The Impact of Earnings Persistence, Company Growth, and Systematic Risk on the Earnings Response Coefficient: The Moderating Role of Auditor Reputation

Abstract

The Earnings Response Coefficient (ERC) is a measure used in accounting and finance to evaluate the correlation between a company’s stock returns and its earnings. The ERC measures the degree to which the market responds to changes in a company's earnings. This study investigates the impact of earnings persistence, corporate growth, and systematic risk on the ERC, with the reputation of the auditor acting as a moderating variable. The research was conducted on the Indonesia Stock Exchange, focusing on 51 companies listed in the Kompas 100 Index from 2018 to 2022. Data analysis was performed using the Moderated Regression Analysis (MRA) method. The findings of this study reveal that earnings persistence has an insignificantly positive effect on the ERC. Conversely, company growth exhibits a significantly positive influence on the ERC, whereas systematic risk has a significantly negative effect. Moreover, auditor reputation moderates the relationship between earnings persistence, corporate growth, and the ERC. However, it does not moderate the impact of systematic risk on the ERC.

Keyword: Earnings Response Coefficient, Earnings Persistence, Company Growth, Systematic Risk, Auditor Reputation

DOI: 10.7176/RJFA/15-8-06

Publication date: September 30th 2024