The Impact of Internet Financial Reporting on Stock Prices Moderated by Corporate Governance: Evidence from Indonesia Capital Market

Zulfa Devina Rahman e-mail: zulfa.devina@gmail.com or zoe_lfa@yahoo.com Abstract This study focuses on examining the impact of Internet Financial Reporting (IFR) on stock prices in Indonesia Stock Exchange. As stated by efficient market hypothesis (EMH), security prices at any time fully reflect all available information. If the market is true efficient, voluntarily financial information disclosed on web site would generates stock prices that reflect this kind of information. This study also investigates whether IFR companies have better financial condition than non IFR companies as predicted by signaling hypothesis. Previous study said that the use of internet as reporting tool indicates high firms quality because IFR firms are seen more up to date and advance in technology than traditional firms (non IFR firms). In addition, this study tries to explore the moderating role of corporate governance in increasing the value of IFR companies for the investors. This study investigates all public companies incorporated in Kompas 100 index. Kompas-100 Index is an index of 100 shares of public companies stocks traded on Indonesia Stock Exchange (IDX) that have high liquidity and high market capitalization. The results show that the degree of information discloses in website has significant positive impact on abnormal return. The t-test used to test any significant difference between IFR companies and non IFR companies shows insignificant result. Finally, the hierarchical regression test used to examine the impact of moderating variable, corporate governance, on IFR companies stock prices also shows insignificant result.

Keywords: Internet Financial Reporting (IFR), Abnormal Return, the degree of voluntary information disclosure, and Corporate Governance.

Electronic copy available at: http://ssrn.com/abstract=1576327

INTRODUCTION The development of information technology is so rapidly increasing use of the Internet as an important medium of communication. The Internet has become a communication tool which use is increasingly widespread, both by the public and the businesses as well. Surely, this condition has an impact on today's business environment. Recently, more and more companies are developing their own web site and disseminate information about their financial performance over the web that they made. Internet enables the presentation of information very quickly and in more effective and efficient way. In addition, information on the Internet has many advantages that is easily deployed, without limitation, current, has high interaction capabilities, and unlimited access to greater volume of data (Asbaugh et al., 1999; Lymer, 1999; Wagenhofer, 2003; Pervan; 2006; Lai et al., 2007). Though many benefits brought by the Internet but still many public companies in Indonesia that do not have their own website and do not report their financial performance over the Internet. Through survey they did, Asbaugh et al. (1999) found the major reason why companies use the Internet to disclose their financial performance voluntarily was to communicate with the existing and potential shareholders. The Internet enables the companies to make their financial information available for and reach by all investors all over the world. However, the financial statement presented in Internet is essentially voluntary and unregulated. It means that there is no compulsion for companies to disclose their financial performance in the Internet even though they already have a web site. Lai (2007) stated that there is no international accounting standards that regulate this kind of reporting, hence the

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Electronic copy available at: http://ssrn.com/abstract=1576327

practice of financial reporting on internet is based on common practices (Budisusetyo and Almilia, 2008). Therefore, the information presented in companies website will differ one to another. Although Internet reporting is voluntarily in nature, some previous literatures indicate that investors prefer financial information distributed electronically compared to financial information that is distributed traditionally for making decisions because the electronically distributed information were viewed more timely (Asbaugh et al., 1999; Deller et al., 1999; FASB, 2000). Financial information which is traditionally expressed through the annual reports, news media, advertisements or brochures is considered less relevant because they have timeliness quality problems. Information considered relevant for decision making when the information was disclosed before that information loses its capacity to influence decisions (SFAC No. 2, FASB, 1980). Hicks and Bacque (2008) stated information is only valuable if the information is still up to date when the user need it and the Internet is considered to be able to provide the best information on time. The hypotheses of this research are based on efficient market theory and signaling theory. If the market is efficient as defined by Fama (1970), then in equilibrium, at any time, any information published to the market will be reflected in stock prices. That is, the market will react to the information available on the market such as the disclosure of financial information on the Internet. Therefore, even though the information disclosed on the Internet is voluntary and unregulated, it predicts the market will continue to react to this information.

