The research empirically tests the relationship between earnings volatility

and cost of debt. The population of this research consist of all industries listed in

Indonesian Stock Exchange and ICMD from 2012-2016 year period. Sampling

method chosen is purposive sampling and there are 1,100 samples obtained from

eight industries sector in Indonesia. The researcher used multiple regressions

analysis to test the hypothesis.

The research results shows that EBIT and EBITDA as the proxies for

measuring earnings volatility have positive effect on the cost of debt. Firms’

profitability, liquidity and solvency are the three control variable where

profitability has a negative influence on cost of debt but liquidity and solvency

have non-significant influence on cost of debt. Furthermore, the results of the

study indicate that there is a difference in the effect of earnings volatility on cost

of debt that occurs in each industrial sector in Indonesia based on the Jakarta

Stock Industrial Classification (JASICA) classification. Based on the results, the

industrial sector which has a significant effect between earnings volatility and cost

of debt is agriculture and miscellaneous sector

Pongrangga, Goldia Liku Sirupang

UAJY repository

1   EFFECT OF EARNINGS VOLATILITY ON COST OF DEBT  THESIS  Presented as Partial Fulfillment of the Requirement for the Degree of Sarjana Ekonomi (S1) in Accounting Program Faculty of Business and Economics University of Atma Jaya Yogyakarta                  Compiled by : Goldia Liku Sirupang Pongrangga Student ID : 14 15 21594     FACULTY OF BUSINESS AND ECONOMICS UNIVERSITY OF ATMA JAYA YOGYAKARTA 2019 610Z 6qfSI qrrEtrAI 'ySJ.vJ rrly'aS.I i,.[S..Br,turrrrnx u: ,(queeq $cHr;q pelEfruyk)Y(.rosJapyuo &mlulo^sIseqIilt('(.qd ''Y&{urduprrluf8oa r,{q,stllllouorf, prr8 sseulsng,YSJrS'141 6g9 611uu["rrg B-lrtlf, .CIitt'ffii""., ,.1 sJequel{6t0Z' S qcrutr{ 5epuqud8ol"gg "4B,rBruJnX uulq pelS8uyAINIIerllJo uBec'YJ'rIY'cs'r^I+twuBwr!BqJf, fl J.r TWtrtIOf, NOIIVNIIAIYXtrugu4ud8oa u,(rg BurlyJo rtg*re4u11solurouorfl pur ssaursnf,Jo r$1naug.::,'.'.'u' Eo"l4 Eupunmcy,1u.c*ru1fl1uuo$rurstuf ,,, , ,, ,' , u(1sl'euufreSgda*rBeg xq1*g1,$rceoalnboi , , ,, ,'::eqlJo tueurfiUpltr fp.rr.rof 610l,, S tprp6l uo patdaacu puu pqpuffi'ueeq sEH' ':,'l i'..'r,::, r,ril'. .tr' i: ..i ,': :.:, -- .,.: i.:,.r,'ffi lIE tjl i q.r.*ep::rTlF'-,,i, irEEuuiEu.ffi uuru;$. ntg1,Hf no5:.(q paluese.r6Tflg( f,O ISOJ NO AIITIIYTOA SDI\UNUYf,.{O J.f,fl.{f,UVD, lfiy'ls'tr{ "g eqgu$ngs!seqIAte88uu"rEuo6 Euudn.rgs ruI.r1 BIploS6L0e'qlil qorBIAI'ege1t't8oaIfl f,O dO ISOf, NO T TITTI.Y'TOA S.c!,JINUVfl .{O IJXf, .{tr: eprl EuurolloJ orll qil&r srsoql eql 1uqtr orelcop .(qereq 1INflI1Itr$Of,TA\ON)T3Y AIIf,IINtrIIIOV:, . . ,,,,.,.'SOOU€JOJOJ eqlq pouoBIIetIIpuB pallC uOoq eAUql?rp osoqtr roJ tdacxo 'Bu1lptA,s,xed1o,lo (s)ued srJaqlo ul€tuoc lou op sEullgm{ru }uq} puursrapun ,prrc Aro.q{.i(11rgr1 :BupFrr'pq!,Bul{utgt u1tr,o fru .,(genpu srV  ACKNOWLEDGEMENTS  All praise and thank to the Lord Jesus for all of His blessings and mercy so that the writer can complete the thesis entitled “Effect of Earnings Volatility on Cost of Debt”. This thesis presented as partial fulfillment of the requirements for the Degree of Sarjana Ekonomi (S1) in International Financial Accounting Program, Faculty of Business and Economics University of Atma Jaya Yogyakarta. The writers realizes that in the process of preparing this thesis, many parties have been involved and helped the writer to complete it. Therefore, the writer would like to thank : 1. Lord Jesus, I’m thankful for everything, all the blessings in my life, the strength to keep going, for always be there for me, never leaving me and always loving me. 2. My lovely family for your love, prayers, support, motivation, patient and attention. Thank you for continuing believed that I can finish my thesis and studies in Yogyakarta. You are my compass that guide me, the inspiration to reach heights, and my confort when i occasionally falter. 3. Mrs Anggreni Dian K., SE., M.Si., Ak., CA., CSA. as my thesis advisor who has been very patient to guide me. Thank you for always guiding me with love and giving me so much knowledge in this process. 4. Dean, lectures and staffs in Faculty of Business and Economics, University of Atma Jaya Yogyakarta for the knowledge, patience and guidance. VI  5. The Kayanaqi and Tiga Dara . Thanks for the meaning of best friend that you guys always share to me. For all of your prayers, support and attention so that I can finish this thesis. 6. For Him. Who has been through everything with me and always be there for me. Thanks for your prayer, hugs, smile, advice, kindness and the time we laugh and cry together. 7. Gereja Toraja Pos Pelayanan Yogyakarta, KMT, IFAP 2914, Ikapmajaya and all of you that always be there to take care and being there for me in good and bad times, giving support and prayer.   The writer realize that this thesis is still far from perfect because of limited knowledge and limited ability. Therefore, any kind of suggestions and recommendation are very welcomed for writer to improve this thesis. The writer hope that this thesis would be useful in any kind of way for every parties.   