THE EFFECT OF RIGHTS ISSUE ON COMPANY FINANCIAL AND STOCK PERFORMANCES

THESIS

By: Samantha Alvina (14111025)

Academic Supervisor: Prof. Ir. H. M. Roy Sembel, MBA, Ph.D., CSA

SEKOLAH TINGGI MANAJEMEN IPMI JAKARTA 2018

THE EFFECT OF RIGHTS ISSUE ON COMPANY FINANCIAL AND STOCK PERFORMANCES

THESIS

By: Samantha Alvina (14111025)

Academic Supervisor: Prof. Ir. H. M. Roy Sembel, MBA, Ph.D., CSA

SEKOLAH TINGGI MANAJEMEN IPMI JAKARTA 2018

THE EFFECT OF RIGHTS ISSUE ON COMPANY FINANCIAL AND STOCK PERFORMANCES

Prepared By:

Samantha Alvina (14111025)

A THESIS Submitted in a partial fulfillment of the requirements for the degree of Bachelor of Management

CERTIFICATE OF APPROVAL FORM

Name & Student ID : Samantha Alvina (14111025)

Topic : The Effect of Rights Issue on Company Financial and Stock Performances

We hereby declare that this Thesis is from student’s own work, has been read and presented to Sekolah Tinggi Manajemen IPMI Board of Examiners, and has been accepted as part of the requirements needed to obtain a Bachelor of Management Degree and has been found to be satisfactory.

Jakarta, January 10th, 2019

i NON-PLAGIARISM DECLARATION FORM

This Thesis is a presentation of my original research work. Wherever contributions of others are involved, every effort is made to indicate this clearly, with due reference to the literature, and acknowledgement of collaborative research and discussions.

Also, this work is being submitted in partial fulfillment of the requirements for the Bachelor of Management degree and has not previously been accepted in substance for any degree and is not being concurrently submitted in candidature for any degree.

ii TABLE OF CONTENTS

Certificate of Approval ...... i Non-Plagiarism Declaration ...... ii Table of Contents ...... iii List of Figures ...... v List of Tables ...... vi Acknowledgement ...... vii Abstrak ...... viii Abstract ...... ix Chapter 1: Introduction ...... 1 1.1 Background of the Study ...... 1 1.2 Problem Statement ...... 6 1.3 Research Question ...... 7 1.4 Research Objective ...... 7 1.5 Scope and Limitation of the Study ...... 7 1.6 Definition of Key Terms ...... 8 1.7 Organization of the Thesis ...... 9 Chapter 2: Literature Review ...... 10 2.1 Capital Market ...... 10 2.2 Stocks ...... 11 2.3 Rights Issue ...... 12 2.3.1 Purpose of Rights Issue ...... 14 2.3.2 Advantages of Rights Issue ...... 15 2.3.3 Effects of Rights Issue ...... 16 2.3.4 Asymmetric Information and Signaling Theory ...... 17 2.4 Stock Price ...... 18 2.5 Stock Price Return ...... 20 2.5.1 Abnormal Return ...... 22 2.5.2 Cumulative Abnormal Return ...... 24 2.6 Profitability ...... 25 2.6.1 Profit Margin ...... 25 2.6.2 Return on Assets ...... 26 2.6.3 Return on Equity ...... 27 2.7 Hypothesis Development ...... 28 Chapter 3: Methodology ...... 31 3.1 Research Framework ...... 31 3.2 Research Design ...... 31 3.3 Measurement of Variables ...... 32 3.3.1 Independent Variable ...... 32 3.3.2 Dependent Variable ...... 32 3.4 Data Collection ...... 37 3.5 Sampling Design ...... 38 3.5.1 Population ...... 38 3.5.2 Samples ...... 38 3.6 Observation Period ...... 42 3.7 Techniques of Data Analysis ...... 42