The difference in reporting time between the financial reporting in terms of annual reports to Bapepam (Indonesia Capital Market Supervisory Agency) and financial reporting on the Internet makes the financial reporting on the Internet is necessary to investigate. Lai et al. (2007) stated that this information time gap will cause the investors to gain abnormal return from reevaluating their investment decision. Thus, this research tries to examine whether the voluntary financial information disclosed on the Internet influence investors decision. By using the degree of information disclosed in Internet as the proxy of internet financial reporting, this study tries to examine whether there is significant positive impact between the degree of information disclosed on companies stock prices. In addition, this study also tries to provide empirical evidence whether IFR companies has better condition than non IFR companies, as predicted by signaling theory. Craven and Marston (1999) states that the use of the Internet as a reporting tool by the company indicates firms high quality. It also indicated a more modern and up to date performance of the using a more advance technology compared to traditional firms. Furthermore, this study also tested the moderating role of corporate governance to financial reporting on the Internet in increasing the company's stock return. This is due to the financial reporting on the Internet is also believed to be a form of corporate transparency (Deller et al., 1999; Silva and Alves, 2004; Silva and Christensen, 2004). Transparency done by the company through greater disclosure showed that the company seeks to do business with good management or good corporate governance. Therefore, this study tries to examine whether

firms corporate governance mechanism will influence the degree of information disclosure to increase the company's stock return.

THEORETICAL FOUNDATION AND HYPOTHESES DEVELOPMENT Internet Financial Reporting Internet financial reporting refers to the use of the company's website in disseminating information about the company's financial performance (Hunter and Smith, 2007). Financial information provided by the company through web site include a set of comprehensive financial statements, including footnotes, partial financial statement and/or the subjects of financial information which may include summary financial statements or anything resulting from such reports, the stock price data, analyst reports, discussions related to management operations, a database of companies related news and other company-specific information (Asbaugh et al. 1999; Deller et al., 1999; Lai et al. 2007; Kelton and Yang , 2008). From this definition, we can conclude that the Internet financial reporting provide all information about a company whether it is in form of financial information or non financial information and it can be used by the information users to make a decision. Asbaugh et al. (1999) examine whether the use of the Internet by a company will improve the relevance of its financial reporting to the market. Their (1999) research had defined IFR on the basis of 3 criteria: (1) Reporting that provides a comprehensive set of financial statements (including notes to the financial statements and audit reports), (2) Links to other annual reports on the Internet, (3) A link to EDGAR, the electronic system of the SEC.

The results found that 70% of their samples were conducting Internet Financial Reporting (IFR) and they also found that the Internet financial reporting practices are very difference in the quality in terms of timeliness and usefulness of the information reported. In 1999 more thorough studies which test the Internet financial reporting in European countries (Lymer, 1999; Gowthorpe and Amat, 1999; Craven and Marston 1999; Wagenhofer , 1999; Pirchegger and Wagenhofer, 1999; Debrecency and Gray, 1999). Craven and Marston (1999) examined the relationship between the level of financial disclosure on the Internet with company size and type of industry. By using sample of 206 large companies in the UK study found that large companies listed on the London Stock Exchange prefer to report their financial information on the Internet. The results of this study also showed that there is no significant relationship between the level of disclosure on the Internet and the type of the industry. Most of the previous literatures were focused on the investigation of variables that affect the Internet financial reporting. However, little research found focusing on tested the relationship between the financial reporting of the Internet stock prices. Lai et al. (2007) stated that the diversity of financial information makes it difficult to ensure the contribution of this Internet technology, especially if it related to stock prices. One recent study that examined the relationship between the financial reporting of the Internet stock prices is the research conducted by Lai et al., (1999). This study tested the stock market in Taiwan and found that the Internet Financial Reporting (IFR) companies stock price fluctuates faster than non IFR companies stock price.