Yogyakarta, March 15th, 2019 Writer,  Goldia Liku Sirupang Pongrangga   VII  MOTTO  “Where there’s a will, there’s a way. Do the best and pray. God will take care of the rest” “Anonymous”  “So do not fear, for I am with you;     do not be dismayed, for I am your God. I will strengthen you and help you;     I will uphold you with my righteous right hand.” “Isaiah 4:10”   Give thanks in all circumstances; for this is God’s will for you in Christ Jesus. “1 Thessalonians 5:18”  “Whatever you are, be a good one” “Abraham Lincoln”         I present this work to : Lord Jesus         & for his greatest blessings : My Family Best Friend those that i love and love me    VIII  TABLE OF CONTENTS  TITLE PAGE ....................................................................................................... i APPROVAL PAGE ............................................................................................ ii EXAMINATION COMMITTEE APROVAL PAGE........................................ iii AUTHENTICITY ACKNOWLEDGEMENT...................................................  iv ACKNOWLEDGEMENT ................................................................................... v MOTTO ............................................................................................................. vii TABLE OF CONTENTS ................................................................................. viii LIST OF TABLES ............................................................................................   xi  LIST OF APPENDICES ................................................................................... xii ABSTRACT ....................................................................................................  xiv  CHAPTER I INTRODUCTION ..........................................................................1 1.1.Research Background ................................................................1 1.2.Research Problem ......................................................................4 1.3.Research Objectives ..................................................................5 1.4.Research Contribution ...............................................................6 1.5. Writing Structure ......................................................................8  CHAPTER II LITERATURE REVIEW ...............................................................9 2.1 Literature Reviews ..........................................................................................9 2.1.1 Signaling Theory .............................................................................9 IX  2.1.2 Cost of Debt ....................................................................................10 2.1.3 The Effect of Profitability, Liquidity, and Solvency to Cost            of Debt .......................................................................................... 11 2.1.4 Earnings Volatility ......................................................................... 12 2.2 Previous Research ......................................................................................... 13 2.3 Hypothesis Development .............................................................................. 16  CHAPTER III RESEARCH METHOD ............................................................. 18 3.1 Population and Sample ................................................................................. 18 3.2 Types and Sources of Data ........................................................................... 19 3.3. Variables ...................................................................................................... 19 3.4. Data Analysis Method ................................................................................. 21 3.4.1 Descriptive Statistics Test ............................................................. 21 3.4.2 Classical Assumption Test ............................................................ 21 3.4.2.1 Normality Test ............................................................... 21 3.4.2.2 Multicolinearity Test ..................................................... 22 3.4.2.3 Heterocedasticity Test ................................................... 22 3.4.2.4 Autocorrelation Test ...................................................... 23  3.4.3 Hypothesis Test ............................................................................ 23  CHAPTER IV DATA ANALYSIS AND DISCUSSION ................................ 25 4.1 Population and Sample ............................................................................... 25 4.2 Descriptive Statistics .................................................................................. 