Does Managerial Ability Affect Segment Disclosure? Evidence From Indonesia

Atika Atika, Evy Rahman Utami, Alex Johanes Simamora

Abstract


Research aims: While prior study around segment disclosure has mainly focused on firm characteristics, there is little study on whether managerial characteristics are associated with segment disclosure. This study, therefore, aims to examine the effect of managerial ability on the level of segment disclosure.
Design/Methodology/Approach: This study used panel data regression with 556 firm-year observations of Indonesian manufacturing firms during 2017-2020. This study employed the checklist based on PSAK 5 (2015 edition) and adopted a content analysis approach. To measure managerial ability, this study utilized the managerial ability score developed by Demerjian, Lev, & McVay (2012) for Indonesian firms.
Research findings: The results of this study revealed that managerial ability significantly and positively affected the level of segment disclosure. Higher-ability managers also tended to disclose their segment information more extensively.
Theoretical contribution/Originality: This study contributes to the managerial ability literature and the disclosure literature (specifically for segment disclosure). This study is also the first to provide empirical evidence about the effect of managerial ability on the level of segment disclosure.
Practitioner/Policy implication: This study results can be used by the Financial Accounting Standards Board of the Institute of Indonesia Chartered Accountants regarding the effectiveness of management approach implementation in Indonesia. Furthermore, the result of this study suggests that managers need to improve their capabilities to accommodate a dynamic business environment.
Research limitation/Implication: This study used content analysis to measure segment disclosure, including subjectivity. Nevertheless, this study only investigated manufacturing firms. Further research may expand the industry sample to get a better understanding.


Keywords


Managerial Ability; Corporate Reporting; Segment Disclosure

Full Text:

PDF

References


Abbas, A., & Pontoh, G. T. (2015). Kualitas Pengungkapan Segmen dan Hubungannya dengan Biaya Modal Ekuitas. Simposium Nasional Akuntansi XVIII, 1-27.

Abernathy, J. L., Kubick, T. R., & Masli, A. (2018). Evidence on the relation between managerial ability and financial reporting timeliness. International Journal of Auditing, 22(2), 185-196. https://doi.org/10.1111/ijau.12112

Aboud, A., Roberts, C., & Zalata, A. M. (2018). The impact of IFRS 8 on financial analysts' earnings forecast errors: EU evidence. Journal of International Accounting, Auditing and Taxation, 33, 2-17. https://doi.org/10.1016/j.intaccaudtax.2018.08.001

Ahmad, Y. Y., Subroto, B., & Atmini, S. (2022). The Role of Political Connections in the Relationship Between Managerial Ability and Fraudulent Financial Statements. Journal of Accounting and Investment, 23(3), 431-445. https://doi.org/10.18196/jai.v23i3.14493

Alwardat, Y. (2019). Disclosure Quality and its Impact on Financial Reporting Quality, Audit Quality, and Investors' Perceptions of the Quality of Financial Reporting: A Literature Review. Accounting and Finance Research, 8(3), 201-218. https://doi.org/10.5430/afr.v8n3p201

Amado, P., Albuquerque, F., Rodrigues, N., Amado, P., Albuquerque, F., & Rodrigues, N. (2018). The explanatory factors of segments disclosure in non-financial entities listed in European markets. Contaduría y Administración, 63(SPE2), 1050-1072. https://doi.org/10.22201/FCA.24488410E.2018.1629

Anggraini, P. G., & Sholihin, M. (2021). What do we know about managerial ability? A systematic literature review. Management Review Quarterly, 0123456789. https://doi.org/10.1007/s11301-021-00229-6

Asian Development Bank. (2019). Policies to Support The Development of Indonesia's Manufacturing Sector During 2020-2024. In Kementerian PPN/Bappenas Asian Development Bank (Issue January 2019). https://doi.org/http://dx.doi.org/10.22617/TCS199910-2

Baik, B., Brockman, P. A., Farber, D. B., & Lee, S. S. (2018). Managerial ability and the quality of firms' information environment. In Journal of Accounting, Auditing and Finance, 33(4), 506-527. https://doi.org/10.1177/0148558X17742820

Baik, B., Choi, S., & Farber, D. B. (2020a). Managerial ability and income smoothing. Accounting Review, 95(4), 1-22. https://doi.org/10.2308/ACCR-52600

Baik, B., Choi, S., & Farber, D. B. (2020b). Managerial Ability and Income Smoothing. The Accounting Review, 95(4), 1-22. https://doi.org/10.2308/ACCR-52600

Bappenas. (2019). Visi Indonesia 2045 - Background Study. In Bappenas.