iii

3.7.1 Descriptive Statistics ...... 43 3.7.1.1 Mean ...... 43 3.7.1.2 Standard Deviation ...... 44 3.8 Hypothesis Testing ...... 45 3.8.1 Linear Regression Model ...... 45 3.8.1.1 Test of Regression Coefficient ...... 47 3.8.2 T-test ...... 47 3.8.2.1 One Sample T-test ...... 48 3.8.2.2 Paired Sample T-test ...... 49 3.9 Research Process ...... 51 Chapter 4: Findings, Analysis and Discussions ...... 52 4.1 Research Object Description ...... 52 4.2 Descriptive Analysis ...... 64 4.2.1 Abnormal Return ...... 64 4.2.2 Cumulative Abnormal Return ...... 66 4.2.3 Return on Assets ...... 68 4.2.4 Return on Equity ...... 69 4.3 Hypothesis Testing ...... 71 4.3.1 Hypothesis 1 ...... 71 4.3.1.1 Abnormal Return ...... 71 4.3.1.2 Cumulative Abnormal Return ...... 73 4.3.2 Hypothesis 2 ...... 76 4.3.2.1 Average Abnormal Return ...... 76 4.3.2.2 Cumulative Abnormal Return ...... 76 4.3.3 Hypothesis 3 ...... 77 4.3.3.1 Return on Assets ...... 77 4.3.3.2 Return on Equity ...... 79 4.3.4 Hypothesis 4 ...... 81 4.3.4.1 Return on Assets ...... 81 4.3.4.2 Return on Equity ...... 83 4.4 Regression with Dummy Variable ...... 85 4.4.1 Abnormal Return ...... 85 4.4.2 Cumulative Abnormal Return ...... 86 4.4.3 Return on Assets ...... 87 4.4.4 Return on Equity ...... 88 4.5 Discussion ...... 89 4.6 Summary of Results ...... 93 Chapter 5: Conclusions and Recommendations ...... 95 5.1 Conclusion ...... 95 5.2 Recommendation ...... 96 5.2.1 Recommendation for Researchers ...... 96 5.2.2 Recommendation for Investors...... 97 5.2.3 Recommendation for Issuers ...... 98 References ...... 99 Appendixes ...... 104

iv LIST OF FIGURES

Figure 1.1 Jakarta Composite Index (JCI) 2014-2018...... 1 Figure 1.2 Growth of Total Single Investor Identification ...... 3 Figure 3.1 Research Framework ...... 31 Figure 3.2 Research Process ...... 51 Figure 4.1 Average Abnormal Return Statistics ...... 65 Figure 4.2 Cumulative Abnormal Return Statistics ...... 67

v LIST OF TABLES

Table 1.1 Indonesia Stock Market Statistics ...... 3 Table 1.2 Number of Issuers and Value of Rights Issue (2013-2017) ...... 5 Table 3.1 Total Rights Issue Companies (Period 2006-2015) ...... 39 Table 3.2 Sample Filtering Process ...... 40 Table 3.3 Rights Issue Companies Samples (Period 2006-2015) ...... 41 Table 4.1 Descriptive Statistics of Average Abnormal Return ...... 64 Table 4.2 Descriptive Statistics of Cumulative Abnormal Return ...... 66 Table 4.3 Descriptive Statistics of Return on Assets ...... 68 Table 4.4 Descriptive Statistics of Return on Equity (N 31) ...... 69 Table 4.5 Descriptive Statistics of Return on Equity (N 28) ...... 69 Table 4.6 Abnormal Return (t-5) to (t-1) Before Rights Issue ...... 71 Table 4.7 Abnormal Return (t) During Rights Issue ...... 72 Table 4.8 Abnormal Return (t+1) to (t+5) After Rights Issue ...... 72 Table 4.9 Cumulative Abnormal Return (t-5) to (t-1) Before Rights Issue ...... 73 Table 4.10 Cumulative Abnormal Return (t) During Rights Issue ...... 74 Table 4.11 Cumulative Abnormal Return (t+1) to (t+5) After Rights Issue ...... 75 Table 4.12 Delta of AAR After – Before Rights Issue ...... 76 Table 4.13 Delta of CAR After – Before Rights Issue ...... 76 Table 4.14 Return on Assets (t-1) Before Rights Issue ...... 77 Table 4.15 Return on Assets (t) During Rights Issue...... 78 Table 4.16 Return on Assets (t+1) After Rights Issue ...... 78 Table 4.17 Return on Equity (t-1) Before Rights Issue ...... 79 Table 4.18 Return on Equity (t) During Rights Issue ...... 80 Table 4.19 Return on Equity (t+1) After Rights Issue ...... 80 Table 4.20 Delta of Return on Assets During (t) vs. Before (t-1) ...... 81 Table 4.21 Delta of Return on Assets After (t+1) vs. Before (t-1) ...... 82 Table 4.22 Delta of Return on Assets After (t+1) vs. During (t) ...... 82 Table 4.23 Delta of Return on Equity During (t) vs. Before (t-1) ...... 83 Table 4.24 Delta of Return on Equity After (t+1) vs. Before (t-1) ...... 83 Table 4.25 Delta of Return on Equity After (t+1) vs. During (t) ...... 84 Table 4.26 Linear Regression with Dummy Variable of AR ...... 85 Table 4.27 Linear Regression with Dummy Variable of CAR ...... 86 Table 4.28 Linear Regression with Dummy Variable of ROA ...... 87 Table 4.29 Linear Regression with Dummy Variable of ROE ...... 88 Table 4.30 Summary of Results ...... 93

