The Impact of Arbitrage Risk, Transaction Cost, and Accruals on Post-Earnings Announcement Drift of LQ45 Companies from 2014-2017

Abstract

Jakarta Composite Index (JCI) has recorded cumulative return of 42% from 2014 to 2017. This substantial return is not reciprocal well with Indonesia’s economic growth, which has been slowdown since 2011. This fact encourages authors to investigate more whether this superlative return is due to the effect of post-earnings announcement drift (PEAD). The authors also aim to investigate the influence of market related variables, namely arbitrage risk and transaction cost, and financial statement variable, namely accruals, toward PEAD anomaly. Thus, this research provides new empirical evidence regarding PEAD anomaly in emerging market.

Data of 41 non-banking companies from LQ45 Index during 2014-2017 were collected as the research object using purposive sampling. To analyze the data, the authors use multiple linear regression after encoding each explanatory variables into quintile rank. The regression result shows that only arbitrage risk shows significant positive relationship toward PEAD.

Keyword: Post-Earnings Annonucement Drift, Arbitrage Risk, Transaction Cost, Accruals