Implications of Accrued Earnings and Growth to Future Profitability
Abstract
Dwihastuti, Erlina (2006). Implications of Accrued Earnings and Growth to Future
Profitability. Yogyakarta. International Program. Faculty of Economics. Islamic
University of Indonesia.
Accruals have been one of the major issues in accounting literature. Prior studies
done by Sloan (1996) provide evidence that accruals have less persistence than cash
flows in predicting future earnings. For Indonesian case, research done by Wijaya (1999)
which prove accruals and cash flows components of earnings had equal persistence to
determine future earnings. Recent study done by Farfield et. al (2003) proves that
accruals and growth in long term net operating assets have equivalent incremental
negative association with one year a-head return on assets. The purpose of this study is to
provide further evidence for Indonesian case.
Data employed in this research is secondary data. Data used in this research are
one year a-head return on assets, accruals, cash flows, current return on assets, growth on
net operating assets, and growth in long term net operating assets. The population of this
research are all manufacturing firms listed in Jakarta Stock Exchange. Data were taken
from Bursa Efek Jakarta (BEJ ) during 2001 until 2004. Data period is pooled time series
data. Some data are insufficient, incorrect, incomplete data and extreme data. Final
Research object is 87 data.
The result of this research shows Cash flows from operation has significant
influence to predict one year a-head return on assets but accruals has no significant
influence. Based on the research result, accruals and cash flows have equal persistence in
predicting future profitability. This research gives evidence that current return on asset
can predict one year a-head return on asset. This research result has evidence that
accruals and growth in long term net operating assets have equivalent incremental
negative association with one year a head return on assets after controlling for current
return on assets.
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