Results and Discussion Proceeding E Book 4A Turky

1740 Table 1. Non-complying Firms and Types of Non-compliances Types of Regulation Number of Firms Conflict of interest transaction 10 Information openness 8 Financial statement timeliness 25 Market manipulation 3 . Table 2 describes the comparisons between complying and non-complying firms. Means of total assets and total sales of non-complying firms are higher than complying firms. However, the complying firms are more profitable, more liquid, and have lower debt to equity ratio than the non-complying firms. Analysis and Discussion The results of logistic stepwise regression are presented in table 3. The full model indicates that return on total investment ROI, return on equity ROE, and profit margin PM have negative coefficients meaning that firms with lower ROE, ROI, and PM tend not to comply to the regulation than firms with higher ROE, ROI and PM. However, those coefficients are not significant. Liquidity current ratio is the only variable that has significant negative effect in the full model p=0.07 for full model and p = 0.03 for reduced model. Table 2. Comparison between Complying and Non-Complying Firms Non-Complying Firms Mean Deviation Standard Complying Firms Mean Deviation Standard Independent t- test Level of Significance Total Assets 3.500 9.300 1.100 1.200 8,805 0,004 Total Sales 1.600 4.732 780 1.003 5,680 0,019 ROI -2 18,90 10 33,60 0,452 0,503 ROE -27 13 1,934 1741 124 70 0,168 PM -1,102 6,00463 0,008 0,52713 4,945 0,029 DER 0,54 7,34175 0,92 2,71443 8,574 0,004 CR 0,98 1,15 12,07 69,95 3,854 0,053 The reduced models model 4, 5 and 6 indicate that in addition to liquidity, profitability ROE has significant effect at very marginal level p = 0,10. The other variables: size total assets and total sales, financial distress debt to equity ratio, and profit margin and return on investment do not have significant effects. The finding that liquidity is the only significant variable is interesting and indicates that it may have the most serious pressure to management, because the current ratio is the measure of the ability of management to fulfill its short term obligation, and the short term obligation has immediate effects to the business. It is different from profitability that can be measured using various measures, and in fact management may be evaluated using various different measures, including non-financial measures. Compared to previous studies, the finding is relatively consistent with those of Naim 2000 that examined the effects of financial condition of the firms to information regulatory non-compliances, Schwartz and Soo 1996, and Givoly and Palmon 1982. Those studies conclude in general that firms tend to hide bad news, delay the information dissemination, and not complying the regulations. The effects of size, either measured using total assets and sales are consistently not significant. A note worth mentioned that there are also some inconsistencies in terms of the significant measures such as profitability, where this study found it is ROE which has significant effect, while in Na‘im β000, it is ROA; and that current ratio is examined and it is significant in this study while it was not included in the previous studies. Table 3. The Results of Binary Stepwise Logistics Regression Tota l Asset Tota l Sales Curr ent Ratio DE Ratio Profi t Margin RO I RO E Mode I Full: 0,664 - - -0,34 -0,21 - - 1742 Coefficient Significance 0,253 0,609 0,29 5 0,374 0,073 0,523 0,877 0,433 0,7 78 0,547 0,24 6 Model 2: Coefficient Significance 0,681 0,234 - 0,633 0,26 4 - 0,373 0,073 - 0,035 0,515 - 0,471 0,7 60 - 0,559 0,23 8 Model 3: Coefficient Significance 0,698 0,222 - 0,649 0,25 - 0,385 0,061 - 0,037 0,497 - 0,644 0,13 3 Model 4: Coefficient Significance 0,688 0,231 - 0,694 0,21 7 - 0,401 0,053 - 0,660 0,18 1 Model 5: Coefficient Significance - 0,179 0,59 7 - 0,442 0,039 - 0,815 0,10 7 Model 6: Coefficient Significance - 0,452 0,035 - 0.810 0,10 5

5. Conclusion and Limitation

This research is to examine the effects of financial conditions of publicly listed firms on their compliance and non-compliance toward capital market regulations. Four aspects of regulation are being examined: timeliness of the financial reporting, market manipulation, conflict of interests and transparency. Using 92 sample firms years 1992-2001, this research tests whether profitability, financial difficulties, liquidity, and firm size determine company non-compliance toward the regulation. 1743 The results provide a number of important points: descriptively and intuitively, complying firms have better financial positions than non-complying firms. Binary logistics regression analysis indicates that current ratio has significant effect, while profitability Returns on Equity has only marginally significant effect on non-compliance behavior. Other variables: firms size, financial distress debt to equity ratio, and some profitability measures are not significant. We conclude that the result of this study is partially consistent with the previous studies, that financial positions of firms may drive non- compliance behaviors. This result is worth noting for regulators to scrutinize the non-complying firms and their financial performances. Limitation of the study rests on the size of sample firms and distribution of the sample among the different types of regulation. There are much more non-complying timeliness regulation firms group than the other non-complying groups. This study may be extended by increasing the sample size, and different measures of compliance and non-compliance firms. A case study approach may also provide a deeper analysis explaining why firms conduct non-compliance behaviors. References Bapepam. 1996. Himpunan petunjuk pelaksanaan undand-undang pasar modal. Jakarta: CV Novindo Pustaka Mandiri. Beasly, C., Defond, M., Jiambalvo, J. and Subramanyam, K.R. 1998. The effect of audit on the quality of earnings management. Contemporary Accounting Research, 15 Spring. Beaver, W.H., 1998. Financial Reporting: An Accounting Revolution, 3 rd ed. Englewood Cliffs: Prentice Hall. Becker, Gary. 1968. Crime and punishment: an economic approach. In Political Economy, 76 2: 169-217. Chtourou, S.M., Bedard, J. and Courteau, L. 2001. Corporate governance and earnings management . Working paper, April. Coase, R. 1937. The nature of firm. Economica, 4, 386-405 Cooke, T.E. 1992. The impact of size, stock market listing and industry type on disclosure in the annual report of japanese listed corporation. Accounting and Business Research, 33, pp. 229-237. Eisenhardt, K.M. 1989. Agency theory: an assesment and review. academy of management review , 14, pp. 57-74. Fama, E. and Jensen, M. 1983. Separation of ownership and control. Journal of Law and Economics , 26June: 301-325.