Bertrand, M., & Schoar, A. (2003). Managing with Style: The Effect of Managers on Firm Policies. The Quarterly Journal of Economics, 118(4), 1169-1208. https://doi.org/10.1162/003355303322552775

Blanco, B., Garcia Lara, J. M., & Tribo, J. A. (2015). Segment Disclosure and Cost of Capital. Journal of Business Finance & Accounting, 42(3-4), 367-411. https://doi.org/10.1111/JBFA.12106

Bose, S. C., Kiran, R., & Goyal, D. (2017). Examining the relation of service assistance facilities, managerial skill competencies and constraints with Agri-Business Incubators performance in India. Custos e @gronegócio, 13(3), 75-100.

Call, A. C., Campbell, J. L., Dhaliwal, D. S., & Moon, J. R. (2017). Employee quality and financial reporting outcomes. Journal of Accounting and Economics, 64(1), 123-149. https://doi.org/10.1016/J.JACCECO.2017.06.003

Cereola, S. J., & Dynowska, J. (2022). The impact of IFRS-8, segment reporting, on the disclosure practices of Polish listed companies. Journal of Accounting, Auditing and Taxation, 47, 1-17. https://doi.org/10.1016/j.intaccaudtax.2022.100466

Cereola, S. J., Nichols, N. B., & Street, D. L. (2018). The predictive ability of entity-wide geographic sales disclosures: IAS 14R versus IFRS 8. Research in Accounting Regulation, 30, 121-130. https://doi.org/10.1016/j.racreg.2018.09.002

CFA Institute. (2018). Segment Disclosures: Investor Perspectives.

Chen, J., & Chen, J. (2020). Does managerial ability affect the quality of environmental financial disclosure? Sustainability Accounting, Management and Policy Journal, 11(6), 1055-1073. https://doi.org/10.1108/SAMPJ-09-2018-0248

Chen, T. K., & Liao, Y. P. (2015). The Economic Consequences of Disclosure Quality under SFAS No. 131. Accounting Horizons, 29(1), 1-22. https://doi.org/10.2308/ACCH-50898

Choi, W., Han, S., Jung, S. H., & Kang, T. (2015). CEO's Operating Ability and the Association between Accruals and Future Cash Flows. Journal of Business Finance and Accounting, 42(5-6), 619-634. https://doi.org/10.1111/jbfa.12118

Daradkeh, H., Shams, S., Bose, S., & Gunasekarage, A. (2022). Does managerial ability matter for corporate climate change disclosures? Corporate Governance: An International Review, 61(2). https://doi.org/10.1111/corg.12436

De Franco, G., Hope, O. K., & Lu, H. (2017). Managerial ability and bank-loan pricing. Journal of Business Finance and Accounting, 44(9-10), 1315-1337. https://doi.org/10.1111/jbfa.12267

Demerjian, P., Lev, B., & McVay, S. (2012). Quantifying managerial ability: A new measure and validity tests. Management Science, 58(7), 1229-1248. https://doi.org/10.1287/mnsc.1110.1487

Demerjian, P., Lev, B., Lewis, M. F., & McVay, S. (2013). Managerial ability and earnings quality. Accounting Review, 88(2), 463-498. https://doi.org/10.2308/accr-50318

Franzen, N., & Weißenberger, B. E. (2018). Capital market effects of mandatory IFRS 8 adoption: An empirical analysis of German firms. Journal of International Accounting, Auditing and Taxation, 31, 1-19. https://doi.org/10.1016/J.INTACCAUDTAX.2017.11.002

García-Meca, E., & García-Sánchez, I. M. (2018). Does managerial ability influence the quality of financial reporting? European Management Journal, 36(4), 544-557. https://doi.org/10.1016/j.emj.2017.07.010

