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Eduvest � Journal of Universal Studies Volume 2 Number 12, December, 2022 p- ISSN 2775-3735, e-ISSN 2775-3727 |
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THE EFFECT OF LAVERAGE, PROFITABILITY AND
CASH FLOW ON GOING CONCERN AUDIT OPINION AND ITS IMPLICATIONS ON MARKET
REACTION |
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Nur Devitamala, Apollo Universitas Mercu
Buana, Indonesia |
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ABSTRACT |
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This study examines going concern
audit opinions and their implications for market reactions. The going concern
audit opinion received by the Company was based on an analysis of financial
performance which indicated that the Company was experiencing financial
distress, causing substantial doubts in carrying on its business and
impacting market reaction. The variables used are leverage, profitability and
cash flow as independent variables, going concern audit opinion as
intervening variables and market reaction as dependent variables. The sample
for this research comes from companies listed on the Indonesia Stock Exchange
(IDX) for 2018-2021 and are included in the IDX special notation list on June
20 2022. The sampling technique uses purposive sampling. The results showed
that leverage had a significant positive effect on going concern audit
opinions, profitability and cash flow did not have a significant effect on
going concern audit opinions. Leverage has a significant positive effect on
market reaction, profitability and cash flow has a significant negative
effect on market reaction. Going concern audit opinion has negative
implications for market reaction. And going concern audit opinion is able to
mediate the relationship of cash flow variables to market reaction, but has
not been able to mediate the relationship of leverage and profitability
variables to market reaction. |
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KEYWORDS |
Leverage, profitability, cash flow, going concern audit opinion, and
market reaction |
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This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International |
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INTRODUCTION
Companies issue
financial reports to provide the information needed for users of financial
statements. The information presented in the financial statements is useful for
investors in making decisions. So that the credibility of the Company's
financial statements is very meaningful for users of financial statements,
especially investors. Investors ensure the credibility of financial reports
prepared by management with an audit opinion from an independent external
auditor. The audit opinion given by the auditor can be in the form of an
unmodified opinion and a modified opinion.
The auditor gives
the going concern assumption to the Company as a signal for users of financial
statements to be conservative in making decisions. Companies that receive going
concern audit opinions are companies whose ability to maintain business
continuity is doubtful. Explanation of the going concern assumption is found in
the unmodified audit opinion and the modified audit opinion depending on the
condition of the Company.
Auditor Gideon Adi
& Rekan provided a disclaimer opinion to PT Trikomsel Oke Tbk
(TRIO) for the financial statements ended December 31, 2018 and 2019. This
opinion was given to the Company because it experienced a shortage of cash flow
for operations. So that the company doubted its ability to pay off its debts.
Auditor Krisnawan, Nugroho & Partners reported
that PT Bakrie Telkom Tbk (BTEL) in the Company's
financial statements ending December 31 2017 and 2018 had not completed the
restructuring of senior notes by Bakrie Telecom Pte, Ltd. At that time the
Company did not yet have the ability to fulfill its obligation to postpone debt
payments (PKPU), because operational activities at that time had stopped.
The auditor
provides an audit opinion with an emphasis on going concern issues to the
Company as an early warning for investors. This early warning affects the
reaction on the stock market (market reaction). Market reaction is indicated by
an increase or decrease from the previous stock price to the current price.
Y. Santoso and
Partners provided a going-concern audit opinion to PT Bakrie & Brothers Tbk (BNBR) for the financial statements ending December 31,
2017. This opinion was given because the Company experienced a capital
deficiency and recorded short-term liabilities that exceeded its current
assets. So that during 2018 the share price of PT Bakrie & Brothers Tbk (BNBR) recorded a 90% correction and stuck at a share
price of IDR 50/share. At that time, BNBR focused on debt restructuring, which
was valued at IDR 9 trillion, after losing up to IDR 1.2 trillion in 2017. This
information was reported by CNBC Indonesia on December 28, 2018.
The IDX has
included a Special Notation on the share codes of listed companies that have
certain conditions related to going concern issues and unfavorable performance.