Hunter and Smith (2007) tested the use of Internet for financial reporting in emerging capital markets, including Indonesia, and found that the dissemination of information through internet are more timely and are affecting the emerging markets. Overall, this study provides empirical evidence of the longitudinal effects of Internet technologies such as the spread of financial information more timely for developing markets. The results of this study revealed that there is a positive spread in the market price and trading volume around the event date. Efficient Market Hypothesis (EMH) and Internet Financial Reporting Efficient market hypothesis was first proposed by Fama (Fama, 1969; 1970). This theory predicts that if the developed capital markets such as the Indonesian capital market, is efficient, then in equilibrium, any information that enters the market as information disclosed on a voluntary basis through the company website will be reacted by the market. This is proceed from the condition of "fair game" a condition where every investor has the expected return from the investment they made and by using the information available on the market investors make investment decisions for which they expect the return. The existence of voluntary disclosure on internet will make investors reevaluate their investment decisions and they can choose whether to sell or to hold the stocks (Lai et al., 2007). Ettredge et al. (1999) stated that companies continue to disseminate their financial information over the web site due to efficient market condition, web site provide earlier information than those provide by traditional information media and initial use of this information make sophisticated users quickly generates 6

stock prices that reflect the new information. Voluntary disclosure by companies aimed to reduce information asymmetry between the company and

shareholders. Therefore, although the information disclosed on the Internet this is voluntary and unregulated, this study expected that the market will continue to react to this kind of information. H1: The degree of voluntary information disclosure on the website will have a positive impact on company's stock price. Signaling Theory and Internet Financial Reporting Signaling theory explains that the use of the Internet to disclose information about the company is a signal of good quality companies. Financial reporting on the Internet is a form of management efforts to reduce the information asymmetry, so that investors will appreciate the managers effort. Craven and Marston (1999) states that the use of Internet as a reporting medium by the company indicates companies high quality if it compared with conservative companies. Beaver (1968) claimed that good companies will disclose as much as information in order to make investors to be able to differentiate between the good company and the bad ones. Similarly, Dutta and Bose (2007) in their study stated that the use of the Internet to disseminate company information will minimize investor shocks due to negative news and it will be reflected in stock prices. If a company providing less information it will increase the information asymmetry between management and investors. Therefore, this study posits this following hypothesis:

H2: There is a difference between the abnormal stock price returns of internet financial reporting by the abnormal stock price returns are not doing financial reporting on the internet Corporate Governance and Internet Financial Reporting Corporate governance is an important element in improving economic system and corporate governance framework also provides the definition of clear organizational goals and how to achieve that goal. Many previous studies showed that companies with good corporate governance will be valued higher by investors (Black et al., 2003; Gompers, 2003). Good corporate governance will lead to the increase in stock returns (Gompers, 2003; Drobetz, 2004; Bauer et al., 2004). Specifically, Kelton and Yang (2008) stated that the company's corporate governance mechanisms affect the behavior of corporate disclosure on the Internet. Thus, this study hypothesized as below: H3: firms corporate governance mechanism strenghtened the relationship between the degree of voluntary information disclosure and the company's stock price RESEARCH DESIGN Sample and Data Collection Population of this research is all companies listed on the Indonesia Stock Exchange (IDX) that have their own company web site. The samples used in this study are those companies that meet the criteria established in this study. The sampling method used in this study is purposive sampling, with the following criteria: 8

a. Company has been listed on the Stock Exchange from 2007-2008. b. Companies already have a web site prior to the study. c. Company has implemented corporate governance practice d. To control bias, this study exclude all announcements coincide with other announcements such as dividend announcements, and the acquisition/merger announcements. e. Companies have similar market capitalization (company size) f. Companies that have incomplete data are excluded from the sample. Data collected through the website of the companies and Indonesia capital markets website, www.idx.co.id. The collection of data through the company website is using observation techniques. Variables Definition and Measurement Dependent Variable Dependent variable in this study was abnormal return that is used to test the information content of H1, H2 and H3. Abnormal return is calculated by using market-adjusted model that assumes that the best measurement of expected return is the composite index return. Here is the formula for calculating the abnormal return: ARit = Rit - Rmt where, ARi,t is abnormal return of security i during period t, and Ri,t is the return on security during period t, measured as the change of current stock price to the previous closing price divided by the previous closing price. Rm,t is the market index return on day t. Rm,t is computed by the change of current composite stock

