This article aims to examine the effect of Corporate Social Responsibility (CSR), Leverage, on Earning Response Coefficient (ERC), with Firm Size acting as a moderating variable.The population of this study consists of annual reports of companies in the basic industry and chemical sectors listed on IDX, as well as company websites as sources of secondary data. Purposive sampling technique was used to select samples from companies in the basic industry and chemical sectors listed on IDX. The sampling criteria include companies in the basic industry and chemical sectors that have consistently been listed on IDX between 2019 and 2021, companies that have published financial reports at a specific time during the research year, companies that did not experience losses during the research year, companies that provided complete information related to the research variables, and companies that underwent delisting. The data analysis method used is Path Analysis. The research results show that Corporate Social Responsibility (CSR) has an influence on Earning Response Coefficient (ERC), while Leverage (LEV) does not have an effect on Earning Response Coefficient. Firm Size (Size) weakens the effect of CSR on ERC and strengthens the effect of LEV on ERC.
Financial reports are important sources of financial information needed by the public, including investors and creditors, who use this information. According to PSAK No.1 [1], financial reports are part of a complete financial reporting process and typically include the balance sheet, income statement, and statement of changes in financial position. These can be presented in different ways such as cash flow statements, fund flow statements, notes, and other explanations which are all part of the financial report. The income statement is often used because it provides information on a company's performance during a specific period [2].
In many financial management studies, the relationship between stock returns and earnings is often examined to understand how much these two factors are connected. For this issue, research often uses earnings figures as the dependent variable and regresses it against stock returns as the independent variable, calculated using various methods. There are several alternative ways to measure earnings information. According to Zarowin [3] as cited in Etty, the Earnings Response Coefficient (ERC) is used to measure how much abnormal stock returns respond to unexpected earnings components reported by a company, especially when there is a stock issuance. This coefficient is used to assess the strength of the relationship between abnormal returns and unexpected earnings [4].
The announcement of earnings information will have different expectations for each company.
The information provided can be either good news or bad news. As stated by Ball and Brown [5] as cited by Sri [6], if unexpected earnings are positive, it leads to an average positive abnormal rate of return, which is good news for investors. If there are no unexpected earnings, the abnormal return is negative, which is bad news for investors.
One factor considered to influence ERC is Firm Size, acting as a moderating variable. Firm size is used as a moderating variable in research with the assumption that larger companies can improve the quality of their earnings through better management performance. As a result, investors tend to trust larger companies more. Therefore, several factors affect the Earnings Response Coefficient (ERC), one of which is Firm Size.
In addition to Firm Size Factor, ERC can also be influenced by Corporate Social Responsibility (CSR) factors which are ethical awareness or social responsibility related to corporate sustainability (corporate sustainability) which is the main thing about sustainable development [7]. Which emerged and developed in line with the interrelation between companies and society, Companies that initially only focused on how to seek profit (earning), their businesses ran bigger, and recruited employees and provided products for stakeholders (society), without considering the economic aspects of the community around the business and environmental damage so that injustice arose. CSR as part of community welfare is believed to improve company performance, investors tend to choose companies that have implemented CSR as an investment option.
Leverage can also affect profits. Leverage itself is the use of assets and funding sources by a company that has fixed costs with the intention of increasing potential shareholder profits [8]. Or in other words, debt used to finance operations. Because every large company in its operations and business development will require large funds for the company's operations, which can be obtained through loans from within the company itself or from external companies, both for long-term loans in the form of bonds or notes.
The object of this research is the basic and chemical industries listed on the Indonesia Stock Exchange (IDX) for the 2019-2021 period. The reason for selecting manufacturing companies is because this type of company has a direct relationship with the community. This causes the company's good image to spread widely. Through a widely recognized brand, this sector provides appreciation for the good image conveyed to the wider public through CSR social programs, as well as the level of debt (leverage) which can have a positive or even opposite impact on the company's (ERC). Therefore, the Firm Size variable is included which can strengthen or weaken the independent variable. Thus, this research was made.
Based on the description above, the researcher will conduct further research with the title "The Effect of Corporate Social Responsibility, Leverage, on the Earning Response Coefficient with Firm Size as a Moderating Variable in the Basic and Chemical Industries on the Indonesia Stock Exchange."
Literature Review
Agency theory is the theoretical basis underlying corporate business practices. Namely the relationship between shareholders as principals and management as agents.
Capital structure is the mix (proportion) of company funding indicated by debt, preferred stock equity and common stock [9].
Signaling Theory is the behavior of company management in providing guidance to investors regarding management's views on the company's future prospects.
Corporate Social Responsibility is a new ethical awareness related to corporate sustainability, especially when linked to the issue of sustainable development.
