DO FAIR VALUE DECISIONS INCREASE IDIOSYNCRATIC RISK?

Amrie Firmansyah; Pria Aji Pamungkas; Dani Kharismawan Prakosa; Adhitya Jati Purwaka; Muchamad Izaaz Hannun Bachtiar

doi:10.37641/riset.v5i2.263

Amrie Firmansyah Universitas Pembangunan Nasional Veteran Jakarta
Pria Aji Pamungkas Directorate General of Taxes, Ministry of Finance
Dani Kharismawan Prakosa Directorate General of Taxes, Ministry of Finance
Adhitya Jati Purwaka Directorate General of Taxes, Ministry of Finance
Muchamad Izaaz Hannun Bachtiar Directorate General of Financing and Risk Management, Ministry of Finance

DOI: https://doi.org/10.37641/riset.v5i2.263

Keywords: Fair Value, Market Model, Fama-French Model, Non-Systematic Risk

Abstract

Systematic and non-systematic risk can both cause investment risk. Internal company conditions typically cause non-systematic risk. Diversification can help to mitigate this risk. This research aims to look into applying fair value to idiosyncratic risk. This quantitative study employs secondary data from manufacturing financial statements and stock data from the IDX. In addition, this study uses monthly data on 10-year government bond yields. Information on financial statements was obtained from www.idnfinancials.com, stock prices from www.finance.yahoo.com, and monthly 10-year government bond yields from www.bloomberg.com. In total, 575 observations were used in this study (firm-year). We used multiple linear regression analysis on panel data to test the research hypothesis. The study finds that managers' fair value accounting relates to idiosyncratic risk. The results of this test apply to both the market and the Fama-French models. This study contributes to knowledge development concerning fair value testing, which still needs to be improved in developing countries.

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