vi ACKNOWLEDGEMENT

First and foremost, the author’s sincere and deepest gratitude belongs to God. The author wants to thank God for giving the strength, knowledge, ability and His blessing so that the author is able to finish this final paper and for giving the author great friends and family that support the author and for everyone involved in the making of this paper. Without help, support and advice from the people mentioned below, the author would not have been able to complete this paper. The author would like to express gratitude to Professor Roy Sembel, the author’s lecturer and mentor, for imparting knowledge, giving advice, support and guidance to the author. The author would also like to thank all the lecturers who has taught and provided the best teaching experiences to the author, all the faculty members and management at IPMI. The author would like to thank Mr. Andri Hamdani, Mrs. Rina Krismarini, Ms. Nailul Fauziah, Mrs. Tarnuzzila, Mr. Ricky Saputra, Mr. Kurniawan, Mrs. Asmini, Mr. Julyadi and all the staff at IPMI for supporting the author in these past four years. The author expresses gratitude Mr. Feraldi W. Loeis, Mr. Hendri Ma’ruf and Mr. Tri Trisnohandoko for giving constant support and invaluable life lessons, and for pushing the author to keep going onwards. Special thanks to Bayu for helping the author start and finish this thesis, and who repeatedly urged the author to continue the task when the author would have stopped. Also to Elvina, for sharing knowledge, giving information and helping the author finish this paper; to Sabila and Renata, for encouraging the author onwards without tiring, the author cannot describe how much each of you have helped the author get through this thesis. To Nania, Bella, Winny and Karina for your support. To Joshua, Biondi, Jonathan, Kenji, Jerry, Aldo, Naufal for staying and working late in campus with the author, and to all the author’s friends in BBA class of 2014 thank you for this journey of a lifetime. It was an awesome 4-year ride with you; we got through all the ups and downs, we did it! Last but not least, to the author’s beloved parents, Hendri and Cally, and brothers, Timothy, Hesed and David, for the endless support and prayers.

vii ABSTRAK

Korporasi di pasar modal melakukan rights issue sebagai alternatif mendapatkan modal tambahan bagi pembiayaan pertumbuhan dan ekspansi di masa depan maupun untuk operasi internal. Rights issue memberi kesempatan pada pemegang saham perusahaan untuk memperoleh saham baru, yang umumnya ditawarkan dengan harga lebih rendah dari harga pasar saat ini untuk memotivasi pemegang saham. Penelitian ini bertujuan untuk menguji pengaruh rights issue terhadap kinerja perusahaan yang terdaftar di Bursa Efek Indonesia (BEI). Penelitian ini mengutamakan penggunaan data sekunder yang dikumpulkan dari situs resmi BEI serta dari laporan keuangan yang diterbitkan oleh perusahaan. Penelitian dilakukan dengan menggunakan metode studi peristiwa, dan data dialanisis melalui analisis statistik deskriptif dan pengujian hipotesis. Alat analisis parametrik yang digunakan untuk pengujian hipotesis adalah one sampel t-test, paired sampel t-test dan regresi linier sederhana dengan dummy variables. Analisis dilakukan untuk data lima hari sebelum sampai dengan lima hari setelah hari pelaksanaan rights issue. Populasi penelitian ini mencakup semua perusahaan yang terdaftar di BEI, yang terdiri dari 169 perusahaan yang melakukan rights issue pada periode 2006 sampai 2015. Dari metode pengambilan sampel purposive sampling, 31 perusahaan terpilih untuk pengamatan lebih lanjut. Hasil penelitian menunjukkan bahwa rights issue tidak berpengaruh pada kinerja harga saham sebelum, selama dan sesudah pelaksanaan rights issue, dengan pengecualian saat terjadi positive abnormal returns pada pelaksanaan rights issue. Studi ini juga menemukan bahwa rights issue tidak mempengaruhi profitabilitas dan tidak ada perbedaan signifikan dalam Return on Assets dan Return on Equity perusahaan. Studi ini merekomendasikan agar perusahaan penerbit fokus pada penyampaian informasi yang komprehensif dan positif melalui pengumuman tentang rights issue, dan agar investor secara teratur dan teliti memantau kinerja perusahaan agar dapat membuat keputusan investasi yang rasional dan berdasarkan informasi.