price index divided by the previous composite stock price index. Cumulative
t=5

abnormal return is defined as: CARi (t1,t5) = ARi,t

t=1

ARi,t definition is the same with equation (1), t1, t5 is the same interval of stock return observation on accumulation period from t1 to t5. To test the relationship between the financial reporting on Internet with an abnormal return proxies by Cumulative Abnormal Return (CAR), this study uses an "event" test method with a 5-day before and 5 days after the event date of the reporting, so that there are 11 days observation period. Cumulative abnormal return of each company is accumulation of the abnormal return of each company during those 11 period days. event window

t=-5

t=-4

t=-3

t=-2

t=-1

t= 0

t= 1

t= 2

t= 3

t= 4

t= 5

In addition, based on researcher early observation, the difference in the financial reporting period by the company to the Bapepam with the financial reporting period on the Internet necessitate this study to distinguish the financial reporting on the Internet that reported earlier and Internet reporting which are reported later compared to the company's financial reporting period to the Bapepam. Independent Variable Independent variable in this study is the degree of voluntary information disclosure. The degree of voluntary information disclosure is measured by using

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the model developed by Spanos (2006) that is the Internet Disclosure Index (IDI) with 50 items construct, which combines content and presentation criteria. There are 6 main themes in the IDI that include: 1) Accounting and financial information; 2) Corporate Governance information; 3) CSR and human resources information; 4) Contact details to investor relations; 5) Material processable formats; 6 ) Technological advantages and user support. Value 1 is given for each construct that exists and the value 0 for non existence. Thus, the possibility of a total value of the information disclosure level of each sample companies ranged from 0 to 50. Moderating Variable Moderating variable in this research is corporate governance. Corporate governance in this study was measured by using modified model of Governance Board model by Kakabadse, Kakabadse, Kouzman (2001) in Syahkhroza (2003). The main criteria in the assessment of the Board Governance in this study are divided into (1) Board of Commissioner and (2) Board of Director. Each existing construct is going to get value 1 and 0 to non existing construct. Hypotheses Tests Model The relationship between the level of Internet Financial Reporting by Abnormal Return Hypothesis 1 tested by using regression analysis with the following equation: CAR= 0+1TPI+

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where, CAR is cumulative abnormal return and TPI is the degree of voluntary information disclosure and is error. Abnormal Return Differences between companies that make financial reporting on the Internet with a company that does not make financial reporting on the Internet Hypothesis 2 tested using t-test. Based on Lai et al. (2007) which refers to Rice's (1978), to test this hypothesis 3 the companies to be tested are divided into two groups: 1. Experimental group is group of companies that have web site and disclose financial information through their web site at the test period. 2. Control group is group of companies that do not have a web site or do not report their financial information over their web site. The relationship between Corporate Governance and Cumulative Abnormal Return Hypothesis 3 tested by using hierarchical regression analysis as explained as follows: CAR= 0+1TPI+2CG+..................................................(1) CAR= 0+1TPI+2TPI*CG+...............................................(2) where, CG is corporate governance and TPI*CG is the interaction between the degree of voluntary information disclosure and corporate governance. Data Collection Results As explained at the beginning, this research requires the sample companies to have similar market capitalization to avoid bias. Therefore, the population of this research is companies incorporated in the Kompas-100 index from the year

