The Relevance of the Fair Value of Securities Investment in Predicting the Income and Stock Prices of the Banking Industry in Indonesia

Abstract

The use of fair value as a measurement in accounting should have relevant information if the information can be used to predict the company's performance in the next period. The purpose of this study is to analyze the relevance of the implementation of the fair value of securities in predicting future income and the stock price of the Banks. This study uses the sample of 23 banks listed on the Indonesia Stock Exchange with time series data of 8 years from 2010-2017. This study uses panel data and regression analysis to examine the effect of independent variables on dependent variables. The independent variable used in this study is the Bank's income and stock price and the dependent variable used is the difference fair value and amortized cost which is the difference between the fair value securities and the amortized cost securities. The controlling variables used in this study consisted of assets, interest income, capital tier 1, non-performing loans and asset-liability repricing gap. The results analysis found that the difference in fair value and the amortized cost has a significant effect on the future income and stock price and the book value of equity has a positive effect on the stock price. Keywords— Fair value; Amortized cost; Income; Stock price