte I p,rc,ttt}

l,yol.

Conclusions

[i*ri^*i:[:'Jfrtlj,ll"Jir.'*::::i,i';il:;]ffi:lr'-:fi

rn-ins,

opaci,v rhe

research Decause _govemment

as a majority _,6ur"t

itcer

_is

public pulpose, which

is

social welfare (Shleiver

&Visny,

7999; Eng&Mak, 2003) and to

increase the function of corporate governance (Blanchard &Shleiver, 2000), so the existence

of

govemment can replace the extensive disclosure

in

the company to increase earnings opacity. Other-wise, the existence

of

government

in

the company may sacrifice the corporate wealth for political benefit (Wang &Sheiler, 2006), and to achieve political purpose at the expence of social

welfare (Bennedsen,1999), so the company tends to use eamings opacity to cover its political relation and interest.

This research result also proves that the higher share ownership by pension fund

will

increase the

level of eamings opacity.

It

is because pension controls the maneuver of corporate manager to

protect

its

share ownership. Moreover, pension fund

is

the most active institutional investor

because

its

importance

of

containment and independence towards its relation

with

corporate

manager. Contrary to investment fund that is oriented towards the efforts to maximize shorl-term eamings, pension fund is more interested

in

maximizing long-term eamings (Qiu, 2004;

Black, 1990). The higher share ownership by mutual fundis is also increase the earnings opacity

level.

It

is

in

accordance

with

Badrinath and Wahal (2002) stating that investment fund is

usuaily more interested

in

shorl-term project, so they are encouraged

to

exploit the eanriugs opacity for their private benefit.

Majority ownership by Bank is also proven

will

increase eamings opacity.

It

is

in

accorc'lance

with Baralexis (2004) stating that company having financial needs is motivated to manage the

result

of

cotporate llnancial perfonnance. However, when bank

is

the owner

of

corporate

capital,

it will

be more profitable

to

get relevant information source about cotporate f-rnancial

situation. Therefore, managers

will

conduct eamings opacity as the signal

of

their corporate

capacity towards

bank.

Tliis

studl' doesn't find that insurance company ownership affect the

eamings opacity. This finding supporl Bricley et al. (1988) insurance company might want to keep

both

existing business relation and potential relation r.vith

a

company,

so

it

is

less

eucouraged to resist management decision in financial reporling decision. The result also shows tl-rat a company with concetrated ownership tends to have low eamings opacity.

It

is shows that

the existence

of

rnajority shareholder

in

the company may increase the function

of

corporete

govetxance, especially

in

increasing corpomte financial reporl transparency.

This

study use

dummy variable to control the single majority ownership. The future research should develop

sub sample based on the

tlpe

of

institutional ownership, so the relative opacity

level

that

compared

to

each sub sample can be known.

This

study also use immediate ownership to lneasure the institutional ownership str-ucture. Future research could use ultimate ownership to

trace the institutional ownership as controlling shareholder.

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