Kata kunci: Rights Issue, Kinerja Harga Saham, Profitabilitas, Abnormal Return, Return on Assets, Return on Equity

viii ABSTRACT

Corporations in the capital market engage in rights issue as an alternative of generating additional capital to finance future growth and expansion or to finance internal operations. Rights issue offers the existing shareholders of the company the opportunity of acquiring new stocks, which are generally offered at a price lower than the current market price in order to encourage participation of the shareholders. This research aims to examine the effect of rights issue on the performance of the companies listed at Indonesia Stock Exchange (IDX). The study mainly used secondary data gathered from the official IDX site and from financial reports published by the companies. Research was done using event study method, and data was analyzed through descriptive statistics analysis and hypothesis testing. The parametric analysis tools used for hypothesis testing are one sample t-test, paired sample t-test and simple linear regression with dummy variables, with an event window of five days before, the day of and five days after rights issue. The research population included all corporations listed at IDX, which consisted of 169 companies that conducted rights issue in the period 2006- 2015. Purposive sampling method resulted in 31 companies that were chosen for further observation. Findings revealed that rights issue has no effect on stock price performance before, during and after rights issue, with an exception of positive abnormal returns at the time of rights issue; the study also found that rights issue does not affect profitability and no significant difference in companies’ Return on Assets and Return on Equity. The study recommends that issuing firms should focus on conveying positive information to the market through the announcement of the rights issue, and that investors should regularly monitor the companies’ performance to make rational and informed investment decision concerning the rights issue of the listed companies.

Keywords: Rights Issue, Stock Price Performance, Profitability, Abnormal Return, Return on Assets, Return on Equity

ix CHAPTER 1

INTRODUCTION

1.1 Background of the Study Capital Market is a market where long-term financial instruments are sold and bought. Similar to other capital markets worldwide, Indonesia’s capital market facilitates trade of stocks, bonds, mutual funds, exchange traded funds, and derivatives. In general, companies finance its operations through either equity or long-term debt, such as bonds. When a company decides to use its own equity, it can also raise external equity capital from new investors or current shareholders. One of the ways to raise funds from new investors, among others that a firm can do, is by being listed at the Indonesia Stock Exchange (IDX, 2018). Established during the Dutch colonial era in 1912, the Indonesian capital market grew steadily along the course, but became inoperative for a length of time due to various events, including the first and second World War as well as transition of power from the Dutch government to Indonesian government. In 1977, the Indonesian government reactivated the capital market, and opened several stock exchanges in a few locations (IDX, 2018). In 2007, Surabaya Stock Exchange and Jakarta Stock Exchange merged into what is known today as the Indonesia Stock Exchange (IDX), which has grown rapidly since then.

Jakarta Composite Index

7000

6500 6000

5500

5000

4500 4000

3500

3000

3-1-14 6-1-14 9-1-14 3-1-15 6-1-15 9-1-15 3-1-16 6-1-16 9-1-16 3-1-17 6-1-17 9-1-17 3-1-18 6-1-18 9-1-18

12-1-16 12-1-14 12-1-15 12-1-17 12-1-13 Figure 1.1 Jakarta Composite Index (JCI) year 2014 – October 2018 Source: Yahoo Finance, https://yhoo.it/2ztEjl2

1

Indonesia capital market has experienced growth over the last four years under the administration of President Joko Widodo and Vice President Jusuf Kalla. Figure 1.1 graphs the movement of Jakarta Composite Index (JCI) for the period of 2014 to October 2018. The growth of JCI over the last four years has reached 14.58% as of October 31, 2018. As presented in the graph above, the overall movement of JCI tends to strengthen and is showing an upward trend, although there were several periods in which JCI decreased. In year-on-year basis, JCI decreased by 2.89% as of October this year, after recording growth of 10.76% year-on-year per October 2017. Furthermore, JCI has reached its record high repeatedly in 2017 (Investasi kontan, 2017). In an effort to reduce the country’s dependency on foreign funds and lessen the volatility of the Jakarta Composite Index, both the government and IDX are encouraging the people of Indonesia to invest in stocks and bonds. Yuk Nabung Saham is the current program run by IDX, with support from the government, to educate and encourage the public to invest. Also, greater engagement of Indonesian investors in the capital market is considered imperative to strengthen Indonesia’s global competitiveness. In 2014, IDX recorded a record net inflow of foreign funds amounting to approximately 43 trillion Rupiah. For the moment, the majority of Indonesia’s capital market is still dominated by foreign investors who hold 59% of IDX-traded securities at year-end of 2014, which decreased from 65% in 2011 (Indonesia Capital Market, 2015). With improving capital market conditions and active encouragement from the government and IDX, an increasing number of people have become interested in investing in Indonesian capital market. Statistics shows that the current population of Indonesia is approximately 242.97 million people, and Indonesia has a GDP of $867.5 billion adjusted US dollars. Out of 240 countries and country equivalents worldwide, Indonesia is ranked 4th and 54th in terms of population and GDP respectively (Stock Market Clock, 2018).