García-Sánchez, I. M., Aibar-Guzmán, B., Aibar-Guzmán, C., & Azevedo, T. C. (2020). CEO ability and sustainability disclosures: The mediating effect of corporate social responsibility performance. Corporate Social Responsibility and Environmental Management, 27(4), 1565-1577. https://doi.org/10.1002/csr.1905

Gul, F. A., Khedmati, M., Lim, E. K. Y., & Navissi, F. (2018). Managerial ability, financial distress, and audit fees. Accounting Horizons, 32(1), 29-51. https://doi.org/10.2308/acch-51888

Hambrick, D. C. (2007). Upper echelons theory: An update. Academy of Management Review, 32(2), 334-343. https://doi.org/10.5465/AMR.2007.24345254

Hambrick, D. C., & Mason, P. A. (1982). The Organization as a Reflection of Its Top Managers. Academy of Management Proceedings, 1982(1), 12-16. https://doi.org/https://doi.org/10.5465/ambpp.1982.4976402

Hambrick, D. C., & Mason, P. A. (1984). Upper Echelons : The organization as a reflection of its top managers. Academy of Management Review, 9(2), 193-206. https://doi.org/10.2307/258434

Hasan, M. M. (2020). Readability of Narrative Disclosures in 10-K Reports: Does Managerial Ability Matter? European Accounting Review, 29(1), 147-168. https://doi.org/10.1080/09638180.2018.1528169

Heo, K., & Doo, S. (2018). Segment Reporting Quality and Analyst Forecast Accuracy. The Journal of Applied Business Research, 34(3), 471-486. https://doi.org/10.19030/jabr.v34i3.10170

Herawaty, V., & Solihah, D. (2019). The effect of Ceo Tenure, Managerial Skills and earning power on earnings manipulation with corporate governance as a moderating variable on manufacturing companies in Indonesia Stock Exchange. Academy of Accounting and Financial Studies Journal, 23(1), 1-16.

Herianti, E., Suryani, A., & Marundha, A. (2021). Managerial Ability and Future Banking Performance: The Role of Book-Tax Differences as Moderator. Journal of Accounting and Investment, 22(1), 173-191. https://doi.org/10.18196/jai.v22i1.9997

Huang, X. (Sharon), & Sun, L. (2017). Managerial ability and real earnings management. Advances in Accounting, 39(November 2015), 91-104. https://doi.org/10.1016/j.adiac.2017.08.003

Ikatan Akuntan Indonesia. (1994). PSAK 5: Financial Information Reporting by Segment.

Ikatan Akuntan Indonesia. (2000). PSAK 5: Segment Reporting.

Ikatan Akuntan Indonesia. (2016). PSAK 5: Operating Segment.

Ikatan Akuntan Indonesia. (2018). PSAK 5: Segmen Operasi. Standar Akuntansi Keuangan Efektif Per 1 Januari 2018. http://iaiglobal.or.id/v03/standar-akuntansi-keuangan/pernyataan-sak-11-psak-5-segmen-operasi

Kajüter, P., & Nienhaus, M. (2017). The Impact of IFRS 8 Adoption on the Usefulness of Segment Reports. Abacus, 53(1), 28-58. https://doi.org/10.1111/ABAC.12105

Khomsatun, S., Siregar, S. V., & Utama, S. (2018). Relationship of Earnings Quality and Segment Disclosure in Decreasing Cost of Equity. Jurnal Keuangan Dan Perbankan, 22(3), 456-474. https://doi.org/10.26905/jkdp.v22i3.2304

Kobbi-Fakhfakh, S., Shabou, R. M., & Pigé, B. (2020). Intensive Board Monitoring, Investor Protection and Segment Disclosure Quality: Evidence from EU. Accounting in Europe, 17(1), 52-77. https://doi.org/10.1080/17449480.2019.1646427

Lenormand, G., & Touchais, L. (2017). The Impact of IFRS 8 on the Cost of Equity Capital. Management & Avenir, 92(2), 133-152. https://doi.org/10.3917/MAV.092.0133

Leung, E., & Verriest, A. (2015). The Impact of IFRS 8 on Geographical Segment Information. Journal of Business Finance & Accounting, 42(3-4), 273-309. https://doi.org/10.1111/JBFA.12103

