Junaidi editan - ANALYSIS OF ACCOUNTING BETAS MEASUREMENT...

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SIMPOSIUM NASIONAL AKUNTANSI VI Surabaya, 16 – 17 Oktober 2003 ANALYSIS OF ACCOUNTING BETAS MEASUREMENT JUNAIDI STIE Widya Manggala Semarang Abstract The purpose of this study is to determine the significant of accounting beta (i.e., earning beta, fund flow beta and cash flow beta) in relationship with market risk. The results indicate that operating cash flow risk measure (beta) is significantly relate to market risk, while the others, earnings beta and fund flow beta, do not possess relate with market risk. Adjusting with the issue of a thin trading bias in beta measurement, this study adjusted all the betas using Vasicek Bayesian Method. The results are still consistent. The implication of the result is to prove that accounting beta, especially cash flow beta, can be a surrogate to market beta or market risk. Keywords: accrual earnings, fund flow, operating cash flow, market risk, Vasicek Bayesian’s INTRODUCTION The Indonesian institute of accountants (IAI) conceptual framework considers providing information on an enterprise’s accrual earnings generating ability as the underlying objective of financial reporting (IAI, 1999, par.22). While the IAI stresses the importance of accrual earnings, it nevertheless, adopts the view that cash flows is basic to assessment performance of the firm in generating cash and cash equivalent (IAI, 1999, statement of financial accounting standard No. 2). The Financial Accounting Standards Board’s (FASB) conceptual framework considers providing information on an enterprise’s cash flow generating ability as the underlying objective of financial reporting. The FASB has recently issued SFAS No. 95 establishing standards for reporting cash flows in the financial statements, superseding APB Opinion No. 19 (FASB1987). Similar with the IAI, while the FASB stresses the importance of cash flows, it, nevertheless, adopts the views that accrual earnings may provide a better indicator of enterprise performance than information about current cash flows (FASB, 1978, PAR. 44). The hypothesis that accounting earnings is an empirical surrogate for (or indicator of) future cash flows underlies the alleged the usefulness of earnings in assessing security value/risk. The idea that earnings is a surrogate for future cash flows is consistent with the evidence that conclusively supports the relation between earnings and security prices (Lev and Ohlson, 1982). Ball and Brown (1969) investigated the usefulness of earnings in assessing security risk. Research then tested the association between the market based beta and an accounting beta. Accounting beta ( β A ) is expressed as the covariability of a firm’s accounting earnings with the accounting earnings of the market portfolio: β A i = cov ( X i , X m ) / σ 2 ( X m ) where is X i an accounting earnings and X m is an accounting the market portfolio.
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