SNA VII DENPASAR BALI, 2-3 DESEMBER 2004

The Effect of Ownership Concentration on the Earnings Quality:

Evidence from Indonesian Companies
By
Rahmat Febrianto1
University of Andalas
Abstract
Indonesian public corporations formerly were family-owned business. Since
the legal protection of property rights by the state is still low, those families secure
their assets by only emitted a small portion of stocks. Considering the high ownership
concentration in public corporations and Indonesian cultures, the accounting
information quality released is investigated.
The result shows that market reacts negatively to the earnings information
released by concentrated public companies. This result conforms to the entrenchment
effect and gives evidence how minority owners react to earnings information released
by majority owners. This study also uses firm specific regression method for
sensitivity analysis.
Keywords: ownership concentration, earnings quality, firm specific coefficients.

Introduction
Research focusing on the corporate ownership concentration in East Asia,
including Indonesia, was first conducted by Claessens et al. (2000b). They found
more than two-third public companies in Indonesia were owned by a few families.
Those families also controlled the companies management by putting in their family
member in upper level management. These facts show that Indonesian public
companies practically do not separate their ownership and control.
Theory of the firm suggests that the separation between ownership and
decision-making function will bring on agency conflict between owners and
managers. The theory predicts that managers (agent) will accommodate their own
priority prior to others and will deprive shareholders wealth. Opposite to this
situation, if there were no separation between owners and managers, there will be no
agency conflict exists. This condition can only be true if the company does not emit
their shares to public, or if that public company owned by or concentrated in one
single owner and he/she also controls companys management. In this kind of
situation, agency conflict will be shifted from conflict between owners vs. manager to
conflict between majority vs. minority shareholders (Claessens et al., 2000a).
La Porta et al. (1999) indicate that in a country that has a weak corporate
governance culture, like Indonesia, monitoring function will be difficult to conduct,
especially if ones ownership increases to a certain level and the companys shares are
concentrated on one persons hand. They conclude that monitoring function will be
hard to conduct if managers are part of majority shareholders. If ones shares portion
has reached a certain level, then he/she can have a full control and tend to steer the
company to accomplish his/her personal objectives (Shleifer and Vishny, 1997).
Agent in a certain quality has access to information before it is published to
public. If there is no separation between owners and managers, then the quality of
1

Telp.: +62-751-51966 (home), +628126610878 (mobile), +62-751-71089 (fax)

E-mail address: rangkayobasa@yahoo.com (R.Febrianto)

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published information will be higher than if there is a separation between owners and
managers. The logic behind this idea is straightforward. If managers are also owners,
they will have no incentive to release information that will not reflect true economic
condition. This is because the producer and the consumer of this information are the
same. However, if there is a concentration of ownership in a single person/group and
only a small portion of stocks owned by other stockholders, then the quality of
earnings information will be an empirical question that needs to be answered.
Research that investigates earnings response coefficient (ERC) of companies
whose stocks are concentrated in single person/group is still rare. Fan and Wong
(2002) [hereafter FW] investigated the effect of ownership concentration on earnings
informativeness. They concluded that earnings informativeness have negative relation
to the ownership concentration. Jung and Kwon (2002) [hereafter JW] investigated
the same relationship in South Korea. Their result shows that earnings become more
informative if the ownership concentration increases.