Leverage is the ability of a company to use assets and sources of funds that have fixed costs with the aim of increasing potential shareholder profits.
Firm size describes the size of a company, as indicated by total assets, sales volume, average total sales, and average total assets. Thus, company size is the size or extent of assets owned by the company.
Hypothesis
ERC is the CAR's reaction to earnings announced by the company. The high or low earnings coefficient depends on the good or bad news contained in the earnings. The earnings response coefficient is used to identify or explain differences in market reactions to earnings information announced by the company.
The Signal Theory explains how companies use specific information to reduce the information asymmetry between management and stakeholders (investors, consumers, and the public). In the context of Corporate Social Responsibility (CSR), now companies are not only responsible for their financial condition but also to a broader group, which is the stakeholders. CSR shows that a company's responsibility should be based on the triple bottom line [10].
Research by Dewi et al. [10] states that Corporate Social Responsibility affects the Earning Response Coefficient. Based on the above explanation, the following hypothesis is proposed:
H1: Corporate Social Responsibility affects the Earning Response Coefficient.
Based on the theory of Capital Structure, it explains how companies obtain funding from debt to support company development.
Using maximum debt capital can increase investment. The Signal Theory also explains how companies use specific information to reduce information asymmetry between management and stakeholders (investors, consumers, and the public).
Research by Dewi et al. [10] states that leverage affects the Earning Response Coefficient. Based on the above explanation, the following hypothesis is proposed:
H2: Leverage has a positive effect on the Earning Response Coefficient.
The Signal Theory explains how company asset size can be used effectively to ensure CSR benefits are fully provided to the public, which can improve the company's reputation and attractiveness to institutional and retail investors.
Research by Dewi et al. [11] states that firm size strengthens the effect of CSR on ERC.
Based on this explanation, the following hypothesis is proposed:
H3: Firm Size can strengthen the effect of Corporate Social Responsibility on the Earning Response Coefficient.
The Signal Theory explains how using debt capital to increase asset value and profit can improve the company's reputation and attractiveness to institutional and retail investor.
Research by Dewi [11] states that Firm Size strengthens the effect of LEV on ERC. Based on this explanation, the following hypothesis is proposed.
H4: Firm Size can strengthen the effect of Leverage on the Earning Response Coefficient.
The population in this study is the annual reports of basic and chemical industry companies listed on the Indonesia Stock Exchange (IDX) and related company websites as secondary data sources. Using purposive sampling techniques for sample selection from basic and chemical industry companies on the IDX. The research sample criteria are Basic and Chemical Sector Manufacturing Companies listed on the IDX 2019-2021, Publishing financial reports at a certain time in the research year, Companies that did not experience losses in the research year, companies that provide complete information related to the research variables, Companies that experienced delisting.The data analysis method used is Path Analysis.
After analyzing the 138 research data, the next step was to process the descriptive statistics of the research variables. The results of the descriptive statistics processing of the research variables are shown in Table 1.
Table 1: Statistical Results Descriptive
Variables | N | Min | Max | Mean | Standard Deviation |
CSR (X1) | 138 | 23.00 | 1007.00 | -200.4638 | 147.9999 |
LEVEL (X2) | 138 | -128.00 | 118.00 | -40.8978 | 50.96009 |
ERC (Y) | 138 | -128.00 | -13.00 | -70.2391 | 22.75434 |
SIZE (Z) | 138 | 10.00 | 53.00 | -26.1957 | 10.68383 |
Source: Processed data, 2022
Based on the results of the analysis in Table 1 shows the descriptive statistics of each research variable. Based on the results of the study on the Corporate Social Responsibility (CSR) variable shows a minimum value of 23.00 and a maximum value of -0.1007 with an average value of 200.4638 and a standard deviation of 147.99991. The results of the analysis with descriptive statistics on Leverage (LEV) show a minimum value of -128.00 and a maximum value of 118.00 while the average value is -40.8978 and a standard deviation of 50.96009. for descriptive statistical tests with the Earning Response Coefficient (ERC) variable shows a minimum value of -128
and a maximum value of 13.00 with an average of -70.2391 and a standard deviation of 22.75434. Testing of the Firm Size (SIZE) variable shows a minimum value of 10.00 and a maximum value of -53.00 with an average value of -26.1967 and a standard deviation value of 10.68382.
In this study, the significance level used is 5% (0.05). Thus, if the significance level is more than 0.05 and the calculated t value is greater than the table, then H0 is rejected and Ha is accepted, which indicates that there is a significant influence between the independent variable and the dependent variable. Conversely, if the significance level is less than 0.05 and the calculated t value is less than tt, then H0 is rejected and Ha is accepted. Test results as in Table 2.
