THE STUDY OF TOTAL CASH DIVIDEN, CORPORATE SIZE, AUDIT OPINION AND SHARE PRICE WITHIN - PowerPoint Presentation

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THE STUDY OF TOTAL CASH DIVIDEN, CORPORATE SIZE, AUDIT OPINION AND SHARE PRICE WITHIN BANKING COMPANIES IN INDONESIA

Jenny Sihombing1, Hisar Pangaribuan2 and Elisabeth Sagala3 1,2 Adventist University of Indonesia - Bandung3 PT. Jayatama Trikharisma Financial Management Consultan - Jakarta

Corresponding author. Tel.:+

628179250718

E-mail address:

sihombingjenny@gmail.com

Introduction

The capital market is a long-term trading of financial instruments.Signaling theory describes how company gives signal to market upon financial statement and corporate condition. There is information on the announcement of information that can be a signal for investors and other potential parties in making economic decisions (Wicaksono, 2011). Signals sent to users can be given through the announcement of audited financial report.The share is a document that proof an ownership of a company. If the company can makes profit, then each shareholder has opportunity to the profit distribution or dividends according to his shareholding proportion (

Zubir

, 2011; Fahmi

& Hadi

, 2009).

On

the other side, corporate size describes the size of

company that can be represented

by total assets. In the larger companies than management have more flexibility to use company’s asset. The management's freedom is comparable to the owner’s concern about their asset (Dewi and Wirajaya, 2013). Furthermore, corporate size is another internal factor that can affect return and profitability (Pratiwi and Putra, 2015).The audit report should be accurate, objective, clear, concise, constructive, complete and timely (Sawyer et al., 2006). The purpose of the audit financial is to express an opinion about fairness in all material matters Agoes (2012).The aim of this study is to find out the effect of cash dividend, corporate size and audit opinion on share price in banking companies listed in IDX.

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Literature review and hypotheses development

There are controversy about the relationship between dividend payout to shareholders and changes in share prices. One view stated that, there is no relevance relationship between the two variables (Miller & Modigliani, 1961), until there is a relevant relationship (DeAngelo et al., 1996), even in one study there was an inverse relationship between the two variables. While on other said that the dividends distribution to shareholders will be a signal for the market that will increase the share price (Al-Malkawi, 2007).Hussainey et al., (2011) said the increase of dividen distribution to shareholders will have a positive impact on share price changes, where the increase in dividend will increase demand and increase share market prices. Even, Chen et al., (2009) said the announcement of a large cash dividend will give a positive influence on share price.H1: cash dividend has significant impact on share price3

Research conducted by Rhamedia (2008)

stated that corporate size has a significant positive effect on share price. While research was conducted by Karimah (2013) which tested corporate size against share prices. The result is known that corporate size has significant negative effect to share price. The other research was conducted by Wijayanti and Sedana (2013) which tested firm size against share prices. The result is known that firm size has no significant effect on share price.H2: Corporate size has significant impact on share price4Literature review & hypotheses ….. (cont..)

Previous studies have found a significant influence of audit results issued by auditors on corporate

share prices. Good audit result would be a good message (signal) for the market, thus impacting an increase in share prices (Laksitafresti, 2011). Research conducted by Dewi and Badera (2016) which tested unqualified audit opinion test against share price, found that audit opinion have an influence to corporate share price. Prasetyo and Rini (2014) which conducted an audit opinion study on share prices did not find a significant influence from both variables.H3: audit opinion result has significant impact on share price.5Literature review & hypotheses ….. (cont..)

Research Method

This research is a confirmative descriptive using quantitative approach. The population used in this study are all banking companies listed on IDX, there are 43 banks listed in IDX. The data used are 2012-2015 data, from 43 registered banks, there are 31 banks are eligible for this research study.Data processing for hypothesis testing is done with partial least square approach Data processing for hypothesis testing is done with partial least square approach which hinted if t count > t critical (1,96) then Ho rejected, if on the contrary then Ha rejected (Kline, 2010). The results of further tests are interpreted for conclusions and suggestions and for the implementation of the benefits.6

Variables

Type of Variable

Indicators

Scales

Y

Dependent

Share prices: sample company’s share prices use the last 10 days since the annual report is published, April 1-10 for the following year period.

