ABSTRACT. This study examines the association between reported earnings and stock returns in a sample of corporations listed in Indonesia Stock Exchange (IDX) during the 2009–2014 period. The sample of 476 firm-year observations are divided between family firms and non-family firms for comparative analysis, as the agency problem conflict Type II, “family controlling shareholders vs. non-family minority shareholders,” may become strong enough to impair the informative role of reported earnings in the corresponding stock return. By using the appropriate regression approaches on the panel data corresponding to each group of firms, we find that in our sample of IDX-listed firms, family ownership by itself does not seem to significantly affect the informative creditability of earnings, with both family firms and non-family firms having a variety of key valuation determinants in common. However, with an interaction term being used, the earnings informativeness of family firms decreases when the divergence between cash flow rights and voting rights increases, e.g., when family shareholders own out-of-proportion control of voting rights. Non-family firms, by comparison, are statistically insensitive to the valuation impact of the ratio of cash flow rights relative to voting rights. Our findings also support the small firm effect theorem for Indonesian corporations.
JEL codes: G14; G34

Keywords: family firm; Indonesia Stock Exchange; agency problem; earnings–return association; cash flow rights; voting rights

How to cite: Bin, Leo, Dar-Hsin Chen, and Shali Hasanatunnisa (2018). “The Earnings–Return Association of Family and Non-Family Indonesian Firms: An Empirical Study,” Economics, Management, and Financial Markets 13(2): 56–69.

Received 12 December 2017 • Received in revised form 21 January 2018
Accepted 22 January 2018 • Available online 15 February 2018


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Department of Business Administration
University of Illinois at Springfield, USA
Department of Business Administration
National Taipei University, Taiwan (ROC)
Department of Business Administration
National Taipei University, Taiwan (ROC)

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