Table 2: 16 t-Test Results
Variables | Sig |
X1 Y → | 0.033 |
X2 Y → | 0.233 |
X1 Z → | 0.390 |
X2 Z → | 0,000 |
Source: Processed data, 2022
Based on Table 2, the magnitude of the influence of each independent variable on the dependent variable can be seen as follows:
Testing Corporate Social Responsibility (CSR): The influence of CSR on ERC shows the results of the t-test analysis for the CSR variable of 2.155 with a positive sign, and a significance of 0.033 which means it is smaller than 0.05, therefore it can be concluded that CSR has an influence on ERC.
Leverage Testing (LEV): The effect of LEV on ERC shows the results of the t-test analysis for the LEV variable of 1.199 with a positive sign, and a significance of 0.233 which means it is greater than 0.05, therefore it can be concluded that LEV has no effect on ERC.
Testing Corporate Social Responsibility (CSR) * Firm Size (SIZE): The moderating variable of Firm Size (Size) showed a t-test analysis result of -863 with a negative sign, and a significance of 0.390 > α (0.05). Therefore, it can be concluded that firm Size weakens the influence of Corporate Social Responsibility (CSR) on the Earning Response Coefficient.
Leverage Testing (LEV) * Firm Size (SIZE): The moderating variable of Firm Size (Size) showed a t-test analysis result of 3.935 with a positive sign, and a significance of 0.000 < α (0.05). Therefore, it can be concluded that Firm Size strengthens Leverage on the Earning Response Coefficient.
The Influence of Corporate Social Responsibility on the Earnings Response Coefficient
Corporate Social Responsibility in this study shows that Corporate Social Responsibility (CSR) has an effect on the Earning Response Coefficient (ERC), Disclosure of Corporate Social Responsibility (CSR) has a significant effect on the Earnings Response Coefficient (ERC) the results of the Corporate Social Responsibility (CSR) disclosure coefficient are positive, so it can be concluded that (H1) is accepted.
Based on the results of the analysis that show the results of Corporate Social Responsibility have a positive effect on the Earning response coefficient, this occurs through the company's responsibility for three dimensions (Economic, social and environmental) which have an impact on the company's growth (sustainability). Therefore, Corporate social responsibility is currently a new measure of company performance.
Critically important and seen as a factor in gaining investor trust, corporate responsibility is recognized as contributing significantly to a company's overall reputation. In turn, Corporate Responsibility has become a crucial tool for building trust with corporate constituents, second only to the quality of their products and services. For this reason, Corporate Social Responsibility (CSR) is a social responsibility that can enhance a company's image and business performance, and is considered to increase the Earnings Response Coefficient. Investors also prioritize high short-term business results.
The results of this study align with those conducted by Kurnia et al., Wicaksono, and Fauzan and Purwanto, which showed that CSR has a positive effect on ERC. This finding contradicts the research conducted by Sayaekti, Kadek and Vinta, which found a negative effect on the Earning Response Coefficient.
This can occur because investors use CSR information alongside earnings information to assess a company's performance. Furthermore, this can occur because investors value CSR information in a company's annual report as a basis for their investment decisions. This is based on predictions from stakeholder theory and legitimacy theory. The better a company's CSR disclosure, the more likely stakeholders will fully support the company in all its activities aimed at improving performance and achieving the company's desired profits.
Based on the theory used, Corporate Social Responsibility has a positive effect on the Earnings Response Coefficient. This is because Corporate Social Responsibility, as a social responsibility, can improve the company's image, business performance, and impact the surrounding and remote communities. This is considered to increase the Earnings Response Coefficient.
Investors consider purchasing a company's shares by examining information about the company's Corporate Social Responsibility. CSR allows investors to determine which companies have demonstrated accountability to the community and environmental stewardship, which is viewed favorably by the public. Social responsibility is a way to enhance a company's reputation, demonstrating its ability to manage its operations effectively, generating high returns and impacting society.
The Effect of Leverage on the Earnings Response Coefficient
Leverage (LEV) in this study shows that Leverage (LEV) does not have a positive effect on the Earning Response Coefficient, so H_2 is rejected.
Based on the theory used in previous research, Leverage is the proportion of total debt to equity used to provide an overview of the company's capital structure. Leverage is a measure of management's effectiveness in managing the debt used. High leverage also means being able to bear the risk of company default. The use of debt is usually aimed at helping companies develop their production activities with the assumption that the company can generate greater profits. For investors, the greater the profits generated means increasing the rate of return that the owner will receive.
