COMPANY SIZE AND LEVERAGE TO EARNINGS RESPONSE COEFFICIENT (ERC) WITH PROFIT PERSISTENCE AS MODERATOR

Abstract

This study aims to analyze the effect of firm size and leverage on the Earnings Response Coefficient (ERC) with earnings persistence as a moderating variable in financial sector companies listed on the Indonesia Stock Exchange (IDX) during the 2019–2023 period. Earnings Response Coefficient (ERC) measures the magnitude of market reaction to earnings information announced by companies; therefore, understanding the factors influencing ERC is important for investors, company management, and capital market regulators. This study employed a quantitative approach using panel data regression with two sub-structural models. The population consisted of all financial sector companies listed on the IDX, while the samples were selected using purposive sampling. The data were obtained from annual financial reports published on idx.co.id. The results show that: (1) firm size has a positive and significant effect on ERC, with a regression coefficient of 0.047 (t-value = 3.872, p < 0.05), indicating that larger companies generate stronger market responses to earnings information; (2) leverage (Debt to Equity Ratio/DER) has no significant effect on ERC (t-value = 0.167, p > 0.05), suggesting that debt-based financing structure is not a dominant signal for investors in assessing earnings quality in the financial sector; (3) earnings persistence has a negative and significant effect on ERC, with a regression coefficient of -2.957 (t-value = 4.637, p < 0.05), indicating that excessively stable earnings are perceived negatively by the market, possibly due to suspicion of income smoothing practices; (4) earnings persistence does not moderate the effect of firm size on ERC (p = 0.698 > 0.05); and (5) earnings persistence does not moderate the effect of leverage on ERC (p = 0.125 > 0.05). This study contributes to the development of ERC literature in the Indonesian capital market, particularly in the financial sector, and provides practical implications for investors not to rely solely on earnings stability in making investment decisions