2 Total SID 1200000 1118913

1000000 894116

800000

600000 434107 364465 400000 320506

200000

0 2013 2014 2015 2016 20-Des-17

Figure 1.2 Growth of Total Single Investor Identification (2012 – December 20, 2017) Source: KSEI

Based on the data from Kustodian Sentral Efek Indonesia (KSEI), or Indonesia Central Securities Depository, the trend shows that there is growth in the number of new investors in the Indonesian capital market. Figure 1.2 above graphs the growth in number of investors in the last five years. In 2016, there was a significant increase of 105.9% in the number of investors from the previous year (KSEI, 2017). As of December 20, 2017, the number of new investors has reached 1,118,913 Single Investor Identification (SID). This amount is a 25.14% increase from 2016, which recorded 894,116 SID. Furthermore, the number of individual investors (SID) in the capital market recorded at the end of July 2018 has reached 1.36 million SID (CNBC Indonesia, 2018).

Table 1.1 Indonesia Stock Market Statistics Transaction and Index of Stock at Indonesia Stock Indonesia Exchange Stock Exchange 2013 2014 2015 2016 2017 Number of Companies 483 506 521 537 566 Volume in billion shares 1,342.66 1,327.02 1,446.31 1,925.42 2,844.85 Value in trillion Rupiah 1,522.12 1,453.39 1,406.36 1,844.59 1,809.59 Composite Stock Price 4,274.18 5,226.95 4,593.01 5,296.71 6,355.65 Index

3 Stock Market 4,219 5,228 4,872 5,753 7,052 Capitalization in trillion (46.44%) (49.59%) (42.22%) (46.37%) (51.90%) Rupiah (in % of GDP) GDP in trillion Rupiah 9,084.0 10,542.7 11,540.8 12,406.8 13,588.8 Source: IDX and Badan Pusat Statistik (BPS)

In the last five years, Indonesia Stock Exchange (IDX) has experienced growth each year and is showing an upward trend. Table 1.1 is a snapshot of Indonesia’s stock market statistics from 2013 to 2017; the data is shown in Indonesian Rupiah (Rp), which is the main currency used by IDX. Through the years, annual stock trading volume rose significantly from 1,342.66 billion shares in 2013 to 2,844.85 billion shares in 2017. In addition, annual stock trading value grew from 1,522.12 trillion Rupiah to 1,809.59 trillion Rupiah in five years. At the close of 2017, IDX has 566 listed companies and a total stock market capitalization of 7,052 trillion Rupiah. Compared to five years prior, number of listed companies has increased by 17.18% from 483 companies, and total stock market capitalization increased by approximately 67% from 4,219 trillion Rupiah. In general, as GDP increases, market capitalization of the stock exchange also increases. In 2017, market capitalization grew and has amounted to roughly 51.9% of Indonesia’s annual GDP. Furthermore, Indonesia Stock Exchange’s monthly statistics report for August this year reported a market capitalization of 6,783 trillion Rupiah (Badan Pusat Statistik, 2018). The presence of a stock market plays a vital role in the economy of a country, because it serves as a platform for companies to raise additional funds required for the continuation or growth of the company. A company may require extra funds for two main reasons, for growth or financing debt. A company in financial trouble would need additional funds to gain liquidity or repay debt. Meanwhile, a company aiming for growth will need additional capital for acquiring assets, corporate expansion, the new business development or a large takeover. In both cases, these companies would need more capital than they are sometimes able to generate internally. Companies listed in a stock exchange can raise capital through issuing bonds, issuing stocks, or mutual funds (Thought Co., 2018).

4 A company has several options to raise extra capital, such as an Initial Public Offer (IPO) or issuing warrants. Another way a listed company can raise extra funds is by conducting rights issue. In this method, the company gives the right to subscribe newly issued shares to its existing shareholders in proportion to their existing holdings, instead of making a public offering. The existing shareholders may also sell the rights to other investors if they do not wish to redeem their rights. Thus, a rights issue can also be used to gain new investors to invest in the company through the purchase of renounced rights (Chadha, 2008).

