THE INFLUENCE OF EARNINGS AND CASH FLOWS ON MARKET VALUE OF EQUITY BASED ON FIRM LIFE CYCLE (A STUDY OF LISTED COMPANIES FROM MANUFACTURING SECTOR ON THE INDONESIA STOCK EXCHANGE)

Abstract

The objective of this study is to examine whether earnings has a bigger influence than cash flows or on the contrary toward market value of equity on listed companies from manufacturing sector at the Indonesia Stock Exchange. This study uses hypothesis testing research by using cencus method. There are two variables used in this study, those are independent variables and dependent variable. Independent variables are earnings, cash flow from operation, cash flow from investing, and cash flow from financing, whereas dependent variable is market value of equity. The population of this study are manufacturing companies listing at the Indonesian Stock Exchange in the testing period 2009-2013 and having criteria as companies in growth stage, mature stage, and decline stage. After being selected, there are 34 companies as population or 170 observation for the three years (2009-2013). To test the hypothesis, this study uses standardized multiple regression analysis (path analysis).The results show that (1) in growth stage, cash flows has not a bigger influence than earnings toward market value of equity, (2) in mature stage, earnings has a bigger influence than cash flows toward market value of equity, and (3) in decline stage, cash flows has not a bigger influence than earnings toward market value of equity.