Problem Definition
FW and JK show inconclusive results. FW find earnings informativeness
negatively related to ownership concentration while JK show a positive relationship,
although the two researches use the same samples and data. Moreover, these
researches use ERC determinant research method to study earnings informativeness.
It means that they are wrong methodically (see Cho and Jung, 1991a for further
discussion). Therefore, it is important to conduct a research with a proper method
investigating market reaction to information published by companies whose stocks
ownership is concentrated on one single person/group.
The two previous researches, FW and JK, are classified as association
research, a research that studies the association between earnings and stock return.
Those researches, which use long window (12 months), test the content of earnings
information published by companies whose stocks are concentrated in a few people.
Their results are still inconclusive and, above of all, they use improper research
method. They use the method for association study to investigate the effect of an
event to earnings informativeness.
Meanwhile, Hossain et al. (1994) suggest that Malaysian companies
ownership structure are statistically related to the degree of voluntary information
disclosure. A company that is controlled by a single family has a low incentive to
disclose information in excess of what they obligate to. Chau and Gray (2002) also
find similar result. Considering East Asian culture, with high collectivism, power
distance, and uncertainty avoidance, it can be concluded that East Asian corporations
transparency and degree of information disclosure are lower than those in US and UK
markets (Gray, 1988; Sudarwan and Fogarty, 1996). Moreover, Sudarwan and Fogarty
(1996) state that there is an indication of increasing corporate individualism in
Indonesian firms. Growing competition among firms, which then influences the
desire to maintain secrecy and protection of private information, causes this
increase of individualism.
Most of Indonesian public companies were family-owned business which,
then, sold a few of their stocks to outside shareholders but the family still maintain a
large portion of stocks and control on their hands. This is the cause of ownership
concentration in most of Indonesian firms. Besides, Eastern culture shows a tendency
of collectivism, power distance, and secrecy (see Gray, 1988; Sudarwan and Fogarty,
1996 for further discussion). If this kind of ownership structure, corporate cultures,
and accounting practice are conjectured, the public reaction toward accounting
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information released by firms whose stocks are concentrated on a single person/group
will be a question needs to be answered.

Research Contribution
Previous researches never assumed ownership concentration as an important
issue in the relation between accounting information disclosure and market reaction.
In fact, Indonesian cultures that characterize with a high collectivism, huge power
distance, and high secrecy have a significant impact on the accounting reporting
policy (Sudarwan and Fogarty, 1996). Besides that, the lack of state protection on the
property rights force the firms owners to assume a full control of their assets (La
Porta et al., 1999) including of the accounting reporting policy.
This research takes ownership concentration in account on the relationship
between earnings announcement and market reaction. Concerning the above cultures,
the weak property rights protection, and the convergence of ownership and control on
a single person/group, this research will give a new perspective on how Indonesian
market actually react to information released by public companies. Result of this
research is also aimed to contribute into the literature of agency relationship,
especially into the literature about the relationship between majority and minority
shareholders. To date, people only speculate that majority shareholders will release
information that benefit majority owners and deprive minority owners wealth, and
also how minority owners will react to that released information. Therefore, this
research will give empirical evidence on how minority owners will react to the
information released by firms that are effectively controlled by majority shareholders.
This research also differs from two previous researches, FW and JK, in two
aspects. First, it uses research method suggested by Cho and Jung (1991a) to study
earnings informativeness. Second, it uses firm specific coefficient method (FSCM) in
addition to pooled cross sectional regression method (CRSM). CRSM ignores ERCs
variance across companies and use all observation to estimate one response
coefficient for whole sample. On the contrary, if we use FSCM, each companys ERC
will be estimated and weighted in order to get firm specific ERCs. This method is
more accurate than CRSM if samples have different unexpected earnings variance
(see Teets and Wasley, 1996 for further discussion about these two regression
methods).

Literature Review and Hypothesis Formulation

Studies about Earnings Informativeness
Study about earnings informativeness examines the effect of certain event to
earnings informativeness, measured as ERC. Cho and Jung (1991a) classify studies
about ERCs into two groups. The first group focuses on the effect of change in future
earnings uncertainty and the second group focuses on earnings quality.
Research that focuses on the change in future earnings uncertainty starts from
the assumption that the informativeness of earnings announcement is greater when
there is more uncertainty about the firms future earnings prospects. Collins and
DeAngelo (1990) examine market and analyst reactions to earnings announced during
proxy contest. They find that the two days average ERC significantly increase from
0.18 (the pre-contest period) to 0.54 during the proxy contest. Cho and Jung (1991a)
examine the differential information content of annual earnings announcement before
and after mergers. Using firms return variance as a proxy for uncertainty of the firms

