Title : TIMELINESS OF FINANCIAL REPORTING ANALYSIS: AN EMPIRICAL STUDY IN INDONESIA STOCK EXCHANGE
Authors : Ika Merdekawati & Regina J. Arsjah
ABSTRACT
This study empirically analyzed timeliness of financial reporting in Indonesia. Timeliness of financial reporting is measured by audit lag and reporting lag. This study utilized an unbalanced panel of 700 firms-years of company listed on the Indonesia Stock Exchange during the period 2007-2009. The mean of audit lag is 74 days and the mean of reporting lag is 94 days. It is found that corporate governance and audit opinion negatively affect both audit lag and reporting lag whereas firm size positively affect audit lag and reporting lag. Debt ratio only negatively affect reporting lag. Auditor?s firm, profitability, price earnings ratio and dividend payout ratio are not significantly affect both audit lag and reporting lag.
Analysis of audit lag and reporting lag inter-industry reported that financial industry has the shortest audit lag and reporting lag. Trade, service and investment industry has the longest audit lag whereas property, real estate and building construction industry has the longest reporting lag.
Key words: Audit lag, reporting lag, corporate governance, auditor’s firm, audit opinion, firm size, profitability, debt ratio, price earnings ratio, dividend payout ratio, industry type.
Hypothesis
- Hypothesis 1a: Corporate Governance negatively affects the audit lag (the higher the CG, the shorter the audit lag).
- Hypothesis 1b: Corporate Governance negatively affects the reporting lag (the higher the CG, the shorter the reporting lag).
- Hypothesis 2a: The audit lag of companies engaging with one of the Big Four public accounting firm is less than companies engaging with non-Big Four public accounting firms.
- Hypothesis 2b: The reporting lag of companies engaging with one of the Big Four public accounting firm is less than companies engaging with non-Big Four public accounting firms.
- Hypothesis 3a: The audit lag of companies receiving unqualified audit opinion is less than companies receiving other than unqualified audit opinion. Hypothesis 3b: The reporting lag of companies receiving unqualified audit opinion is less than companies receiving other than unqualified audit opinion.
- Hypothesis 4a: Firm size positively affects the audit lag (the bigger the firm size, the longer the audit lag).
- Hypothesis 4b: Firm size positively affects the reporting lag (the bigger the firm size, the longer the reporting lag).
- Hypothesis 5a: Profitability negatively affects the audit lag (the higher the profitability, the shorter the audit lag).
- Hypothesis 5b: Profitability negatively affects the reporting lag (the higher the profitability, the shorter the reporting lag).
- Hypothesis 6a: Debt ratio negatively affects the audit lag (the higher the debt ratio, the shorter the audit lag).
- Hypothesis 6b: Debt ratio negatively affects the reporting lag (the higher the debt ratio, the shorter the reporting lag).
- Hipotesis 7a: Price earnings ratio negatively affects the audit lag (the higher the price earnings ratio, the shorter the audit lag).
- Hipotesis 7b: Price earnings ratio negatively affects the reporting lag (the higher the price earnings ratio, the shorter the reporting lag).
- Hipotesis 8a: Dividend payout negatively affects the audit lag (the higher the dividend payout, the shorter the audit lag).
- Hipotesis 8b: Dividend payout negatively affects the reporting lag (the higher the dividend payout, the shorter the reporting lag).
Conclusions, Implication and Suggestion
Corporate governance has significant negative effect on both audit lag and reporting lag, the higher the implementation of corporate governance, the shorter audit lag and reporting lag. This significant negative effect is in accordance with Al-Ajmi (2008) and the hypothesis of this study. Auditor?s opinion has significant negative effect on both audit lag and reporting lag. This effect is consistent with previous research by Carslaw and Kaplan (1991), Ahmad and Kamarudin (2003), and Prime (2009). Firm size has significant positive effect on audit lag and reporting lag which is consistent with the study hypothesis. Profitability level has not significant effect on audit lag and reporting lag. The study hypothesis that states the higher the profitability, the shorter audit lag and reporting lag is not supported by sample data. These results are consistent with Abdulla (1996) and Rachmawati (2008). But according to Elder et al. (2008) high level of profitability might be subject to audit because profit tends to be overstated or overestimated its value. Company debt level has insignificant effect on audit lag but significant negative effect on reporting lag. The significant negative effect of level of debt on reporting lag is consistent with the study hypothesis and the previous study by Abdulla (1996) and Khasaharmeh and Aljifri (2010). Price earnings ratio and dividend payout ratio have insignificant effect on both audit lag and reporting lag.
Inter-industry comparison of audit lag and reporting lag shows that financial industry has the shortest audit lag and reporting lag. Whereas the longest audit lag is in the trade service and investment industry and the longest reporting lag is in the property, real estate and building construction industry.
Future research should be conducted taking into consideration other variables that might have effect on timeliness of financial reporting such as internal control, auditor?s change and auditor?s qualification. Additional research might also be directed towards determination of the effect of timeliness of financial reporting using larger samples and longer time series.
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