Table 1.2 Annual Number of Issuers and Value of Rights Issue (2013 – 2017) Year Number of Companies Rights Issue (trillion Rupiah) 2013 30 38,80 2014 22 38,97 2015 21 45,57 2016 35 62,51 2017 39 74,92 Source: IDX, KSEI

A rights issue offers several advantages compared to other methods of raising capital like issuing bonds or obtaining loan from banks. The company does not have to make monthly loan payments, which can be important if the business is not generating sufficient profits. Loans from the bank can be difficult to obtain, especially if the company is not performing well. Additionally, high interest rates that the company incurs from bank loans or issuance of bonds makes rights issue offering a more lucrative method of raising capital (Lim, 2009). Table 1.2 shows the data on number of companies that conducted rights issue in the year 2013 to 2017; it also shows the total amount of funds raised through rights issue in the respective years. The data recorded in 2017 states that 39 companies do rights issue and a total of 74.92 trillion Rupiah was raised through rights issue; this indicates that more companies are interested in doing rights issue (Indonesia Stock Exchange, 2018).

5 Information released to the public regarding a firm’s financial statements and corporate action, such as distribution of dividends or rights issue or stock split, results in a reaction in stock price and trading volume. The announcement of a rights issue conducted by the company will result in a variety of reactions from the investors in the market. Additionally, the issuance of rights will cause the price of the issuing firm’s stock in the market to fluctuate.

1.2 Problem Statement Corporations with shares listed in the IDX conduct rights issue as a means of raising funds from investors for expansion or financing operations. Rights issues provide useful mechanism of raising capital for the firm. Also, rights issue gives existing shareholders the opportunity to purchase the new shares at a discounted price to encourage participation. An announcement of rights issue provides information that investors use as consideration for investing in the firm and affects the firm’s stock price performance in the market. Investors in general would like to know the changes in the stocks that result from corporate action of rights issue done by the company they have invested in or are considering to invest. Furthermore, the investors require information whether there are differences in a firm’s stock price and performance of the firm before, during and after conducting rights issue. A number of studies have been conducted on rights issue and its impact on the performance of the companies. There are varied findings from earlier studies carried out on rights issue; several studies found rights issue to have effect on stock returns and that there is differences in company performance after rights issue. There are however, studies that found rights issue to have no effect on the performance of the companies that conducted rights issue. In that respect, this study seeks to determine the relationship between rights issue and company performance, as there are mixed findings concerning the effect of rights issue. Therefore, this study aims to analyze the effect of rights issue towards performance of firms listed in the IDX.

6 1.3 Research Questions This research would thoroughly analyze the effect of rights issue on the performance of companies that issued rights in the period of 2006 to 2015. Thus, the questions of this research are:

1. How is the behavior of stock price performance before, during, and after rights issue? 2. Are there any differences in the performance of stocks of companies before, during, and after rights issue? 3. How is the profitability of companies before, during, and after rights issue? 4. Are there any differences in the profitability of companies before, during and after rights issue?

1.4 Research Objectives This research has several objectives, which are derived from the research questions. The objectives are:

1. To examine the behavior of stock price performance before, during, and after rights issue. 2. To examine the differences in the performance of stocks of companies before, during, and after rights issue. 3. To examine the profitability of companies before, during, and after rights issue. 4. To examine the differences in the profitability of companies before, during, and after rights issue.

1.5 Scope and Limitations of the Study In this research, the scope and limitations of the study is developed for the purpose of making an effective study. The limitation of the study specifies that the companies are selected based on several criteria. Only companies that conduct rights issue throughout the period of 2006 - 2015 will be used in the research.

7 Companies that conducted other methods of funding such as dividends, stock split, warrants and other methods during that period will not be used as the subject of this research. Only non-bank companies listed on IDX throughout that period are used in this research. Furthermore, this study only includes rights issue as the predicting variable without taking into account other variables that may affect company performance.

