INTERNET FINANCIAL REPORTING IN INDONESIA

Several empirical studies examine corporate financial reporting on the internet in different countries (e.g., Budi and Almilia 2008b, Pirchegger and Wagenhofer 1999; Ismail 2002; Wagenhofer 2003). Pirchegger and Wagenhofer (1999), and Ismail (2002) analyze internet use and the extent of financial disclosure on the internet. Budi and Almilia 2008 examine the use of bank websites and LQ-45 firms in Indonesia. LQ-45 firms are those that are contained in the LQ-45 Indonesian stock index. They find that most public banks and LQ-45 firms in the sample had websites and provided financial data on their sites. Davey and Homkajohn (2004) found that Thai companies provide financial information on websites as a complement to their traditional paper-based annual reports. The Indonesian Company Act 2007 addresses the obligations of a company to report their sustainability activities (Undang-undang Perseroan Terbatas No. 40 Tahun 2007).

Indonesian security regulations currently do not require firms to disseminate financial information on the internet. Another issue is the lack of formal guidance and differences in the nature and extent of reporting on the web. This is likely to raise issues concerning the comparability and reliability data. The national standards setters and regulators of accounting practices will not be able to indefinitely treat financial reporting on the internet as identical to traditional distribution channels. We argue that the Indonesia government or other regulatory bodies should introduce guidelines that provide both firms and information users with a framework for this data exchange.

The analysis of internet financial reporting determinants extends the theories and models that have been developed regarding disclosure through traditional media. Oyelere et al. (2003) indicate that firm size, liquidity, industrial sector and shareholder dispersion are determinants of voluntary internet financial reporting (IFR). Abdelsalman et al. (2007) find corporate internet reporting comprehensiveness is related to analyst following, director holding, director independence, and CEO duality. Ismail (2002) finds that firm assets, profitability, and leverage affect the decision to disseminate financial information on the internet. An index was developed based closely on the work of Davey and Homkajohn (2004). These authors devised their framework from the three stages of website financial reporting identified by Lymer et al. (1999).

Voluntary Disclosure
Many studies of voluntary disclosure have been conducted. These studies attempt to identify factors that contribute to voluntary disclosure. Theories that explain voluntary disclosure include agency theory, signaling theory and cost-benefit analysis. Agency theory is regarded as an important construct for understanding financial reporting incentives. Agency theory proposes that, in the presence of information asymmetries, managers will choose the set of decisions required to maximize their usefulness. Several empirical studies examine how agency problems can be mitigated through increased disclosure. Ball (2006) argues that increased transparency and disclosure contribute to a better convergence interests between managers and shareholders. In this sense, agency theory conceives voluntary disclosure as a mechanism to control the manager performance and reduce information asymmetry and monitoring costs.

Signaling theory suggests that higher quality firms will use the internet to disseminate “old” accounting information. Gray and Roberts (1989) considered the cost and benefits of voluntary disclosure and investigated perceptions of the costs and benefits empirically. They found that for British multinationals, the most important perceived voluntary disclosure benefits were: 1) improved reputation of the company, 2) better investment decisions by invertors, 3) improved accountability to shareholders, 4) more accurate risk assessment by investors, 5) fairer share prices. The most important cost factors constraining voluntary disclosure were, 1) competitive disadvantage costs and 2) data collection and processing costs.

Internet Financial Reporting
There is a growing body of empirical studies on IFR since 1995 reflecting the growth in this information medium. Several studies have examined the determinants of web-based disclosure policy (Pirchegger & Wagenhoffer, 1999; Budi and Almilia, 2008a). Several other studies have investigated the nature and extent of financial reporting on corporate websites as an instrument for firms’ stakeholder relations. Cheng, Lawrence and Coy (2000) developed a benchmark index to measure the quality of IFR disclosure of the Top 40 New Zealand companies. The results revealed that 32 (80%) on the companies in the sample had websites and 70% of the sample presented financial information on their websites. Of the 32 companies having websites, only 8 (25%) companies scored more than 50% on the index by virtue of having reasonably well-developed sites.

Deller, Stubenrath and Weber (1999) find that more US corporations (91%) used the internet for investor relation activities than UK (72%) and German (71%) corporations. In the USA, corporate reporting on the internet seems to be standard. In contrast, in Germany only about two-thirds of the corporations used the internet as an alternative way to distribute accounting information. UK corporations are more extensive users of the internet as an alternative distribution channel than German firms. Rikhardsson, Andersen and Bang (2002) find that many GF500 companies publish social and environmental information on their websites. Rikhardsson et al (2002) show the most popular environmental issues addressed are environmental policies, resources consumption, emissions and product performance. With regard to the social aspect of internet reporting the most popular issued addressed are workplace performance, stakeholder relationship, and social policies.

Empirical research of internet financial reporting in Indonesia is also provide by Budi and Almilia (2008a). By measuring the IFR of 19 public banks in Indonesia it was shown that most public banks in the sample had websites and provided financial data on their sites. The survey findings show that the nature of IFR disclosure varies considerably across the sample banks. The variation in the content of the websites suggests that firms had different reasons for establishing an Internet presence. Some banks’ websites contains only product and service advertising. Most financial reporting is confined to PDF, which appear exactly like the paper-based annual reports. Apart from cost considerations, this may be to protect the data from inaccuracies and unauthorized modifications. Most banks in the sample do not take full advantage of computer technologies. Only one bank allows users to download financial information or provided analysis tool for users to make their own analyses. A common feature of the websites is online feedback. None of the banks used advanced futures (XBRL) to create their websites. Almilia and Budi (2008) examine 19 bank industry and 35 LQ-45 firms. The result show that banking sector firms have higher scores on technology and user support components than LQ 45 firms.