This special notation is an IDX effort to provide a signal in the context of
protection to investors and it is hoped that this will provide initial
awareness to investors about the condition of the Listed Company before making
an investment decision. On June 20, 2022, there were 157 companies that
received Special Notations.
Based on the
phenomena that occur there are several factors that are taken into
consideration in granting a going concern audit opinion which also has
implications for market reactions. These factors are leverage, profitability
and cash flow.
There are several
authors who have conducted research on these factors, including the research by
Averio, (2020), Simamora & Hendarjatno, (2019),
and Abbott et al., (2019)
showing that leverage has a positive effect on going concern audit opinions.
However, in Nugroho et al.'s research, (2018), it shows that leverage has a
negative effect on going concern audit opinions. Averio's research, (2020) shows that
profitability has a negative effect on going concern audit opinions. Research
by Ryu et al., (2019)
shows that profitability has a positive effect on going concern audit opinions
and research by Nugroho et al., (2018),
profitability has no effect on going concern audit opinions. Research by Ryu et al., (2019) and Huang & Yu, (2019) shows that cash
flow has a positive effect on going concern audit opinions. However, in Abbott et al, (2019) cash flow has no
effect on going concern audit opinions.
Research by Kaczmarek et al., (2021), Rahman et al., (2021), Au Yong & Laing, (2021) shows that
leverage has a negative effect on market reaction. Research by Anwar & Fun, (2021) leverage has a
positive effect on market reaction. Research by Shin & Kim, (2019), Maffei et al., (2020) and Heyden & Heyden, (2021)
leverage has no effect on market reaction. Research by Rahman et al., (2021) and Heyden & Heyden, (2021)
shows that profitability has a negative effect on market reaction. Research by Au Yong & Laing, (2021) and Anwar & Fun, (2021) that
profitability has a positive effect on market reaction. Research by Basnet et al., (2022) shows that cash
flow has a negative effect on market reaction. Research by Xiong et al., (2020) cash flow has a positive
effect on market reaction.
Research by Silva et al., (2019) and Pakdaman, (2018) shows that going concern audit
opinions have a negative effect on market reaction. Wibowo's, (2019) going concern audit
opinion has no effect on market reaction.
Based on the
description of the phenomenon and previous research, the author will examine
and analyze the influence, leverage, profitability and cash flow on going
concern audit opinions and their implications for market reactions. The novelty
used in this study is an empirical study. This study uses empirical studies on
companies that are included in the IDX Special Notation list.
RESEARCH
METHOD
This type of
research is causal research with a quantitative approach tested using
statistical methods. This research sample uses 181 financial reports from
companies listed on the Indonesia Stock Exchange (IDX) for 2018-2021 and
included in the IDX's special notation dated June 20, 2022.
� The factors measured in this study are
leverage, profitability and cash flow as the independent variables, going
concern audit opinion as the intervening variable and market reaction as the
dependent variable. The variable measurement in this study, namely the leverage
variable using the debt to equity ratio (DER) proxy,
refers to the study of Maffei et al. (2020).
The profitability variable uses a proxy for return on equity (ROE) referring to
research by u Yong & Laing,
(2021). The cash flow variable uses a debt coverage (DC)
proxy referring to the theory from Budiman, (2018). Going concern audit opinion
uses a dummy variable by giving code 0 for financial reports that do not
receive going concern audit opinions (NGCOA) and code 1 for financial reports
that receive going concern audit opinions (GCOA). The market reaction variable
uses a dummy variable proxy for abnormal returns which refers to the theory
from Suganda, (2018). The dummy variable used is by
giving code 1 (positive reaction) when the results of the calculation of the
abnormal return and actual return are greater than zero. code -1 when the
calculation results are other than positive reaction conditions. This abnormal
return calculation uses a 60-day window period referring to Peterson and
Pamela's research (1989), namely thirty days before (t-30) and thirty days
after (t+30), and event date (t0). The following is a table of
operationalization of the variables used. The following is a table of
operationalization of the variables used.