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2007-2008. Kompas-100 Index is an index of 100 shares of public companies stocks traded on Indonesia Stock Exchange (IDX) that have high liquidity and high market capitalization. The samples in this study are described in the following table: Insert table 1 here As seen on the table, averaging 75% of 100 companies listed in the Kompas-100 index already have website, but many of them can not be used as sample in this study because: (1) The announcements date of financial information that is required in the event study are not available on the web site (upload date); (2) Financial information that the company provided in the web site are not updated. Therefore, only about 25% of the population can be tested in this study. Statistical Test Results Table 2 shows descriptive statistics from the regression model using event windows (t=11). Mean of cumulative abnormal return (CAR), the degree of voluntary information disclosure (TPI) and corporate governance (CG) are 0.00138; 1.5491 and 0.7041 respectively. Minimum value of the CAR, LGTPI and LGCG are -0.18714; 1.41 and 0.70 respectively. The maximum value of CAR, LGTPI and LGCG is 0.20762; 1.67 and 0.78 respectively. Insert table 2 here

Hypothesis Testing and Discussion The relationship between the Cumulative Abnormal Returns and the degree of voluntary information disclosure

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Hypotheses 1 is tested by using regression analysis of linear regression model and hypothesis 3 is tested by using hierarchical regression model. This test aims to determine the level of statistical significance of each independent variable and the moderating variable. Summary of test results of both regression model are summarized in table 3 below: Insert table 3 here Hypothesis 1 tested the influence of the degree of voluntary information disclosure (TPI) on the Internet measured by the Internet Disclosure Index (IDI) to stock prices proxies with cumulative abnormal return (CAR). Adjusted R2 values are used to test the goodness-fit of the regression model and shows that the amount adjusted R2 value of 0.030 means that the variability of dependent variables that can be explained by the independent variable is 3.0%. Adjusted R2 values are relatively small and it suggests that the ability of independent variables in explaining the dependent variable is very limited. The effect of the degree of voluntary information disclosure on cumulative abnormal returns are statistical significant at 5% alpha. This is indicated by t values of 2.289 with a significance of 0.024. The coefficient of relationship between CAR and the degree of voluntary information disclosure is positive of 0.206. It means that each increase in the 5% the degree of voluntary information disclosure will increase abnormal return of 0.206%. Based on the above hypothesis testing, it showed that the first hypothesis is statistically supported. The first hypothesis test results showed that the higher the degree of voluntary financial information disclosure conducted on the web site the higher the abnormal return to be gained by investors from the investment

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decisions they made. The results of this study is consistent with Lai et al. (2007) which states that the abnormal returns of a company's stock will rise when the degree of voluntary disclosure by the company on the web site also increases. The study tested 101 companies that have a web site and listed on the Taiwan Stock Exchange. They (2007) divided those samples into two subgroups that is groups of companies that make a complete disclosure of financial information web sites as well as both non-financial information and corporate groups which are not serve full disclosure. The result from test of difference or t-test (one-tailed t-test) is significant at t =-2.3017 and the probability value of 0.0117. Lai et al (2007) concluded that the higher the level of financial disclosure on the website will caused company's stock price to change more quickly. The difference between CAR of companies that make financial reporting on the Internet with CAR of companies that do not have a website/do not practice internet financial reporting Hypothesis 2 in this study was tested by using t-test. Test different t-test used to determine whether two unrelated samples have different mean values. Test of difference or t-test was done by comparing the difference between the two mean values with standard error of the mean difference in the two samples. Insert table 4 here Initial output of statistical test result shows the mean cumulative abnormal return for the company that practicing financial reporting on the web site (experimental group) is -0.00138, while the mean for the group of companies that do not have a web site/do not practices financial reporting on the web site (control group) were 0.02001. It is absolutely clear that the mean cumulative abnormal 15

returns is different between groups of companies that make financial reporting on the website with group of companies that do not have a website. However, to see whether this difference is real the second output must be analyzed (independent sample test). As seen from the output of Levene test of 16.967 with a probability of 0.000 for the probability of <0.05. It can be concluded that the data have the same variance. Furthermore, if it viewed from the value of t for -1.643 and the significance value for 0.102 means that the mean cumulative abnormal return of internet financial reporting companies did not differ significantly with the cumulative abnormal return of companies that do not have a web site/do not practice financial disclosures on web site due to the significance value is > 0.05. Thus, the results of statistical tests indicate that hypothesis 2 is not supported. Thus, based on statistical test results of this study can be concluded that the announcement of financial statements on the web site is not signals companies future prospect. This result is different from the results of the study Lai et al. (2007) who found that the abnormal return on the companies the experimental group was significantly different from the abnormal return on the companies control group. These results obtained by testing the abnormal return on the second day after the day of the announcement. The opposite results of this study with previous studies is probably attributed to earnings announcement through quarterly financial reports are believed to be one of few sources of new information and is not a solely source of substantial new information, then causing the market not reacted to this information (Ball and Shivakumar, 2008).