1.6 Definition of Key Terms 1. Rights Issue An offering of rights to existing shareholders of a company that gives them an opportunity to buy additional shares directly from the company at a discounted price rather than buying them in the secondary market. Budiarto and Baridwan (1999, p. 92) 2. Stock A type of equity security that signifies ownership in a corporation and represents a claim on part of the corporation’s assets and earnings; also known as shares. Booth, Cleary, and Drake (2014, p. 238) 3. Financial Performance Financial performance, in general, refers to the degree to which financial objectives of the firm are being or have been accomplished over a period of time. It is used to measure the results of a firm’s policies and operations in monetary terms, as well as firm’s overall financial health. Verma (2014) 4. Profitability A company’s ability to use its resources to generate revenues in excess of its expenses, or in other words, profitability is the company’s capability of generating profits from its operations; it is the extent to which a company is profitable. Ross, Westerfield and Jaffe (2012, p. 34)

8 1.7 Organization of the Thesis Chapter 1 Introduction This chapter includes the explanation concerning the background of the study, problem statement, previous researches, research questions, research objectives, scope and limitations of the study, definition of key terms, and organization of the study.

Chapter 2 Literature Review This chapter includes the explanation concerning the literature and theories that are related to topic of the study.

Chapter 3 Methodology This chapter includes the explanation concerning the research design, measurement of variables, data collection and its procedures, and techniques of data analysis.

Chapter 4 Data Analysis and Discussion This chapter includes the explanation concerning the data analysis that is conducted and the discussion of the research results.

Chapter 5 Conclusion and Recommendation This chapter includes the explanation concerning the conclusion and recommendation of the research.

9 CHAPTER 2

LITERATURE REVIEW

2.1 Capital Market Capital Market is the term used for the collection of markets and exchanges where financial instruments of publicly held companies are issued and traded. In Indonesia, the Capital Market Law Number 8 year 1995 defines Capital Market as “the activity of trading and offering securities to the public, the activity of a public company with respect to securities it has issued, and the activities of securities-related institutions and professions.” Financial instruments offered in the capital market include equities (stocks), bonds, mutual funds, and derivative instruments such as warrants. The capital market is an investment channel for investors among other alternatives in Indonesia, such as saving in banks and investments in gold, land, and more. The capital market has a strategic role in the economic development of the country; as stated in the Law No. 8 year 1995, the capital market is a source of funding for business and a vehicle for public investment. Indonesia’s capital markets are supervised under the Financial Services Authority or Otoritas Jasa Keuangan (OJK). The OJK is a government institution established based on Law No. 21 year 2011, and was activated as of December 31, 2012. The OJK is an independent institution, free from interference from other parties, whose function is to establish an integrated regulatory and supervisory system for all activities in the financial services sector. In the capital market, investors have the freedom to invest in any of the offered financial instruments available. Stock is one of the most popular investment options for investors because it offers an interesting return rate. Investing in stocks gives investors two main benefits: dividend (profit sharing given by the company after owning the stock for a certain period of time) and capital gain (profit resulting from the difference between the selling price and the purchase price of stock). The level of return obtained by the investor depends on how much risk the investor is willing to bear. Risks associated with investing in stocks include: capital loss (a condition where shares are sold at a price lower than

10 the buying price) and liquidity risk (a company whose shares are owned is declared bankrupt by the Court). Based on the timing of the transaction, a capital market is divided into two types of market namely, primary market and secondary market. The primary market is a market in which newly issued shares are sold and bought for the first time. In this market, public investors purchase the new shares issued by the companies to raise capital for financing their business (Brigham and Houston, 2015). The secondary market is a market where all subsequent trading of existing, already outstanding, stocks takes place. In a secondary market transaction, the companies whose shares are being traded are not involved and do not receive new funds because the shares are simply bought and sold among investors (Titman, Keown and Martin, 2011).

2.2 Stocks Stocks, also known as shares or equity securities, are certificates that represent partial ownership in the companies that issued the stocks (Madura, 2010). Stocks can also be defined as a symbol of capital participation of an individual or an institution in a company. A stock is one of the most widely traded financial instruments that serve as a long-term source of funds because it has no maturity. In addition to a claim on the company’s earnings and assets, an investor has the right to attend and is entitled to vote in the General Meeting of Shareholders or Rapat Umum Pemegang Saham (RUPS). A company that has issued and sold its shares to the public (go public) is regarded as a publicly held company. Stocks are classified into two major types known as common stock and preferred stock: 1. Common Stock Common Stocks are equity securities, issued as ownership shares in a publicly held corporation. A common stock entitles shareholders to a portion of the company’s success in the form of dividends based on their proportionate ownership (Bodie, Kane and Marcus, 2011). Investors who purchase common stock are the residual claimants on the income that the firm earns. In other words,