Table 1
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Variable |
Symbol |
Description |
Proxy |
Formula |
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Independent
Variable (X1) |
LV |
Leverage |
Debt to
Equity Ratio |
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Independent
Variable (X2) |
PF |
Profitability
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Return on
Equity |
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Independent
Variable (X3) |
CF |
Cash Flow |
Debt to
Coverage |
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Intervening
variable (Z) |
GCOA |
Going Concern
Audit Opinion |
Dummy
Variable |
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Dependent
variable (Y) |
MR |
Market
Reaction |
Dummy
Variable |
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1 = positive
reactions |
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(when the abnormal return and actual return is greater than
0) |
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-1 =� Negative Reaction |
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(when the results show no positive reaction) |
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Variabel |
Simbol |
Deskripsi |
Proksi |
Rumus |
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Independent
Variable (X1) |
LV |
Leverage |
Debt to
Equity Ratio |
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Independent
Variable (X2) |
PF |
Profitability
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Return on
Equity |
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Independent
Variable (X3) |
CF |
Cash Flow |
Debt to
Coverage |
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Intervening
variable (Z) |
GCOA |
Going Concern
Audit Opinion |
Dummy
Variable |
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Dependent
variable (Y) |
MR |
Market
Reaction |
Dummy
Variable |
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1 = reaksi positif |
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(ketika
abnormal return dan actual return diatas
nol) |
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-1 =� reaksi negatif |
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(Selain kondisi pada reaksi positif) |
Source: processed data
This study was
tested using the statistical method of binary logistic regression by forming
the following three regression models:
Model 1:
Model 2:
Model 3:
Information:
Exp������������������� = Eksponensial
GCOA � ����������� =
Going concern audit opinion
LV�������������������� = Leverage
PF��������������������� = Profitability
CF��������������������� = Cash flow
MR������������������� = Market reaction
α ���������������������� = Konstanta
β_1-β_3 ����������� =
Regression coefficient
e������������ ����������� =
Residual Error
Effect
of leverage on going concern audit opinion
Companies with
high levels of leverage can trigger a high risk of default. If leverage
continues to increase, the company may experience financial distress which is a
consideration for the auditor to provide a going-concern audit opinion.
Previous research from Averio, (2020),
showed the results of his research, namely the leverage variable has a positive
effect on going concern audit opinions. A company with poor financial
conditions like a high leverage level implies that the company is dominated by
loans so that the company has more obligations to manage debt payments and loan
interest, which can affect cash flow, as well as profit and loss of the
company, (Averio,
2020a, p. 162). Based on the theory and previous research the
authors formed the following hypothesis:
Ha1: Leverage has
a partial effect on going concern audit opinion.
Effect
of profitability on going concern opinion
Profitability
refers to the Company's ability to generate profits. This profit can be
generated from sales, effective use of assets and capital. Poor company
profitability indicates that the company has not been able to generate profits.
This condition can hamper the Company's operational activities and become a
signal for the auditor to provide a going concern audit opinion to the Company.
Previous research from Averio, (2020),
showed the results of his research, namely profitability has a negative effect on
going concern audit opinions. Low profitability and liquidity also imply that a
company has a doubt to guarantee its short-term debt and low ability to earn
profit, which puts the company on the going concern problem, (Averio, 2020a, p. 162).
Based on the theory and previous research the authors formed the
following hypothesis:
Ha2: Profitability
has a partial effect on going concern audit opinion.
The
effect of cash flow on going concern audit opinion
Companies
are required to be able to manage their cash flow properly. When the company's
operating cash flow is negative, the company will seek outside funding which
will have an impact on increasing the company's interest expense and
liabilities to third parties. In addition, low cash flow indicates that the
Company does not have sufficient cash available to pay off its debts and is at
risk of default. So that poor cash flow indicates doubt over the company's
ability to carry out its business.
The control
sample shows insufficient operating cash flows as well but in a less severe
condition. The mean is 4% with 31.1% of firms having negative operating cash
flows. Therefore, despite the sample selection criteria which provide us with a
sample of financially distressed firms, the going concern firms show an even
worse financial situation with low profitability, low or negative cash flows,
and high debt-financed capital structure, (Huang & Yu , 2019, p. 143).
