Title: Strengthening investors' stock returns through the moderating role of management discussion and analysis disclosure: an Indonesian perspective

Authors: Maristiana Ayu Masir; Kyle S. Wells

Addresses: Department of Accounting, Faculty of Economics and Business, Sang Bumi Ruwa Jurai University, Bandar Lampung City, Lampung Province, Indonesia ' Department of Accounting, Finance, and Analytics, College of Business, Utah Tech University, St. George, Utah, 84770, USA

Abstract: Management discussion and analysis (MD&A) disclosure provides a manager's perspective of the firm's performance. This study analyses whether MD&A disclosure can strengthen the statistical correlation between earnings quality and stock returns and whether MD&A disclosure and earnings quality are positively related to stock returns. Using panel data of 427 firm-year observations from 61 companies listed in the Indonesia Stock Exchange (IDX), this study finds a statistically significant correlation between MD&A activity and earnings quality. The firm-year dates ranged from 2014 to 2020 and included small, medium, and large capitalised companies. This study finds that MD&A disclosure is significantly correlated to positive stock returns while earnings quality is significantly correlated with negative stock returns. After MD&A disclosure moderates, earnings quality strengthens these correlations. This study suggests that the Indonesia Financial Service Authority Board (OJK) can increase efficiency in the financial system by providing measures that incentivise managerial MD&A disclosure. It also suggests that firms that perform MD&A disclosure strengthen the correlation between earnings quality and stock returns. This study adds to the body of knowledge in decision usefulness and signalling theory by integrating MD&A disclosure to strengthen the correlation of earnings ability on stock returns.

Keywords: earnings quality; management discussion and analysis disclosure; MD&A; stock return; Indonesia.

DOI: 10.1504/JIBED.2024.142494

Journal for International Business and Entrepreneurship Development, 2024 Vol.16 No.3, pp.399 - 424

Received: 29 Apr 2024
Accepted: 14 May 2024
Published online: 04 Nov 2024 *

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