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future earnings prospects, they report that the information content of earnings
announcements changes according to the changes in firm variance (uncertainty).
The second line of research centers on the quality of earnings, or the amount
of noise in the accounting earnings signal relative to economic earnings or cash flows.
Collins and Salatka (1989) test the effect of SFAS No. 52 on the firms earnings
quality. ERC increases from 0.071 to 0.198 following the implementation of SFAS
No. 52 for those firms whose accounting for translation gains/losses was most
affected by the standard. The evidence suggests that the SFAS No. 52 improve the
earnings quality for certain multinational firms. Wasley (1992) examines the quality
of earnings around mandatory accounting change in the measurement rule for R&D
cost. He shows an increase of the ERC mean for firms with high level of R&D
intensity that capitalize cost
Earnings Informativeness and Ownership Structure
Ownership concentration is induced by the weak enforcement of property
rights law by the state. La Porta et al. (1999) show that the high stocks ownership in
big companies around the world is induced by the weak law system. Claessens and
Fan (2003) suggest that the ownership concentration in a country depends on the
enforcement of property rights by the government. The owner will seize the
government function if the owners assume the country does not have a strong
protection to property rights. This will influence how far ownership concentration can
and will be done because it will influence the owners ability and incentive to defend
their rights. Shleifer and Vishny (1997) state that privileges that can be gained from
concentrated ownership relatively higher in emerging countries, whose property rights
are not defined and/or protected well yet by court system. Claessens et al. (2000a,b)
show that this concentrated ownership is common in corporations in East Asian
countries.
Actually, Indonesian public companies formerly were family-owned business
that then entered stock market. In fact, after entering the stock market, they only
emitted a small portion of stocks to public and still retain a large portion of them.
Another facts prove that eastern culture shows a tendency of high collectivism, power
distance and secrecy (Gray, 1988; Sudarwan and Fogarty, 1996). If those facts are
connected each other, the public reaction to the accounting information released by
corporations whose stocks ownership is concentrated is an empirical issue.
There are two arguments that can explain the relationship between ownership
structure and earnings informativeness. First one is based on the entrenchment effect
(Mrck et al., 1988). They state that if managerial ownership increases, manager will
be entrenched so they can do any activity that will not increase firms value and they
will reduce outside shareholders wealth. Managerial ownership itself is aimed to
reduce agency conflict. However, if person/group has an effective control, in this
context it means that manager owns corporate stocks, he/she/they also control(s) the
accounting information production and reporting policy as well.
FW adopt this argument to explain the relationship between the type of stocks
ownership and earnings informativeness in East Asian corporations whose stocks are
concentrated in single controlling owners. They argue that if the controlling owners
are entrenched by their high ownership, then accounting information credibility will
be lowered. Outside shareholders will predict that controlling shareholders report
accounting information in accordance with their personal interest, not based on true
economics transaction. It means that outside shareholders do not trust reported
earnings figures because controlling owners may manipulate those figures for their

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own interest. Moreover, controlling owners have incentive to avoid accounting report
that will invite outside monitoring. The more unreliable earnings reports, the more
uninformative the earnings will be. FW find result that supports the entrenchment
effect. They conclude that concentrated ownership has a negative relationship with
earnings informativeness.
The second argument is based on alignment effect or convergence of interest.
This argument is derived from the work of Jensen and Meckling (1976). The
alignment effect by Jensen and Meckling here is a condition where agent and
principal have the same interest. Interest convergence can be reached by giving some
stocks to managers. If managers own the companys stocks, they will have the same
interest with the rest of stockholders. If the managers and owner interest are aligned,
agency conflict can be reduced. If the agency conflict is reduced, managers will be
motivated to increase firms value and outside shareholders will reduce contractual
constraints. Managers who have access to firms information have incentive to
manipulate this information if they feel this information will deprive their interest.
However, if there is an alignment between managers and owner interest, the managers
will not be motivated to manipulate information or to manage earnings. This scenario
will increase accounting information quality and informativeness. So far, the only
research that supports this theory and relates it to ownership concentration is the one
conducted by JK They study the earnings informativeness in South Korea and their
result support the hypothesis that ownership concentration will increase earnings
informativeness. Firms ERCs are found to be positive and statistically significant in
corporation whose stocks are concentrated on a single person/group.
Concerning the effect of ownership structure on accounting information
informativeness, the above theories can explain how the ownership concentration will
influence the earnings informativeness of Indonesian corporations. Ownership
concentration can make earnings more informative if only there is a transparent
corporate governance environment. In fact, Indonesia has a weak corporate
governance system, so that monitoring functions will be difficult to conduct if ones
ownership increase and there is a concentration of ownership in single person/group
(La Porta et al., 1999). Based on these facts, it is hypothesized that there is a negative
relationship between controlling owners ownership and earnings informativeness.
Therefore, alternative hypothesis is as follow.
Ha: The association strength between unexpected earnings and abnormal return
will be lower if firms concentration of ownership is higher.