Based on
the theory and previous research the authors formed the following hypothesis:
Ha3: Cash flow has
a partial effect on going concern audit opinion.
Effect
of leverage on market reaction
Leverage can
determine whether a company is good or not. An increase in leverage indicates
an increase in the risk of financial distress due to failure to manage the
capital structure which has an impact on investor reactions in the stock
market. However, if the Company can manage its debt properly, such as being
used for business development, it will trigger a positive market reaction.
Research from Au Yong & Laing, (2021)
shows the results of leverage research have a negative effect on market
reaction, however research from Anwar & Asyik, (2021) shows a positive effect of
leverage on market reaction. Based on the theory and previous research the
authors formed the following hypothesis:
Ha4: Leverage has
a partial effect on market reaction.
Effect
of profitability on market reaction
Profitability
describes the company's ability to generate profits. Good performance in
profitability can convince investors because companies with high levels of
profitability are more resistant to economic shocks. Research from Au Yong & Laing, (2021) shows the
results of profitability research have a positive effect on market reaction,
however research from Anwar & Asyik,
(2021) shows a negative effect of profitability on market reaction.
Based on the theory and previous research the authors formed the following
hypothesis:
Ha5: Profitability
has a partial effect on market reaction.
The
effect of cash flow on market reaction
Investors are more
likely to react when cash flow performance is unfavorable, especially when operating
cash flow shows a negative balance. This condition makes it difficult for the
Company to pay off its obligations, so that it becomes an early warning for
investors to act conservatively. Research from Basnet et al., (2022) shows the results
of cash flow have a negative effect on market reaction. Based on the theory and
previous research the authors formed the following hypothesis:
Ha6: Cash flow has
a partial effect on market reaction.
Effect
of going concern audit opinion on market reaction
The receipt of a
going concern audit opinion indicates that the company's ability to maintain
its business continuity is doubtful, triggering a negative reaction on the
stock market.
Research by Silva et al., (2019), with the results
of going concern audit opinion research having a negative effect on market
reaction. The auditors' going concern opinion for Ideaisnet
impacted the stock price return and traded volumes, suggesting that the
auditor's opinion was a surprise to the market, (Silva et al., 2019, p. 18).
Based on the theory and previous research the authors formed the following
hypothesis:
Ha7: Going concern
audit opinion has implications for market reaction
Based on the
phenomenon, theory and previous research journals, the writer can form a
research hypothesis and focus on examining the effect of leverage,
profitability and cash flow on going concern audit opinions and their
implications for market reaction. So that the framework of thought formed is as
follows:
Figure 1
RESULTS
AND DISCUSSION
Testing the
variables in this study using SPSS v.27 software. Every variable and model
formed in this study has passed the model feasibility test using Hosmer and Lemeshow's goodness of-fit-test and overall model fit. The
following are the results of hypothesis testing for model 1 used in this study:
Table 2
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Variables in
the Equation |
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B |
S.E. |
Wald |
df |
Sig. |
Exp(B) |
95% C.I.for EXP(B) |
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Lower |
Upper |
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Step 1a |
LV |
,388 |
,149 |
6,784 |
1 |
,009 |
1,474 |
1,101 |
1,973 |
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PF |
1,303 |
,718 |
3,292 |
1 |
,070 |
3,679 |
,901 |
15,029 |
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CF |
,002 |
,001 |
2,426 |
1 |
,119 |
1,002 |
1,000 |
1,004 |
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Constant |
-,999 |
,247 |
16,304 |
1 |
,000 |
,368 |
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a.
Variable(s) entered on step 1: LV, PF,
CF. |
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Source: Data management with SPSS
27.0
Table 2 shows that
leverage has a significance value of 0.009 less than an alpha of 0.05 with a B
value of 0.388 so that leverage has a significant positive effect on going
concern audit opinion (Ha1 accepted). The positive effect of leverage shows
that the higher the leverage, the greater the possibility of financial reports
receiving a going concern audit opinion, and vice versa when the leverage is
lower, the smaller the possibility of financial reports receiving a going
concern audit opinion.