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Ball and Shivakumar (2008) found that earnings announcement do not bring additional new information to the market. Information consisted in earnings announcement are historically rather than real time to the market. They concluded information carried in the quarterly announcements averaging only 1% to 2% of total annual information. They found that there is a reducing value of information generated through earnings announcement due to low frequency of

announcements, less discretionary and using historical approach. They also stated that management forecast that is announcing earlier than earnings announcement provide more substantial new information to the market. This condition made the earnings announcement less relevant to the decision makers and not reacted by the market. The relationships between CAR and the degree of voluntary information disclosure which is moderated by the Corporate Governance Hypothesis 3 tested with hierarchical regression analysis. Adjusted R2 values are used to test the goodness-fit of the regression model and shows that the amount adjusted R2 value of 0.066 means corresponding variability dependent variables can be explained by the variability of the independent variable is 6.6%. The regression test of model 1 has adjusted R2 of 3.0%, while model 2 has better adjusted R2 for 6.6%. This shows that the inclusion of moderating variables will improve the explainability of independent variable to the dependent variable. The influence of corporate governance against the cumulative abnormal return is statistically significant at 5% alpha. This is indicated by t-values of 2.494 with a significance value of 0.014. The coefficient of corporate governance relationship with the CAR is negative of -0.76. It means every increase in

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corporate governance level for 1% will reduce the abnormal return for 0.764%. This shows that the higher the corporate governance the smaller abnormal return that can be gained by investors. The interaction between the level of information disclosure and corporate governance (TPI * CG) with CAR as the dependent variable has t-value of - 2.461 with the significance value of 0.015 and significant at 5% alpha. The coefficient of interaction between TPI and corporate governance (TPI * CG) with a cumulative abnormal return is negative of -0.478. Hence the result indicated that the increase in the level companies corporate governance will reduce the abnormal return, or vice versa. This regression test results are not in accordance with the prediction posited by this study. Thus, hypothesis 3 in this study is not supported. This research shows the opposite result to the theory that is the negative relationship between corporate governance and abnormal return. The explanation of the opposite result might be explained by research conducted by Mannan (2009). According to Mannan (2009) Indonesian capital market experienced bearish conditions in 2008. This condition characterized by variations in stock prices in Indonesia Stock Exchange (IDX), overall stock prices are decline in extreme conditions, as well as the level of trading volume for individual shares or even the composite index and the LQ45 index were also decline during the year 2008. This condition is attributed to investors Bearish (pessimistic) behavior on globally expected capital market conditions. Bearish period is a term used by investors to describe a period in which the market experienced a global decline. Fabozzi and Francis (1977) stated market risk (Beta) in the period Bearish

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tend to be unstable and therefore contributes to stock return. This condition eventually caused the investors to act Bearish by reducing investment transactions to avoid the relatively higher risk. Gompers et al (2003) provide several explanations to the condition when corporate governance valued but the value were not incorporated immediately into stock price are due to (1) market factor (beta); (2) a firms market capitalization (size); (3) book-to-market ratio and (4) immediate past return. In addition, Cremers and Ferrel (2009) provide other explanation for this condition that is what they called as the market "learning" the market is learning the importance of corporate governance for companies. CONCLUSIONS AND LIMITATIONS The focus of this research is to examine whether financial reporting on the website practicing by companies - related to timeliness - will affect the company's stock price. Specifically, this study tested whether the degree of voluntary information disclosed by companies on their web site has a significant influence on stock prices. Some conclusions can be drawn from the results of the tests in this study. The first results of statistical tests in this study supported the prediction of efficient market theory and consistent with previous study conducted by Lai (2007). This study provides empirical evidence that the degree of voluntary information disclosed on the website has significantly positive effect on stock prices. In other words, the higher the degree of information disclosure on the web site the higher the abnormal return will be. Therefore, it can be concluded that the greater the degree voluntary information provided by a company (more transparent) the better a company's stock performance. 19

