IFRS Adoption in Indonesia and Its Implication on the Relationship Between Ownership Structure and Investment Efficiency

This study investigated the effect of institutional and managerial ownership on investment efficiency as a proxy for firms’ performance. The effect of these two variables was investigated in the context of IFRS adoption. Since accounting policies underlying IFRS are more market friendly than US accounting standards, it is expected that full convergence to IFRS in 2012 may increase financial statement quality in Indonesia. Contrary to prediction, the evidence showed that converging reporting standard into IFRS does not increase investment efficiency. This suggests that IFRS adoption in Indonesia does not increase financial reporting quality. Furthermore, the impact of managerial ownership on investment efficiency remains unchanged following IFRS adoption. This suggests that managerial ownership does not align the interest of stockholders and managers. As predicted, however, monitoring function of institutional investors is increased after the adoption.