Research Method
Sampling and Data Collection Procedures
Samples used are non-financial and non-insurance companies whose shares
are listed from January 1, 1992 to December 31, 2002, financial report announcement
date can be determined, and owner of those firms can be traced to the their ultimate
owners. Based on those criteria, 37 sample firms listed on Jakarta Stock Exchange
(JSX) are selected. Detail sampling procedures is on table 1.
[Put Table 1 here]
Financial data are taken from Indonesian Capital Market Directory (ICMD)
and JSX Watch. Market data are taken from PPA Gadjah Mada University while the
ownership structure data are collected from Indonesia Business Data Center (PDBI).
These ownership structure data must show the owners or the group of owners
portion of a firm stock and also the ultimate owner(s) of a certain firm.

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This procedure also means that if one or more institutions own a company,
then the owner(s) of them must also be traced. For example, if company Xs stocks
are held by company Y and family A, then it must be known who are the owners of
company Y. If it happens that family A has companys Y shares, then family As shares
on company X must include their shares in company Y. Only person/group with the
highest portion of stocks of every sample firm will be analyzed.
Research Model
This study is aimed to investigate the effect of ownership concentration to
market reaction when earnings are announced. To test the effect of ownership
concentration to ERCs, the method used is pooled cross-sectional regression method.
The method to test the differential effect of ownership concentration to ERC is based
on the model developed by Imhoff and Lobo (1992) that is then extended in this
research. The extended model is as follow.
CARj[t1,t2] = b0 + b1UEj,t + b2UEj,t*OWNj + e
(1)
CARj[t1,t2] is cumulative abnormal return of company j from t1 to t2. UEj,t is the
difference between realized with expected accounting earnings. OWNj is the
percentage shares owned by person/group who holds the highest portion of stocks.
Another way to test differential cross-sectional effect of concentrated ownership is by
regressing CAR with the unexpected earnings using cross-sectional data. The
relationship is defined in equation (2).
CARj[t1,t2] = c0 + c1UEj,t + ej.
(2)
Coefficient of unexpected earnings of equation (2), c1 is ERC. Magnitude and
estimate of ERC show earnings informativeness and sign of the market reaction to an
earnings announcement.

Variables Measurement
Dependent Variable
Dependent variable is market reaction measured by cumulative abnormal
return (CAR). Abnormal return is estimated using market-adjusted model. Based on
this model, the best estimator to estimate security return is the market index return.
This model does not need an estimation period to form an estimation model.
Therefore, abnormal return is estimated as:
ARj,t = Rj,t Rm,t
(3)
ARj,t is abnormal return of firm j on day t, Rj,t is security j return on the day t, and Rm,t
is market index return on day t. Cumulative abnormal return of certain observed
window is defined as:
t2

CAR j[ t1,t1] AR j ,t

(4)

t t1

ARi,t definition is the same with the one of equation (3) while t1, t2 is the interval of
stock return observation or accumulation period from t1 to (including) t2.
Independent Variables
Different from previous researches of Warfield et al. (1995), FW, and JK that
use EPS as a proxy of accounting information, this research use unexpected earnings
instead of EPS. Unexpected earnings are based on consideration that unexpected
earnings model can isolate unexpected component in earnings from expected
component. Cho and Jung (1991a) state that ERC depends on the relation between
stocks returns and unexpected earnings. In an efficient market, anticipated component

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of earnings has no correlation with return. Unexpected earnings estimation uses
random walk model, so unexpected earnings is defined as:
UE j , t

AE j ,t AE j ,t 1
Pj , t

(5)