RatioX1IndependentCash dividend: total cash dividend paid during the year of period.RatioX2IndependentAudit Opinion: the results of the audit opinion that is classified on the unqualified audit opinion (5), unqualified opinion with explanation (4), a qualified audit opinion (3), adverse opinion (2) and disclaimer opinions (1)

Interval

X3

Independent

Corporate size: the natural logarithm of total asset.

Rasio

Operational

Variable

Description

Results and discussion

It was found that the R square value was 0.164381 which implies that 16.44% share price is determined by total cash dividend paid, corporate size and audit opinion reported bay the auditor, while the other 83.56% is determined by other factors like company performance, investment market perceptions and other factors beyond this research.7The first step in testing the hypothesis with the PLS approach is to test the validity and reliability of data. The results of validity and reliability test indicate that the model has fulfilled the validity and reliability requirements, with cronbach alpha> 0.7 and with a good average value of extracted (AVE) and good Communality (its AVE and Communality >0.5). These results can be found in Table 3. These results indicate that the data has been eligible to proceed to hypothesis testing (see figure below).

AVE

Cronbachs

Alpha

Share Price

R square

Ttl_Dividend

1.0001.0000.404534 Ttl_Asset/Size1.000 1.000

0.002692

Opinion

1.000

1.000

0.009085

Price

1.000

1.000

0.164381

Original Sample (O)Standard Deviation (STDEV)Standard Error (STERR)T Statistics (|O/STERR|) Hypothesis ResultsOpinion -> Price

0.009085

0.088805

0.088805

0.102304

Rejected

Ttl_Asset -> Price

0.002692

0.0517080.0517080.052068Rejected Ttl_Dividend -> Price

0.404534

0.123676

0.123676

3.270906

Accepted

8

Boothstraping

Test Result

Source: PLS output

Total Effects

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Result….. (cont..)The Impact of Cash Dividend on Share Pricehypothesis H1 is accepted. This means that there is a significant impact of cash dividend on stock prices in Indonesia banking companies. The Increasing of cash dividends distributed to shareholders will have a positive impact on stock price changes, where the increasing of dividend will increase demand and increase share market price. This finding is in line with previous study stated that a large cash dividend will significantly impact share price (Hussainey

et al., 2011; Chen et al., 2009; Al-

Malkawi, 2007), but contrary to the findings of Miller and Modigliani, (1961) and also

DeAngelo

et al., (1996).

Result….. (cont..)

The hypothesis H2 is rejected. There is no significant impact of corporate size on share price in Indonesia banking companies.This means that investors in Indonesian banking companies does not assume that firm size is as an important consideration in their share investment decisions. The size of the company with which its indicator is the total asset of the company does not become the basis strong reason for investors to buy or sell shares of Indonesia banking companies. The rise or fall of share prices is not significantly impacted by corporate size (this result contradicts with the finding of Putu & Wayan, 2015).10The Impact of Corporate Size on Share Price

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hypothesis H3 is rejected. This means that there is no significant impact of audit opinion on share price in Indonesia’s banking companies.Potential investors do not consider the results of the company's audit opinion when they will make an investment decision on the banking shares in Indonesia. The Increase or fall of share price in banking companies do not significantly impacted by the opinion of auditor upon bank's financial statement. In Indonesia’s capital market is still happening herding, the buying and selling decisions of investors are based on following the flow of market participants (Ramli et al., 2016). This result is in line with Prasetyo and Rini, (2014),

but contrary to findings of Lai et al., (2009).

The Impact of Audit Opinion on Share Price

Result….. (cont..)

Cash dividend becoming a positive signal for the market, further will increase volume of transaction and further more will increase share price. Cash dividend becoming

an important consideration in share investment decisions, while Corporate size and audit opinion do not become the important considerations for potential investors in making their investment decision in Indonesia banking industry. Further research is needed to get a more detailed reasons related with why market participants do not really consider the audit result and corporate size as important considerations for their stock investments decisions. In order to get more detailed reasons, it is necessary to do data collection method through questionnaire and compatible interview.12Conclusions

Corresponding author. Tel.:+

628179250718e-mail address: sihombingjenny@gmail.com