In this study,
leverage is proxied using the debt to equity ratio, so
that when the financial statements have a high leverage value it indicates that
the proportion of the value of the debt owned by the Company in that period is
greater than the proportion of the value of the equity owned. The large
proportion of this debt value indicates that the Company's operational
activities are mostly funded by debt. So that the Company has an obligation to
fulfill (pay) the debt when it is due. This high leverage has a greater risk of
default compared to a low leverage value.
The auditor gives
a going concern audit opinion, one of which is with consideration of the
performance of the company's financial statements to assess the company's
ability to carry on business in the future. So that when the leverage value is
high it creates a high risk of default. When in the future the company is
unable to pay or pay off its debts it will have an impact on the delay in
fulfilling the supply of goods in the warehouse which also has an impact on not
fulfilling the demand for sales. So that the Company's revenue decreased and
operational activities were disrupted which caused doubts about business
continuity in the future if remedial steps were not immediately taken.
The results of
this study are in line with the results of Averio's
research, (2020). In research conducted by Averio, (2020) and Simamora & Hendarjatno, (2019)
showed that leverage has a positive effect on going concern audit opinions by
using the debt to total asset ratio (DAR) as a proxy for the leverage variable.
�Based on the
results of the logistic regression analysis to determine influencing factors on
the going concern audit opinion with research data of manufacturing firms
listed on the IDX from 2015 to 2019, it can be concluded that leverage was
positively affected the going concern audit opinion. This indicates that
companies with a high debt ratio are very likely to suffer financial and
continuity difficulties, (Averio,
2020, p. 162).�
In research
conducted by Simamora & Hendarjatno, (2019)
shows that leverage has a positive effect on going concern audit opinions by
using the debt to total asset ratio (DAR) as a proxy for the leverage variable.
�� who found out
that companies tended to frequently receive the going concern audit opinion
when their leverage level was high. Because the assets used by the companies to
run their operational activities are mostly covered by debts, the companies
tend to depend on debts in running their business activities. Consequently, the
company bears a huge debt in which it can cause the company to be unable to
afford repaying the debts, Simamora & Hendarjatno, 2019, p.
(155).�
Meanwhile, based
on Table 2, the profitability and cash flow variables each have a significance
value of more than 0.05, namely 0.70 and 0.119, so these results indicate that
the profitability and cash flow variables have no significant effect on going
concern audit opinions. So Ha2 and Ha3 are rejected. This research is in line
with the research of Nugroho et al.,
(2018) and Abbott et al., (2019).
The following is model 1 from the results
of statistical tests:
Model 1:
Berikut ini adalah hasil
dari uji hipotesis untuk model 2 yang digunakan dalam penelitian ini:
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Variables in the Equation |
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B |
S.E. |
Wald |
df |
Sig. |
Exp(B) |
95% C.I.for EXP(B) |
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Lower |
Upper |
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Step 1a |
LV |
,043 |
,020 |
4,534 |
1 |
,033 |
1,044 |
1,003 |
1,086 |
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PF |
-3,506 |
1,628 |
4,639 |
1 |
,031 |
,030 |
,001 |
,729 |
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CF |
-,014 |
,007 |
4,242 |
1 |
,039 |
,986 |
,973 |
,999 |
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Constant |
-,470 |
,268 |
3,073 |
1 |
,080 |
,625 |
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a. Variable(s) entered on step 1: LV, PF, CF. |
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�Table 3
Source: Data management with SPSS
27.0
Table 3 shows that
leverage has a significance value of 0.033 which is smaller than alpha 0.05
with a B value of 0.043 so that profitability has a significant positive effect
on market reaction (Ha4 accepted). The positive effect of leverage shows that
the higher the leverage, the greater the possibility of financial reports
receiving a positive reaction, and vice versa when the lower the leverage, the
smaller the possibility of financial reports receiving a positive reaction.
