Financial Reporting Quality, Investment Efficiency, and the Role of Indonesian Sharia Stock Index (ISSI) as a Moderating Variable

Amilia Rohma; Sutrisno T; Aulia Fuad Rahman

Amilia Rohma Accounting Department, Faculty of Economics and Business, Brawijaya University, Malang, Indonesia
Sutrisno T Professor, Accounting Department, Faculty of Economics and Business, Brawijaya University, Malang, Indonesia
Aulia Fuad Rahman Associate Professor, Accounting Department, Faculty of Economics and Business, Brawijaya University, Malang, Indonesia

Keywords: Financial Reporting Quality; Investment Efficiency; Indonesian Sharia Stock Index

Abstract

This study aims to examine the effect of financial reporting quality on investment efficiency and the role of Indonesian Sharia Stock Index (ISSI) as moderating. This study employed Panel Data Regression and Moderated Regression Analysis (MRA). The research population is all sector companies listed on the Indonesia Stock Exchange (IDX), with the exception of financial sector companies. Based on the purposive sampling method, 292 companies were selected as the samples (876 firm-year observations). The result of this study provides empirical evidence that the existence of financial reporting quality can increase investment efficiency (decrease overinvestment and underinvestment) using three proxies of financial reporting quality are discretionary accruals (Kothari et al 2005, discretionary accruals (Kasznik, 1999); and discretionary revenue (McNichols and Stubben, 2008). Besides that, Indonesian Sharia Stock Index (ISSI) plays a role in the positive relationship between financial reporting quality and investment efficiency using the same proxies as Hypothesis 1