The Effect of Earnings Management on Stock Market Reactions to Stock Split Event
| International Journal of Economics and Management Studies |
| © 2024 by SSRG - IJEMS Journal |
| Volume 11 Issue 12 |
| Year of Publication : 2024 |
| Authors : I Nyoman Andi Susena, Made Gede Wirakusuma |
10.14445/23939125/IJEMS-V11I12P104
How to Cite?
I Nyoman Andi Susena, Made Gede Wirakusuma, "The Effect of Earnings Management on Stock Market Reactions to Stock Split Event," SSRG International Journal of Economics and Management Studies, vol. 11, no. 12, pp. 29-38, 2024. Crossref, https://doi.org/10.14445/23939125/IJEMS-V11I12P104
Abstract:
This study discusses the effect of earnings management on stock market reactions to stock split events on the Indonesia Stock Exchange. Market reactions to stock split announcements vary and can be caused by asymmetric information between managers and shareholders, where managers may take advantage of stock splits to divert attention from actual performance by conducting earnings management. This study aims to examine whether earnings management that increases earnings affects market reactions to stock split announcements, with the hope of providing empirical evidence regarding the relationship between earnings management and market reactions to stock split events. The sample in this study was a company that carried out a stock split from 2018-2022 listed on the Indonesia Stock Exchange. The purposive sampling method was used in this study, and 35 samples were obtained. The data analysis technique used in this study was logistic regression analysis. The results of this study indicate that earnings management that increases profits has a positive effect on market reactions to stock split events. This means that the higher the level of earnings management that increases profits, the greater the possibility of an increase in positive reactions when a stock split occurs.
Keywords:
Market reaction, Earnings management, Stock split.
References:
[1] Eugene F. Brigham, Financial Management: Theory and Practice, The Drydeen Press, 1st ed., 1982.
[Google Scholar] [Publisher Link]
[2] Konan Chan, Fengfei Li, and Tse-Chun Lin, “Earnings Management and Post-Split Drift,” Journal of Banking and Finance, vol. 101, pp. 136-146, 2019.
[CrossRef] [Google Scholar] [Publisher Link]
[3] Patricia M. Dechow, and Ilia D. Dichev, “The Quality of Accruals and Earnings: The Role of Accrual Estimation Errors,” The Accounting Review, vol. 77, no. s1, pp. 35-59, 2002.
[CrossRef] [Google Scholar] [Publisher Link]
[4] John Duffy, Jean Paul Rabanal, and Olga A. Rud, “Market Reactions to Stock Splits: Experimental Evidence,” Journal of Economic Behavior and Organization, vol. 214, pp. 325-345, 2023.
[CrossRef] [Google Scholar] [Publisher Link]
[5] Eugene F. Fama et al., “The Adjustment of Stock Prices to New Information,” International Economic Review, vol. 10, no. 1, pp. 1-21, 1969.
[CrossRef] [Google Scholar] [Publisher Link]
[6] Charles W. L. Hill, and Thomas M. Jones, “Stakeholder - Agency Theory,” Journal of Management Studies, vol. 29, no. 2, pp. 131-154, 1992.
[CrossRef] [Google Scholar] [Publisher Link]
[7] May Hu, Ameeta Jain, and Xinwei Zheng, “Stock Splits and Liquidity Risk in the Chinese Stock Market,” 9th Conference on Financial Markets and Corporate Governance (FMCG) 2018, pp. 1-35, 2018.
[CrossRef] [Google Scholar] [Publisher Link]
[8] Bella Firda Indriani, “The Market Reaction to Stock Split Announcement,” Journal of Business and Management Review, vol. 3, no. 12, 2022.
[CrossRef] [Google Scholar] [Publisher Link]
[9] Michael C. Jensen, and William H. Meckling, “Theory of the Firm: Managerial Behavior, Agency Cost and Ownership Structure,” Journal of Financial Economics, vol. 3, no. 4, pp. 305-360, 1976.
[CrossRef] [Google Scholar] [Publisher Link]
[10] Hartono Jogiyanto, “Portfolio Theory and Investment Analysis (Eleventh),” BPFE, 2017.
[Google Scholar]
[11] Nguyen Vinh Khuong et al., “Earnings Management, Board Composition and Earnings Persistence in Emerging Market,” Sustainability, vol. 14, no. 3, 2022.
[CrossRef] [Google Scholar] [Publisher Link]
[12] Tomas Kliestik et al., “Advanced Methods of Earnings Management: Monotonic Trends and Change-points under Spotlight in the Visegrad Countries,” Copernican Economy, vol. 11, no. 2, pp. 371-400, 2020.
[CrossRef] [Google Scholar] [Publisher Link]
[13] Yulia Kusumo, “Teori Signal (Signalling Theory),” 2019.