25 X  4.3 Classic Assumption Test ...........................................................................27  4.3.1 Normality Test ...........................................................................27  4.3.2 Multicolinearity Test .................................................................28  4.3.3 Heterocedasticity Test ...............................................................29  4.3.4 Autocorrelation Test .................................................................31 4.4 Multiple Regression Analysis .................................................................32 4.5 Discussion ...............................................................................................39  4.5.1 Earning Volatility and Cost of Debt ........................................39  4.5.2 How Earnings Volatility Influence Cost of Debt Across Various Industries Sector ......................................................................40  CHAPTER V CONCLUSION ............................. ........................................42 5.1 Conclusion ..............................................................................................42 5.2 Limitation and Suggestion ......................................................................42 5.3 Implication ..............................................................................................43 REFERENCES APPENDIX   XI  LIST OF TABLES  Table 2.1 Previous Research ..............................................................................   14 Table 3.1 Variables ............................................................................................   20 Table 4.1 Sample Selection Result ....................................................................   26 Table 4.2 Descriptive Statistics Result ..............................................................   27 Table 4.3 Normality Test Result Before Trimming ..........................................   28 Table 4.4 Normality Test Result After Trimming .............................................   29 Table 4.5 Multicollinearity Test Result for  Volatility of EBIT .......................    29 Table 4.6 Multicollinearity Test Result for  Volatility of EBITDA .................    30 Table 4.7 Heterocedasticity Test Result for Volatility of EBIT .......................    31 Table 4.8 Heterocedasticity Test Result for Volatility of EBITDA .................    31 Table 4.9 Autocorrelation Test Result for Volatility of EBIT ..........................   32  Table 4.10 Autocorrelation Test Result for Volatility of EBITDA ..................   32 Table 4.11 Multiple Regression Analysis Result for Volatility of EBIT .........   33 Table 4.12 Multiple Regression Analysis Result for Volatility of EBITDA ...   34 Table 4.11 Multiple Regression Analysis Result for Volatility of EBIT       Across Industrial Sector .................................................................   35 Table 4.12 Multiple Regression Analysis Result for Volatility of EBITDA       Across Industrial Sector ................................................................   38     XII  LIST OF APPENDICES  APPENDIX A                LISTED POPULATIONS OF COMPANIES LISTED ON INDONESIA STOCK EXCHANGE AND INDONESIA CAPITAL MARKET DIRECTORY 2012-2016 APPENDIX B                COST OF DEBT (COD) OF COMPANIES LISTED ON INDONESIA STOCK EXCHANGE AND INDONESIA CAPITAL MARKET DIRECTORY 2012-2016 APPENDIX C EBIT OF COMPANIES LISTED ON INDONESIA STOCK EXCHANGE AND INDONESIA CAPITAL MARKET DIRECTORY 2012-2016 APPENDIX D EBITDA OF COMPANIES LISTED ON INDONESIA STOCK EXCHANGE AND INDONESIA CAPITAL MARKET DIRECTORY 2012-2016 APPENDIX E RETURN ON ASSETS  (ROA) OF COMPANIES LISTED ON INDONESIA STOCK EXCHANGE AND INDONESIA CAPITAL MARKET DIRECTORY 2012-2016   XIII  APPENDIX F CURRENT RATIO OF COMPANIES LISTED ON INDONESIA STOCK EXCHANGE AND INDONESIA CAPITAL MARKET DIRECTORY  2012-2016 APPENDIX G DEBT EQUITY RATIO (DER) OF COMPANIES LISTED ON INDONESIA STOCK EXCHANGE AND INDONESIA CAPITAL MARKET DIRECTORY 2012-2016                XIV  EFFECT OF EARNINGS VOLATILITY ON COST OF DEBT Compiled by : Goldia Liku Sirupang Pongrangga Student ID : 141521594  Advisor Anggreni Dian K., SE., M.Si., Ak., CA., CSA.  International Financial Accounting Program, Faculty of Economics University of Atma Jaya Yogyakarta Jl. Babarsari No.43-44, Yogyakarta  Abstract  The research empirically tests the relationship between earnings volatility and cost of debt. The population of this research consist of all industries listed in Indonesian Stock Exchange and ICMD from 2012-2016 year period. Sampling method chosen is purposive sampling and there are 1,100 samples obtained from eight industries sector in Indonesia. The researcher used multiple regressions analysis to test the hypothesis. The research results shows that EBIT and EBITDA as the proxies for measuring earnings volatility have positive effect on the cost of debt. Firms’ profitability, liquidity and solvency are the three control variable where profitability has a negative influence on cost of debt but liquidity and solvency have non-significant influence on cost of debt. Furthermore, the results of the study indicate that there is a difference in the effect of earnings volatility on cost of debt that occurs in each industrial sector in Indonesia based on the Jakarta Stock Industrial Classification (JASICA) classification. Based on the results, the industrial sector which has a significant effect between earnings volatility and cost of debt is agriculture and miscellaneous sector.  Keywords : Earnings volatility, Cost of Debt, Profitability, Liquidity, Solvency     

EFFECT OF EARNINGS VOLATILITY ON COST OF DEBT

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EFFECT OF EARNINGS VOLATILITY ON COST OF DEBT

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