However, if this cannot be managed properly, it will result in the higher the level of leverage, the heavier the financial burden faced by the company, thus having a high level of risk. The high level of risk reflects the possibility that the company cannot repay its obligations or debts, either in the form of principal or interest. Do not let the company's ability to meet all its financial obligations be insufficient and become a warning if the company is liquidated at that time in Amalia [1]. Therefore, investor response tends to be low for companies with high levels of leverage because investors have less confidence in the company's published profits and cause investors to fear the risk of company default is usually seen from the high or low leverage it has.
Companies with high leverage indicate that the company uses more debt than its capital. The higher the level of leverage, the heavier the financial burden faced by the company, so it has a high level of risk. The high level of risk reflects the possibility that the company cannot repay its obligations or debts, either in the form of principal or interest. Therefore, investor response tends to be low for companies with high levels of leverage because investors have less confidence in the company's published profits and this results in investors being afraid to
This research aligns with previous research conducted by Etty, Delvira and Nelvirita, Efita, and Dewi and Putra, which stated that leverage had no effect on the Earning Response Coefficient. This contradicts research by Arif and Bambang Sutopo, which found a positive relationship between leverage and ERC. High debt usage does not always lead to bankruptcy risk. Companies with high levels of leverage use this to run their businesses with the aim of obtaining greater profits.
Firm Size can Strengthen the Influence of Corporate Social Responsibility on the Earning Response Coefficient (ERC)
Firm Size as a moderating variable in this study shows that Firm Size is not able to moderate the influence of the relationship between Corporate Social Responsibility and the Earning Response Coefficient. Therefore, H3 is rejected. The results of this study indicate that the significance value of 0.390 is far above 0.05, so it is concluded that the size of the company cannot be a factor that strengthens or weakens the influence of CSR on the Earning Response Coefficient. Thus, hypothesis 3 is rejected.
This study supports research conducted by Winarti which stated that company size as a moderating variable was not proven to be a factor strengthening or weakening the relationship between the influence of CSR on the Earning Response Coefficient. If the firm size is high, it will increase the interest for investors, this is because the large amount of assets reflects the level of business success so that treatment of social responsibility can be implemented.
However, in reality, according to Nurlela, the quality of CSR in manufacturing companies listed on the IDX is very low and has not followed the standards issued by GRI, thus quality is a factor that causes CSR practices to have no effect on company value. The lack of influence of the moderating variable of company size on the Earning Response Coefficient may be caused by the large number of companies that have disclosed CSR in their annual reports, so investors do not consider company size in investing their wealth in the company.
Firm Sizecan Streng then the Influence of Leverage on the Earning Response Coefficient (ERC)
Firm Sizeas a moderating variable in this study shows that Firm Size is not able to moderate the influence of Leverage's relationship to the Earning Response Coefficient. Therefore, H4 is accepted. The results of this study indicate that the significance value of 0.000 is below 0.05, so it is concluded that the size of the company is a factor that strengthens or weakens the influence of CSR on the Earning Response Coefficient. Thus, hypothesis 4 is accepted.
Company size can strengthen the influence of leverage on the Earnings Response Coefficient. Large companies tend to require greater funding to maximize profits by increasing production. Larger total assets make it easier for large companies to borrow from creditors. However, higher leverage indicates a company's weak sustainability, leading to a less responsive investor response when the company reports earnings information.
Based on this research, it shows that it is in line with the results of previous research conducted by Nyoman Dewi, Adam and Nurdin, which stated Firm Size Leverage does not moderate the Earnings Response Coefficient. This contradicts research by Arif [12] and Rahmawati [13], which states that firm size can moderate leverage on the Earnings Response Coefficient.
Recommendations
The results of the path test on the influence of CSR on the Earning Response Coefficient show a significant positive influence. This proves that high CSR will improveEarnings Response Coefficient.
The results of the path test on the effect of leverage on the Earnings Response Coefficient show a negative effect. This proves that high leverage will decreaseEarnings Response Coefficient.
The results of the path test of the influence of CSR on the Earnings Response Coefficient with Firm Size as a Moderating Variable show a negative influence. This proves that Firm Size is unable to strengthen the influence of CSR on ERC.
The path test results for the effect of leverage on the Earnings Response Coefficient with firm size as a moderating variable show a significant positive effect. This proves that firm size can strengthen the effect of leverage on the ERC.
Suggestion
It is hoped that future researchers can further extend the research period on the Earning Response Coefficient
In future research, it is hoped that the number of independent variables (Corporate Social Responsibility, Leverage) can be increased against the dependent variable (Earning Response Coefficient) and the moderating variable (Firm Size) in addition to the independent variables.
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