The second results of statistical tests of this study found no difference between the abnormal stock return of IFR companies with abnormal return of that companies do not report their financial report through internet. This opposite result can be explained by research conducted by Ball and Shivakumar (2008). They found that there is a reducing value of information generated through earnings announcement due to low frequency of announcements, less discretionary and using historical approach. This condition made the earnings announcement less relevant to the decision makers and not reacted by the market. Finally, test results showed that the interaction between corporate governance and the degree of voluntary information disclosures has significant effect on abnormal return but their relationship is negative. It means that an increase in corporate governance will decrease the abnormal return or vice versa. Test results can not support the third hypothesis in this study because it contrast to the prediction that posited by this study. The explanation of the opposite result might be explained by research conducted by Mannan (2009). Mannan (2009) stated that Indonesia capital market suffers bearish condition in 2008- a global market decline due to unstable market condition which characterized by an extreme decline in overall stock prices and trading volume. In addition, Gompers (2003) and Cremers and Ferrel (2009) provide other explanations that contributed to negative relationship between corporate governance and stock prices that is market factor, market capitalization, book-tomarket ratio, immediate past return (Gompers, 2003) and market learning (Cremers and Ferrel, 2009).

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Several limitations found throughout this study are: (1) This study does not distinguish between the nature of the announcements such as good news and bad news; (2) The corporate governance proxy in this study are based only on the board 6 construct of board governance and the determination of score from the proxy is also only based on the sum of these constructs. The next study should have built a proxy that can be relied upon in the assessment of corporate governance based on the determination of score and weighing each of construct so that it will resulting in a better corporate governance index measurement; (3) The degree of disclosure of information scores is assumed to be similar every year. This condition attribute to the lack of information about the changes in content and presentation in the companies web site.

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APPENDIXES Table 1 Sampling Procedure Data Description Companies incorporated in Kompas 100 index Less: Companies that their financial information are not available in IDX Companies with incomplete data Total experimental group samples Control group samples Years of observation 2007 100 1 50 25 24 2008 100 1 51 24 24

Table 2 Descriptive Statistics Variables CAR LGTPI LGCG N 136 136 136 Mean -0,00138 1,5491 0,7042 Minimum -0,18714 1,41 0,70 Maximum 0,20762 1,67 0,78 Standar Deviation 0,07227 0,6811 0,01976

Table 3 Statistical Results of Hypothesis 1 and Hypothesis 3 Variable Dependent variable Model 1 CAR (t-value) Independent variable LGTPI LGCG Moderat R2 0,038 2,289** 3,308* -2,494** -2,461** 0,080 Model 2 CAR (t-value)

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Adjusted R2 F

0,030 5,240**

0,066 5,746**

Table 4 t-test Result Group Statistics

FIRM_CAT CAR Web non web

N 136 136

Mean -0,00138 0,02001

Std. Deviation 0,07227 0,13364

Std. Error Mean 0,00619 0,01146

Independent Samples Statistics

Levene's Test for Equality of Variances F CAR Equal variances assumed Equal variances not assumed 16,967 Sig. 0,000 t-test for Equality of Means T -1,643 df 270 Sig. (2-tailed) 0,102

-1,643

207,740

0,102

where, firm_cat web reporting not practices

: firm category divided into web and non web. : group of companies that practicing internet financial

non web

: group of companies that do not have website/do internet financial reporting

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27

Source: Spanos (2006)

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Board Governance Board Characteristic Board of Commissioners Directors Background Insideness External Expertise/Independent Board Board of Directors Directors Background Insideness External Expertise/Independent Board

29