A positive
reaction occurs when there is an increase in stock prices from the window
period used. While a negative reaction occurs during the window period there is
no change in the value of the stock or the stock price has decreased. Leverage
in this study is proxied by the debt to equity ratio
so that when the leverage value is high, the proportion of debt value is
greater than the company's equity value. In this study, leverage has a
significant positive effect on market reaction, which means that the market
reacts positively when the leverage value is high. Investors view the large
proportion of debt owned by the Company with the consideration that large debt
if managed properly will support the Company's development in the future. Such
as the proportion of large debts caused by the existence of new loan funds
intended for business expansion. In addition, the positive reaction that occurs
when the company's leverage value is high can also be caused because in these
conditions the company is looking for new investors as a way to increase
business capital. The results of this study are in line with Anwar & Asyik's research, (2021).
Table 3 shows that
profitability has a significance value of 0.031 which is smaller than alpha
0.05 with a B value of -3.506 so that profitability has a significant negative
effect on market reaction (Ha5 accepted). The negative effect of profitability
shows that if profitability is higher, the possibility of financial reports
receiving a positive reaction is lower (reacting negatively), and vice versa
when profitability is lower, the possibility of financial reports receiving a
positive reaction is also greater.
The weakness in
this test lies in the absolute number of results of calculating the ROE ratio
used in the test. Absolute numbers are used because the sample in this study is
a company that is under special attention that is included in the IDX special
notation list. So that the majority of the companies in the sample are in
financial trouble, namely experiencing losses and negative equity, but without
using absolute numbers they produce a positive ROE ratio. Meanwhile, several
companies that earn positive profits and equity without using absolute figures
also produce positive ROE ratios. However, companies that experience losses and
have positive equity without using absolute numbers will produce negative ROE.
Based on these 3 conditions, companies that experience losses and negative
equity have the worst performance compared to companies that experience losses
and still have positive equity. However, when not using absolute numbers, it is
as if the company that is experiencing losses and whose equity is still
positive is the one with the worst financial performance because it has a
negative ROE ratio. So that in this test the numbers used are absolute numbers.
Based on these
conditions, the results of this study profitability have a significant negative
effect on market reaction. The high profitability ratio results in this study
do not reflect good financial performance. Because as previously explained, the
majority of the sample in this study are experiencing losses and negative
equity. So that when a high profitability value reflects that the company is
experiencing large losses and negative equity or is in a condition where the
company has a large profit value but little positive equity or is even
experiencing negative equity due to accumulated losses in previous years. So
that in this study the high profitability value gives a signal for investors to
react negatively. This negative reaction is reflected in the decline in stock
prices on the capital market.
The results of
this study are in line with the results of research by Rahman et al., (2021), Anwar & Asyik, (2021) and Heyden & Heyden, (2021),
namely profitability has a negative effect on market reaction.
Table 3 shows that
cash flow has a significance value of 0.039 less than an alpha of 0.05 with a B
value of -0.014 so that profitability has a significant negative effect on
market reaction (Ha6 is accepted). The negative effect of cash flow shows that
when cash flow is higher, the possibility of financial statements receiving a
positive reaction is lower (reacting negatively), and vice versa when cash flow
is lower, the possibility of financial statements receiving a positive reaction
is also greater.
In this study, the
cash flow variable uses a debt coverage proxy, namely total debt compared to
the availability of the Company's operating cash flow. So
when the cash flow ratio is high the market tends to react negatively. This
means that in these conditions the Company has a large debt value but there is
no sufficient cash availability from operating cash flow, so that the Company's
share value has decreased. This condition occurs because the availability of
cash from other activities only supports business continuity, but the most
important cash availability remains the availability of cash generated from
operating activities which are the Company's main operational activities. This
high ratio gives a signal to investors to act conservatively. The higher this
ratio triggers a high risk of default so that this condition makes the market
react negatively. The results of this study are in line with the results of
research by Basnet et al., (2022).
�� a less negative
stock market reaction following negative cash flow news, (Basnet et al., 2022,
p. 3)�.
