The Effect Of Earnings Character And Its Components on the Market Value of Consumer Non-Cyclicals Firms Listed On The Indonesia Stock Exchange

Pinky Permata Sari

doi:10.38142/ijesss.v6i4.2149

Authors

Pinky Permata Sari Universitas Negeri Surabaya, Indonesia

DOI:

https://doi.org/10.38142/ijesss.v6i4.2149

Keywords:

Earnings character, Earnings quality, Operating cash flow, Accruals, Market value, Value relevance

Abstract

This study aims to examine the effect of earnings character (the compositional profile of earnings determined by the relationship between operating cash flow, total accruals and net income) and of net income and operating cash flow as its components on the market value of consumer non-cyclicals firms listed on the Indonesia Stock Exchange. The study uses 933 firm-year observations from 134 firms over 2016-2025 under a census sampling approach. Earnings character is classified into three mutually exclusive categories and operationalised through two dummy variables. The dummy regression model is first estimated by pooled OLS and then re-estimated by weighted least squares (WLS) because the Glejser test indicates heteroskedasticity. Earnings character affects market value. Firms whose earnings rely on accruals while operating cash flow is negative are valued about 40% lower than firms with normal earnings character. Firms whose operating cash flow exceeds net income are also valued lower, which is associated with the large share of loss-making firms in that category. Operating cash flow and net income both have positive effects, with operating cash flow having the strongest effect. This study offers a classification approach to earnings character that can be read directly from financial statements as an alternative to continuous earnings quality measures, and provides evidence from a defensive sector in an emerging capital market.

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