AEj,t is actual earnings of firm j in year t (observation year), AEj,t-1 is actual earnings of
firm j in year t-1, Pj,t stock price of firm j at the beginning of year t. Actual earnings
used is operating profit, since this profit is more appropriate to reflect firms operation
than other earnings figures.
Ownership concentration is a continuous variable, measured as the percentage
of the shares owned by the largest shareholder. A person/group is determined as the
largest shareholder if he/she/it has the largest voting rights. If there is more than one
owner that have a large portion of stocks, then only the one with the largest portion
will be considered, as long as these two people/group are not belong to the same
family. Ownership is not only limited to individual ownership but also one persons or
one group individuals ownership through institution(s) that own(s) the firms stocks.
Hypothesis Testing
This research is aimed to measure the effect of ownership concentration to
firms ERCs whose ownership is concentrated. To test the effect of ownership
concentration, pooled cross-sectional regression method (CRSM) is used (equation 1).
Moreover, the test of the differential effect of ownership concentration will be done
by regressing CAR with unexpected earnings using equation (2). This method is
aimed to identify the relationship between CAR and unexpected earnings. The
association strength is measured around and including, before, and after the
announcement date. The short return interval, from day [t-2] before to day [t+2] after
announcement dates, is used to identify whether there is any information leakage or
market reaction delay.
Sensitivity Analysis
Teets and Wasley (1996) show that specific firm coefficient and its variance
are different across firms. They also find that ERC and unexpected earnings variance
are negatively correlated. This negative correlation causes ERC to be lower than the
simple average firms specific coefficients. It means that a test using pooled crosssectional method as in equation (1) will result in a downward-biased ERC or lower
than it should be. Therefore, an additional analysis is needed using firm specific ERC.
Firm specific ERC is based on Teetss (1992) model:
CAR [t1,t2], = 0 + 1UE + e
(6)
CAR [t1,t2] is cumulative abnormal return in the return interval from date t1 to t2
relative to earnings announcement date. UE is defined the same as in equation (1).
Equation (6) is estimated for each firm using the time series data. The 1 is firm
specific ERC that relates unexpected earnings to stock return.

Result
This part presents the result of this research. First, it presents descriptive
statistic for variables in this study, second are statistical test, simple regression, and
sensitivity results.
Table 2 shows descriptive statistic from interaction model using period [t0].
Mean value of CAR is 0.0051 and its standard deviation is 0.3833. Ownership
concentration means value is 51,20% (median 51%) and its maximum and minimum

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values are 97% and 4% respectively. These values show that ownership concentration
is high in Indonesia. Using 20% as cut-off point for minimum concentration, 92%
observations belong to this class.
[Put Table 2 here]
Pooled Cross-Sectional ERC Test

Interaction Model
Results from interaction model are summarized in table 3. This interaction
model is from equation (1) and is estimated for all seven observations windows:
around, before, and after announcement date. UE*OWN is the interaction between
unexpected earnings and ownership concentration. This variable measures the effect
of earnings announcement released by firms whose stocks are concentrated on one
single person/group. If b2 or ERC is negative and statistically significant, it means that
market does respond to earnings announcement released by concentrated firms.
Table 3 shows that the lowest and the highest estimate of ERCs are 1.94E-13
[t-2, t+2] and 5.91E-11 [t0]. The highest adjusted R 2 is 5.2% [t0], and it means that
the prediction power of this model is relatively low. Equation (1) produces negative
and statistically significant ERC estimate on [t0]. However, the ERCs estimates for all
other windows are not significant although ERCs show negative values. These results
are consistent with the hypothesis that earnings announcements will be negatively
reacted by market and market reacts on the announcement date.
[Put Table 3 here]

Simple Regression Model

The simple regression model is used to measure CAR sensitivity to
unexpected earnings by comparing pooled cross-sectional model with firm specific
model. Table 4 presents the results using simple regression model for around, before,
and after announcement date. The lowest and the highest ERC estimates are -6.865E11 [t-2, t0] and 2.973E-11 [t0, t+1] respectively. The highest adjusted R 2 is 4.3% [t0]
and it means that this model prediction power is relatively low.
ERCs estimates are negative and statistically significant only on periods
before and on announcement date. These results prove that market has reacted
negatively to earnings announcement two days before announcement date. Other
ERCs estimates are not significant and have positive values.
[Put Table 4 here]