[Google Scholar]
[14] Armen A. Alchian, and Harold Demsetz, “Production, Information Costs, and Economic Organization,” The American Economic Review, vol. 62, no. 5, pp. 777-795, 1972.
[Google Scholar] [Publisher Link]
[15] Davis Giola Lesmana, and Denies Priantinah, “Market Reaction to Stock Split Event (An Emperical Study of Companies Listed On The Indonesia Stock Exchange In 2015-2019),” Profita Journal: Accounting Science Study, vol. 8, no. 2, 2020.
[Google Scholar] [Publisher Link]
[16] Henock Louis, and Dahlia Robinson, “Do Managers Credibly Use Accruals to Signal Private Information? Evidence from the Pricing of Discretionary Accruals around Stock Splits,” Journal of Accounting and Economics, vol. 39, no. 2, pp. 361-380, 2005.
[CrossRef] [Google Scholar] [Publisher Link]
[17] Lubis Rizky et al., “Analysis of the Capital Market Reaction to the Announcement of the Stock Split,” Journal of Applied Science and Technology, vol. 17, no. 3, pp. 597-604, 2023.
[Google Scholar] [Publisher Link]
[18] Sari Sulaiman Malahim et al., “The Impact of Earning Management Practices on The Market Value of Industrial Companies Listed on The Amman Stock Exchange: Evidence from Jordan,” WSEAS Transaction on Business and Economics, vol. 19, pp. 1613-1620, 2022.
[CrossRef] [Google Scholar] [Publisher Link]
[19] Andini Nurwulandari, Hasanudin, and Melati, “Market Reaction on Corporate Actions in Growing and Non-Growing Energy Consuming Companies,” International Journal of Energy Economic and Policy, vol. 11, no. 3, pp. 290-295, 2021.
[CrossRef] [Google Scholar] [Publisher Link]
[20] Nino Papiashvili, “Stock Splits and Attracting Attention: Are Investors Buying Abnormally More Around Stock Split Announcements?” SSRN Electronic Journal, 2018.
[CrossRef] [Google Scholar] [Publisher Link]
[21] Thi Do Quyen Phan, “Research on The Effect of Earnings Management on Stock Price Informativeness in Vietnam,” The University of Danang, Doctoral Thesis, 2018.
[Publisher Link]
[22] Podgórski Błażej, and Pasierbek Krzysztof, “The “Magic Action” of Stock Splits: Evidence from the Warsaw Stock Exchange 2003 2017,” Central European Management Journal, vol. 28, no. 1, pp. 66-80, 2020.
[CrossRef] [Google Scholar] [Publisher Link]
[23] Rimada Diamanta Putri Diamanta Putri, and Pardomuan Sihombing, “The Effect of Stock Split Announcement on The Trading Volume Activity, Abnormal Return, And Bid Ask Spread (Study on Companies Listed on The IDX For the Period of 2015-2019),” Dinasti International Journal of Economic Finance and Accounting, vol. 1, no. 4, pp. 696-709, 2020.
[CrossRef] [Google Scholar] [Publisher Link]
[24] William R. Scott, Financial Accounting Theory, 7th ed., Pearson Prentice Hall, 2014.
[Google Scholar] [Publisher Link]
[25] Anna Siekelova et al., “Earnings Management (EM), Initiatives and Company Size: An Empirical Study,” Acta Polytechnica Hungarica, vol. 17, no. 9, pp. 41-56, 2020.
[Google Scholar] [Publisher Link]
[26] Sivashanmugam C, Kumar S Krishna, and Raman S Karthik, “Stock Split Announcement Effect on Stock Returns: Evidences from select Indian Companies,” Asian Journal of Research in Social Sciences and Humanities, vol. 8, no, 1, pp. 194-213, 2018.
[Google Scholar] [Publisher Link]
[27] Stephen Smulowitz, Manuel Becerra, and Margarita Mayo, “Racial Diversity and its Asymmetry Within and Across Hierarchical Levels: The Effects on Financial Performance,” Human Relations, vol. 72, no. 10, pp. 1671-1696, 2018.
[CrossRef] [Google Scholar] [Publisher Link]
[28] Michael Spence, “Job Market Signaling,” The Quarterly Journal of Economics, vol. 87, no. 3, pp. 355-374, 1973.
[CrossRef] [Google Scholar] [Publisher Link]
[29] Alicia Tuovila, “Earnings Management: Definition, Examples, and Types,” Investopedia. [Online]. Available: https://www.investopedia.com/terms/e/earnings-management.asp.
[30] Carl S. Warren, Jefferson P. Jones, and William B. Tayler, Financial and Managerial Accounting, Cengage Learning, 2020.
[Google Scholar] [Publisher Link]
[31] Jerry J. Weygandt, Paul D. Kimmel, and Donald E. Kieso, Financial Accounting, 3rd ed., Wiley, 2015.
[Google Scholar] [Publisher Link]