Sample Data and Hypotheses

2378 valuation sample. The availability of IDX data and variables to construct our accruals measures are the most restrictive constraints in forming our samples resulting in the forecast and accrual quality samples being the smallest. We also eliminate the firms which not consistently in LQ 45 during observation period 2002-2008. So, for Indonesian sample there were γ6 firms, and the detailed of the firms‘ name as below. TABLE 6. Indonesian Samples No. Security Code Companies name Industry 1. AALI Astra Agro Lestari Agriculture 2. ANTM Aneka Tambang Mining 3. ASII Astra International Automotive 4. BLTA Berlian Laju Tanker Transportation 5. BNBR Bakrie Brothers Investment 6. BTEL Bakrie Telecom Telecomunication 7. BUMI Bumi Resources Mining 8. CPIN Charoen Phokpand Basic Industry 9. CPRO Central Proteinaprima Basic Industry 10. ELTY Bakrieland Development Property 11. ENRG Energi Mega Persada Mining 12. INCO International Nickel Indonesia Mining 13. INDF Indofood Sukses Makmur Consumer Goods 14. INKP Indah Kiat Pulp Paper Basic Industry 15. ISAT Indosat Telecommunication 16. KIJA Kawasan Industri Jababeka Property 17. MEDC Medco Energi International Mining 18. PGAS Perusahaan Gas Negara Mining 19. PTBA Tambang Batubara Bukit Asam Mining 20. SMCB Holcim Basic Industry 21. TBLA Tunas Baru Lampung Agriculture 22. TINS TIMAH Mining 23. TLKM Telekomunikasi Indonesia Telecommunication 24. TRUB Truba Alam Manunggal Engineering Infrastructure 25. UNSP Bakrie Sumatra Plantations Agriculture 26. UNTR United Tractors Services 27. ITMG Indo Tambangraya Megah Mining 28. LPKR Lippo Karawaci Property 29. LSIP PP London Sumatera Agriculture 30. AKRA AKR Corporindo Trade 31. BISI Bisi International Agriculture 32. DEWA Darma Henwa Infrastructure 33. MIRA Mitra Rajasa Transportation 34. MNCN Media Nusantara Citra Media 35 SMGR Semen Gresik Basic Industry 36. SGRO Sampoerna Agro Agriculture 2379 4.2. Hypotheses The first hypothesis verifies what effect of convergence process for IFRS brings the quality of earnings in consideration of the increase of IFRS implementation. The application of arbitrary or mandatory IFRS is discussed in the U.S. and Japan where national GAAPs are evaluated to be equivalent with IFRS. If achieved, Japanese firm that makes financial statements based on the SEC rules might apply IFRS. Or, the SEC rule might be keeping. Japanese firm might change from current Japanese GAAP to IFRS. Anyway, they can make decisions about applicable accounting standards. On the other hand, stake holders would feel bett er their financial statements on the high-quality U.S. GAAP or Japanese GAAP by equal to IFRS. That means their earnings must be persisting with higher-quality. The following hypothesis 1 consists. That is, H1: The persistence of earnings keeps by high-quality standards of accounting. To verify this, we use a multiple regression model composed by five independent variables STANDARD, a dummy variable contained. If the effect of EARN t extends to EARN t+1 , it means the higher quality of earnings continues. In addition, it is expected that the higher quality of accounting standards advance, the more the market valuation will improve. The difference of earnings quality by the choice of accounting standards would get smaller. The second hypothesis concerns the quality of accrual. It is assumed that the operating cash flow CFO would influence the quality of accrual, if the persistence of earnings quality remains. Hypothesis 2 is : H2: The operating cash flow improves the quality of accrual by higher- quality of accounting standards. This hypothesis is proven by sample data N=70 for Japan firms, N= 252 firm years for Indonesian sample application to research design 2. The multiple regression model composed of six independent variables 2380 verifies the impact of the operating cash flow to the quality of accrual TCA by the proxy variable generally used. This paper uses the characteristic that the quality of TCA is related negative in the smaller - scale firms and the cash flow changes more greatly. TABLE 7 shows the scale of Japanese GAAP companies are smaller than SEC rule companies. Therefore, the more the difference of those scales loses, the more the operating cash flow influences positive for accrual. That is, it is inferred that a negative effect of the operating cash flow would improve. TABLE 7. Mean of EARN, MB and Ave.TA FY 2008 t+1 FY 2007 t FY 2006 t-1 EARN MB Ave.TA EARN MB Ave.TA EARN MB Ave.TA SEC rule firms - 0.067 5.590 5,771,777 - 0.067 4.683 6,047,366 - 0.068 2.340 5,550,431 Jap.GAAP firms - 0.182 1.305 1,879,085 - 0.191 2.257 1,767,183 - 0.168 0.470 1,606,634 IFRS Indonesian firms 1.260 1.511 18,602,888 1.255 1.825 20,657,334 1.262 2.254 23,296,250 In the persistence model for EARN, sample data is fitted into a multiple regression model composed with 5 independent variables, EARN t-1 , MB t , EARNt-1MB t , EARN t-1 STANDARD, STANDARD. The analysis is used in two periods, FY2007 and 2008. The sample data fitted in the equation 2 is excluded the data of not only Nomura Holdi ngs, Inc, SEC rule companies but also The Daiwa Securities, Japanese GAAP companies. The quality of accrual TCA is verified in the equation 2 with 70 firms. Basically, this paper treats the same period about March and December ending FY. It is expected that the impression of Japanese and U.S.GAAP in the market would get better after the CESR announcement, remarkably appeared since EC approval on December 2008.

5. Results and Implications

In the TABLE 7 and 8, there are several implications shown concerning the hypothesis. The SEC group‘s εean of income before extraordinary items scaled by average total assets EARN are lower 2381 through three years than Japanese GAAP companies. It is found that SEC rule companies are influenced by severe U.S. GAAP, a rule-based regarding the lower EARN. The market to book ratio MB and ave.TA of SEC rule companies exceed Japanese GAAP companies in all fiscal year. For instance, the Mean of MB and ave.TA of SEC rule companies in 2008 is bigger as the other group. Moreover, the Mean of MB t+1 is 5.590, about 4 times compared with the Mean 1.305 of Japanese GAAP companies. MB shows how many times the stockholders equity net assets on measured the corporate value aggregate market value. The market evaluates the capital efficiency of the enterprise. It is likely to be used as an investment standard by which the corporate value is measured. Therefore, it means that the increase of Mean MB t+1 of SEC rule companies from 2.340, the Mean MB t-1 contributes the rise of those corporate value. F-test is effective for verifying the difference between both groups. It is found that each F value of MB t , MB t+1 are statistically significant at the significance level 1 in TABLE 8. Obviously, there are some differences in the market valuation of SEC rule companies compared with Japanese GAAP companies. There were some steps before Japanese and U.S.GAAP have been evaluated the equivalence of IFRS. CESR, an advisory panel of EC, has published two or more drafts to approve the equivalence between IFRS and accounting standards of the third country. We suppose that the evaluation might give one of good news in the market to Japanese firm prepared their financial statements based on the Japan or U.S.GAAP. And it is assumed that the CESR announcement of the equivalence is effective specifically on SEC rule companies, Because of their representing scale in Japan, they would have more incentive to finance in the financial market named Tokyo, New York, London. Therefore, IFRS would be willingly replaced from the SEC rules, if it is officially admitted in Japan. TABLE 9 verifies the outcome of two models. Obviously, the persistence of the earnings has been proven. The numerical value of the result shows the following two significant points. One is that EARN t and