Firm Specific Analysis

Teets (1992) and Teets and Wasley (1996) find that firm specific estimations
are more appropriate and are more robust than pooled estimations. This conclusion is
robust when firms have heterogeneous firms specific ERCs and unexpected earnings
variances. Using random samples, Teets and Wasley (1996) find that ERCs and
unexpected earnings differ cross-sectionally and ERCs are negatively correlated to
unexpected earnings. This negative relation results in downwardly biased pooled
estimates relative to the average of firm-specific estimates.
Following Teets and Wasley (1996), firm-specific ERCs are estimated using
simple regression model. Each sample is regressed using its time-series data and then
all ERCs are averaged. Average estimates for all seven windows are summarized in
table 5.
[Put Table 5 here]

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ERCs range from 3.04E-11 [t-2, t0] to 4.69+E-10 [t-1, t+1]. Compared with
ERCs resulted from equation (2), these results are not consistent with Teets and
Wasleys (1996) findings since not all firm-specific ERCs are higher than pooled
cross-sectional ERCs. Firm-specific ERCs are 20 times lower than to eight times
higher than pooled cross-sectional ERCs. Adjusted R2 from firm-specific regression
are relatively higher than those of pooled cross-sectional regression.
Side-by-side comparisons of results from pooled cross-sectional regression
method (CSRM) and firm-specific coefficient method (FSCM) are shown in table 6.
Firm-specific regression coefficients are relatively low in periods around and after
announcement date, but are relatively high in periods before and at announcement
date. The lowest firm-specific coefficient compared with pooled cross-sectional
coefficient is found on the period [t-1, t+1]. Here, firm-specific coefficient is almost
20 times lower than pooled cross-sectional coefficient. In contrast, the highest firmspecific coefficient compared with cross-sectional coefficient is found on the period
[t-1, t0], which is eight times higher than that of cross-sectional coefficient.
[Put Table 6 here]

Conclusion and Future Research

This study investigates market reaction when firms whose shares owned by
one single person/group release earnings information. No research has been
conducted to investigate this variable, especially one that considers ultimate
ownership. Market reaction is measured by CAR and the magnitude of earnings
response is estimated by pooled cross-sectional and firm-specific regression method.
Estimation results using pooled cross-sectional regression support the
hypothesis. All ERCs show negative values and it is statistically significant only in
window [t0]. These results prove that market reacts negatively to earnings information
released by firms whose shares ownership is concentrated. Moreover, these findings
also confirm entrenchment effect proposed by Mrck et al. (1988) and support FWs
conclusions.
Beside pooled cross-sectional regression method, this study also uses firmspecific regression method. However, FSCM results do not conform to Teets and
Wasley (1996) since firm-specific ERCs are not always higher than pooled crosssectional ERCs.
Apart from those limitations, this study gives new perspectives about the
effect of ownership concentration and control convergence to market reaction.
Previous researches that study market reaction in Indonesian stock market have never
considered this variable and tended to assume that stocks ownership were dispersed,
as in U.S. In fact, agency conflicts in corporation where majority and minority
shareholders exist must be different from corporations where there are no majority
shareholders and many stockholders hold stocks. The former is common in
Indonesian and the rest East Asian corporations while the latter is found most in U.S.
and U.K. corporations. Ignoring these facts will lead to a misleading conclusion.
Theory suggests that if a few people own stocks and they effectively control the firm,
then the minority owners wealth will be expropriated.
This study only consider one interaction variable in its model. Since adjusted
R2 are relatively low, there must be some variables that need to be considered. It also
does not consider cross ownership between samples. Some firms are actually owned
by the same person/group and this may have effect on the regression results. Future
research should put this factor into consideration.

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This research only uses a sample of 37. This condition is induced by at least
one problem. There are only 92 manufacturing public companies that have been listed
during the sampling period. Among them, 55 companies annual report date cannot be
found completely for the entire 10 years, so only 37 of them are usable in this
research. Nevertheless, we believe that samples are representative because the other
55 companies that are not included in the research sample also show tendency to be
concentrated also. Therefore, excluding them from the research sample will not alter
the research result.