Lucchese, M., & Di Carlo, F. (2016). The Impact of IFRS 8 on Segment Disclosure Practice: Panel Evidence from Italy. International Journal of Accounting and Financial Reporting, 6(1), 96-126. https://doi.org/doi:10.5296/ijafr.v6i1.9239

Moldovan, R. (2014). Post-Implementation Reviews for IASB and FASB Standards: A Comparison of the Process and Findings for the Operating Segments Standards. Accounting in Europe, 11(1), 113-137. https://doi.org/10.1080/17449480.2014.901588

Nichols, N. B., Street, D. L., & Tarca, A. (2013). The impact of segment reporting under the IFRS 8 and SFAS 131 management approach: A research review. Journal of International Financial Management and Accounting, 24(3), 261-312. https://doi.org/10.1111/jifm.12012

Obradovic, V., Milasinovic, M., & Bogicevic, J. (2021). Segment disclosures in the financial statements of stock companies in the Republic of Serbia and the republic of Croatia. Economic Horizons, 23(1), 55-70. https://doi.org/10.5937/EKONHOR2101055O

Pardal, P., Morais, A. I., & Curto, J. D. (2015). Competitive harm and business segment reporting under IFRS 8: evidence from European union listed firms. EAA 38th Annual Congress. https://comum.rcaap.pt/handle/10400.26/8880

Park, J., Ko, C. Y., Jung, H., & Lee, Y. S. (2016). Managerial ability and tax avoidance: evidence from Korea. Asia-Pacific Journal of Accounting and Economics, 23(4), 449-477. https://doi.org/10.1080/16081625.2015.1017590

Plöckinger, M., Aschauer, E., Hiebl, M. R. W., & Rohatschek, R. (2016). The influence of individual executives on corporate financial reporting: A review and outlook from the perspective of upper echelons theory. https://doi.org/10.1016/j.acclit.2016.09.002

Saini, J. S., & Herrmann, D. (2013). Cost of Equity Capital, Information Asymmetry, and Segment Disclosure. Advances in Quantitative Analysis of Finance and Accounting, 11, 143-173. https://doi.org/10.2139/SSRN.1758934

Suttipun, M., & Pratoomsri, L. (2019). Influence of ownership structure and board composition on segment disclosure in Thai context. DLSU Business and Economics Review, 29(1), 131-145.

Tran, Q. T., Nguyen, N. K. D., & Le, X. T. (2021). The Effects of Corporate Governance on Segment Reporting Disclosure: A Case Study in Vietnam. The Journal of Asian Finance, Economics and Business, 8(4), 763-767. https://doi.org/10.13106/JAFEB.2021.VOL8.NO4.0763

Wang, Z., Chen, M. H., Chin, C. L., & Zheng, Q. (2017). Managerial ability, political connections, and fraudulent financial reporting in China. Journal of Accounting and Public Policy, 36(2), 141-162. https://doi.org/10.1016/j.jaccpubpol.2017.02.004

Yan, B., Arslan-Ayaydin, Ö., Thewissen, J., & Torsin, W. (2021). Does managerial ability affect disclosure? Evidence from earnings press releases. Asian Review of Accounting, 29(2), 192-226. https://doi.org/10.1108/ARA-03-2020-0036

Yung, K., & Chen, C. (2018). Managerial ability and firm risk-taking behavior. Review of Quantitative Finance and Accounting, 51(4), 1005-1032. https://doi.org/10.1007/s11156-017-0695-0




DOI: https://doi.org/10.18196/jai.v24i1.15975

Refbacks

  • There are currently no refbacks.


Bookmark and Share


Office:
Ruang Jurnal Fakultas Ekonomi dan Bisnis UMY
Gedung Ki Bagus Hadikusuma (E4) Lantai 2, Kampus Terpadu Universitas Muhammadiyah Yogyakarta,
Jalan Brawijaya (Lingkar Selatan), Tamantirto, Kasihan, Bantul, Daerah Istimewa Yogyakarta, Indonesia, 55183
Website: journal.umy.ac.id/index.php/ai - E-mail: jai@umy.ac.id

Journal of Accounting and Investment is licensed under Creative Commons Attribution Attribution-NonCommercial-NoDerivatives 4.0 International License

View My Stats