VALUE RELEVANCE OF ACCOUNTING INFORMATION USING AN ERROR CORRECTION MODEL

Studies of accounting information value relevance are often based on the scale of R2 value. However, Insukindro (1998) states that a high R2 coefficient does not imply that a model is superior. When linear regression estimation produces a high coefficient of R2 but it is not consistent with the theory or it does not pass the classic linear regression assumption test, the model may be inferior. In this case, the model should not have been chosen as the best empirical model. This study contributes to the accounting information value relevance literature by providing a new econometric analysis in a value relevance model. The research samples consisted of 81 manufacturing companies, including 324 firm years, listed on the Indonesian Stock Exchange from 2003 to 2007. The results of this study indicate that the error correction models play a role in determining the value relevance of accounting information.