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versus firm-specific models. Journal of Accounting and Economics 21 (June),
279-295.
Warfield, T., J. Wild, and K. Wild. 1995. Managerial ownership, accounting choices,
and informativeness of earnings. Journal of Accounting and Economics 20, 6191.
Wasley, C.E. 1992. A further examination of the economic consequences of SFAS No.
2. Journal of Accounting Research 30 (Spring), 156-164.
Table 1. Sampling Procedure
Firms listed from January 1, 1992 to December 31, 2002 .. 141
De-listed from JSX before December 31, 2002 17
Financial and Insurance Firms . 32
Financial report date not available 55
Usable samples. 37
Table 2
Descriptive Statistic
Mean

Median

Standard
deviation

0.0051
0.0007
0.0597
CAR
23,684,115.0
1,232,622.0
268,738,539.2
UE
594,454.0 178,715,112.5
UE*OWN 16,746,565.1
0.5120
0.5100
0.20595
OWN

Maximum

Minimum

0.3833
3,557,536,000.0
2,544,243,021.1
0.97

-0.4413
-1,176,445,714.3
-497,881,437.9
0.04

370
370
370
370

Results are from window [t0]

OWN is the highest ownership in each sample.

Table 3
Pooled Cross-Sectional Regression Coefficients of Cumulative Abnormal Return
(CAR) to Unexpected Earnings for All Windows
CARj[t1,t2] = b0 + b1UEj,t + b2UEj,t*OWNj + e
Event Window
[-2, +2]

Around
[-1, +1]

1.61E-02
1.38E-02
Constant
6.45E-12
3.60E-11
UE
-1.94E-13
-2.35E-11
UE*OWN
-0.005
0.000
Adj R2
* Statistically significant at p<0.05

Before

After

[0]

[-2,0]

[-1,0]

[0, +1]

[0, +2]

6.65E-03
-1.62E-11
-5.91E-11*
0.052

1.46E-02
-5.98E-11*
-1.68E-11
0.037

1.24E-02
-3.28E-11
-3.89E-11
0.027

8.01E-03
5.27E-11*
-4.37E-11
0.008

6.65E-03
-1.62E-11
-4.4E-11
0.004

93

SNA VII DENPASAR BALI, 2-3 DESEMBER 2004

Table 4
Regression Coefficients (ERCs) of Pooled Cross-Sectional
CARj[t1,t2] = c0 + c1UEj,t + ej.
Window
ERC
Adj. R2
[-2, +2]
6.351E-12
-0.002
[-1, +1]
2.364E-11
0.002
[0]
-4.721E-11*
0.043
[-2,0]
-6.865E-11*
0.039
[-1,0]
-5.330E-11*
0.027
[0, +1]
2.973E-11
0.007
[0, +2]
2.779E-11
0.004
*Statistically significant at p < 0.01

Table 5
Firm Specific Regression Mean ERC
Window
ERC
[-2, +2]
-3.38E-11
[-1, +1]
-4.69E-10
[0]
-7.03E-11
[-2,0]
-3.04E-11
[-1,0]
-4.32E-10
[0, +1]
-8.87E-11
[0, +2]
-7.35E-11

Adj. R2
0.0808
0.0873
0.0948
0.0723
0.0852
0.0968
0.0693

Table 6
Side-by-side Comparisons of CSRM ERC and FSCM ERC
Window
Pooled Cross-Sectional
Firm Specific
Comparisons
(CSRM) Coefficients
(FSCM) Coefficients
[-2, +2]
6.351E-12
-3.38E-11
-5.32 x
[-1, +1]
2.364E-11
-4.69E-10
-19.84 x
[0]
-4.721E-11
-7.03E-11
1.49 x
[-2,0]
-6.865E-11
-3.04E-11
0.44 x
[-1,0]
-5.330E-11
-4.32E-10
8.11 x
[0, +1]
2.973E-11
-8.87E-11
-2.98 x
[0, +2]
2.780E-11
-7.35E-11
-2.64 x
* Negative values mean that pooled cross-sectional regression coefficients are ()
times higher than firm specific regression coefficients.

94