The following is model 2 from the results
of statistical tests:
Model 2:
The following are
the results of hypothesis testing for model 3 used in this study:
Table 4
|
Variables in
the Equation |
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|
|
B |
S.E. |
Wald |
df |
Sig. |
Exp(B) |
95% C.I.for
EXP(B) |
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|
Lower |
Upper |
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Step 1a |
GCOA |
-1,716 |
,431 |
15,896 |
1 |
,000 |
,180 |
,077 |
,418 |
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Constant |
-,726 |
,222 |
10,654 |
1 |
,001 |
,484 |
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a. Variable(s) entered on step 1:
GCOA. |
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Source: Data management with SPSS
27.0
Table 4 shows that
going concern audit opinion has a significance value of 0.00 less than alpha
0.05 with a B value of -1.716 so that going concern audit opinion has a
significant negative effect on market reaction (Ha7 accepted). The negative
effect of going-concern audit opinion shows that if the financial statements
receive a going-concern audit opinion, the possibility of the financial
statements receiving a positive reaction is lower (reacts negatively), and vice
versa when the financial statements do not receive a going-concern audit opinion,
the possibility of financial reports receiving a positive reaction also getting
bigger.
These results
indicate that if the company's financial statements receive a going-concern
audit opinion, the market will react negatively and vice versa, when the company's
financial statements do not receive a going-concern audit opinion, the stock
market will react positively.
In connection with
the proxy variable used for going concern audit opinion and market reaction
variables is a dummy variable, so this discussion uses table 5. In table 5 it
is known that there are 100 financial statements that receive going concern
audit opinions. Of the 100 financial reports, 92 of them received a negative
market reaction and 8 of them received a positive reaction. So based on these
data as much as 92% when the Company's financial statements receive a going
concern opinion, the market will react negatively.
|
Cell Information |
|||
|
Frequency� |
|||
|
GCOA |
MR |
||
|
Reaksi Negatif |
Reaksi Positif |
||
|
NGCOA |
Observed |
62 |
30 |
|
Expected |
62,000 |
30,000 |
|
|
Pearson Residual |
,000 |
,000 |
|
|
GCOA |
Observed |
92 |
8 |
|
Expected |
92,000 |
8,000 |
|
|
Pearson Residual |
,000 |
,000 |
|
|
Link function: Logit. |
|||
Tabel 5
Source: Data management with SPSS
27.0
In table 5 it is known that there are 92
financial statements that do not receive a going concern audit opinion. Out of
92 financial reports, 62 (67%) received negative reactions and 30 (23%)
received positive reactions.
This study uses research samples from
companies registered in the IDX Special Notation on June 20, 2022, so that the
companies studied are companies that are currently under attention. So that
when the financial statements do not receive a going concern audit opinion, the
financial statements are still likely to receive a negative market reaction.
This research is in line with previous research by Pakdaman, (2018) and Silva et al., (2019).
��that the auditor's opinion contains
content information for investors and analysts of the stock exchange while this
is not true for modified opinion. The following cases can be mentioned as the
main reasons for not paying attention to the financial statements of modified
audit reports: investors and users of the auditor's report are not informed in
a timely manner, information is not available, users lack sufficient knowledge
to analyze the audit report and apply it in investment decisions, and finally,
investors are not trained in the stock exchange, (Pakdaman,
2018, p. 115).�
The following is model 3 which is formed
from the test results:
Model 3:
So based on the
results of this study and previous research which are in line with this study
when the financial statements receive a going concern audit opinion, the market
will react negatively. The going concern audit opinion given by the auditor is
an early warning for investors to re-analyze the financial statements
presented. In general, the financial reports that received a going-concern
audit opinion were financial reports that reflected that the company was in
financial distress during that period which caused the market to react
negatively.
Additional
discussion regarding the mediation of the going concern audit opinion variable
is carried out by conducting a sobel test with the
following results:
Tabel 6
|
Variabel |
a |
b |
SEa |
SEb |
Sobel Test |
Sobel Test (absolute) |
Hasil |
|
LV |
0,388 |
-0,052 |
0,149 |
0,076 |
-0,662 |
0,662 |
< 1,96 |
|
PF |
1,303 |
-2,461 |
0,718 |
1,444 |
-1,242 |
1,242 |
< 1,96 |
|
CF |
0,002 |
-0,100 |
0,001 |
0,006 |
-1,986 |
1,986 |
> 1,96 |
Source: processed data
In table 6 the sobel test values on the leverage and profitability
variables are respectively 0.662 and 1.242 which are smaller than 1.96 with a
significant level of 5%, so the going concern audit opinion has not been able
to mediate the relationship between leverage and profitability with market
reaction. However, the cash flow variable obtained a Sobel test value of 1.986
which was greater than 1.96 with a significant level of 5%, so the going
concern audit opinion was able to mediate the relationship between cash flow
and market reaction.
Based on table 6
going concern audit opinion as an intervening variable has not been able to
mediate the relationship between leverage and profitability variables on market
reaction. However, it is able to mediate the relationship between cash flow
variables and market reaction. Based on direct testing, leverage has a positive
effect on market reaction and profitability has a negative effect on market
reaction, but when using a going concern audit opinion as mediation, leverage
and profitability have no effect on market reaction.
Meanwhile, based
on direct testing, cash flow has an effect on market reaction and when the
Sobel test is carried out, the results of a going concern audit opinion are
able to moderate the relationship between cash flow and market reaction. This
relationship shows that both mediated and without mediation going concern audit
opinion, cash flow is an important part that is considered by investors. Cash
flow is a strong signal for investors to make decisions to act conservatively.
A bad cash flow ratio can lead to high defaults and can affect the smooth
running of the company's operations
�
Based
on the results of research conducted to determine the effect of leverage,
profitability and cash flow on going concern audit opinions and their
implications for market reactions registered on the IDX in 2018-2021 and
included in the IDX Special Notation list on June 20, 2022 it is known that (a)
Leverage partially positive significant effect on going concern audit opinion.
(b) Profitability has no significant effect partially on
going concern audit opinion. (c) Cash flow has no significant effect
partially on going concern audit opinion. (d) Leverage
has a partially positive significant effect on market reaction. (e)
Profitability has a partially negative significant effect on market reaction.
(f) Cash flow has a partially negative significant effect on market reaction.
(g) Going concern audit opinion has partially negative significant implications
for market reaction. (h) Going concern audit opinion is able to mediate the
relationship between cash flow and market reaction but has not been able to
mediate the relationship between leverage and profitability variables on market
reaction.
Based
on the results of this study, it can be concluded that the leverage,
profitability and cash flow variables have a stronger influence on market
reaction than their effect on going concern audit opinions. Only the leverage
variable has a significant effect on going concern audit opinion. Meanwhile,
for market reaction, all variables in this study have a significant effect on
market reaction. Including going concern audit opinion which has significant
negative implications for market reaction. However, when going concern audit
opinion in this study was only able to mediate the relationship between cash
flow variables and market reaction.
The
conclusion of this study is that information from financial reports that
reflects unfavorable performance on financial statements, both in terms of
financial ratios or from going-concern audit opinions received by the Company
in that period, can trigger a negative reaction on the stock market. And going
concern audit opinion strengthens the effect of poor cash flow performance to
trigger the market to react negatively, because bad cash flow triggers the risk
of default which raises investor concerns and
This
concern is reinforced by the existence of a going concern audit opinion
received
by the Company which is a signal that the Company's ability to
substantially
doubted in carrying out its business.
RESEARCH
LIMITATIONS
This study has limitations that can be taken into
consideration for subsequent researchers in order to obtain even better
research results. These limitations include:
1.
The event date
used in the market reaction variable is the date from the deadline for
submitting the Company's financial statements to the IDX, so the event date
does not reflect the actual date the report was submitted to the IDX. financial
reports to IDX at different times.
2.
The window
period used in this study only refers to the window period from Peterson and
Pamela (1989), namely 60 days, 30 days before the event date and 30 days after
the event date. So the research is only based on the
time span of the window period and has not considered further whether the
window period can be shortened or extended.
3.
The calculation
of the ratio of leverage, profitability and cash flow in this study uses
absolute numbers. So that in interpreting the results it is necessary to
analyze the original figures before they are absolute which can lead to
different interpretations.
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