11 the common stockholder receives return only after all other security holders’ claims (debt and preferred equity) have been completely satisfied. Furthermore, a holder of common stock has the right to attend the RUPS and to take part in determining matters of corporate governance of the firm. In addition, investors holding common stocks is entitled to preemptive rights, also known as Hak Memesan Efek Terlebih Dahulu (HMETD). Common stockholders can decide to redeem the rights of buying new shares issued by the company. 2. Preferred Stock As its name implies, Preferred Stocks are equity securities that holds preference over common stock in terms of the right to the distribution of cash (dividends); the dividends promised to the preferred stockholders must be paid in full before common stockholders can receive any dividends. Furthermore, preferred stockholders have a preferred claim or the right to the distribution of proceeds from the liquidation and sale of the issuing firm in the event that the firm goes bankrupt (Titman et al., 2011). Preferred stocks, as opposed to common stocks, do not give holders voting rights.

2.3 Rights Issue Ross, Westerfield and Jaffe (2012) stated that there are two ways a company can do public issue of equity, which includes: general cash offer and rights offer. In a general cash offer, new shares of common stock are issued by the company and are sold directly to the public, or all interested investors, with the help of underwriters. In a rights offer, the new shares issued are sold to the company’s existing shareholders. When a firm offers new shares of common stock to the general public, the proportionate owner’s share of the firm’s existing shareholders is likely to be reduced. An offer of rights to the new shares assures the shareholders their proportionate ownership shares (Ross et al., 2012). Rights Issue is also known as Hak Memesan Efek Terlebih Dahulu (HMETD) or pre-emptive rights. According to Ang (2010), right issue is the offering of right for existing shareholders to buy a specified number of new shares issued by the firm at a predetermined price; the

12 new shares are first offered to existing holders to buy within a specified time, after which the rights expire. The process of a rights issue begins with a request for approval from existing shareholders to withdraw certain amount of funds by creating and selling new shares. These new shares are then offered to the shareholders in proportion to their ownership in the company. The company informs its shareholders that they are given one right for each share of stock they own. To illustrate, the holder of one old share has the right to buy one new share, with a ratio of 1:1; the ratio can vary, it can be 1:2 or 2:3 or 5:2 or other ratio depending on the decision of the company. The shareholders have several choice of actions in response to a rights issue: (1) take up the rights in full and subscribe to all the entitled shares, (2) do nothing or ignore the offer and let the rights expire, or (3) sell the rights to other investors who are interested. Because it is a right and not an obligation, the rights can be sold to other investors if the shareholders do not wish to exercise their rights. Thus trade occurs on rights; rights issues are traded like stocks, but trading of rights have an expiry period. To exercise their rights, a shareholder sends payment to the company’s subscription agent (bank) and turns in the required number of rights. In a rights offering, the price at which existing shareholders pay for a share of stock is called subscription price. The shareholders purchase the shares at the predetermined price level, which is usually below the prevailing market price of the company’s stock (Lambrechts and Mostert, 1980). A shareholder will subscribe to the rights if the subscription price is below the market price of the stock on the offer’s expiration date, because a rational shareholder would not pay more for something that is worth less. Also, it is priced as such to provide incentives for the existing shareholders to claim the new shares that will be issued. An issuance of rights is generally guaranteed by securities companies to ensure that the issuing firm gets its money. Furthermore, a rights issue usually involves standby investors, namely investors who are ready to buy the new shares that are not claimed by the existing shareholders. In most cases, the majority shareholders are the standby investors; if there are no standby investors, an underwriter will look for other investors interested in the company.

13 When a company announces a rights issue plan, it offers new shares to all the shareholders on its list of existing shareholders on the relevant date month and year. This means that every investor who buy shares in the market before the intended date will get the right to buy new shares, this event is known as cum right. Whereas investors who buy new shares after the intended date do not have rights to the new shares offered, this event is called ex-right, where the rights will become the property of the issue as the seller. Several factors that must be considered in carrying out a rights issue include time, price and ratio. For investors, information on the issuance time is very important for the investor to make a decision whether he or she will exercise the right to buy or not to buy the new shares. The following are terms related to the time of rights issue: 1. Cum-date: the last date an investor can register his shares to obtain corporate action rights. An investor that buys shares at the time of cum right period will obtain shares that still entitled to the rights that will be distributed soon 2. Ex-date: the date on which investors no longer receive the right to a corporate action; shares obtained on and after ex-date no longer give rights to the holders 3. DPS-date: the date on which the list of shareholders entitled to a corporate action is announced 4. The date of execution and end of the right: the date on which the right is listed on the exchange and when it ends 5. Allotment date: the date of determining the number of investors who gets the right and the amount of the additional new shares from the right issue 6. Listing date: the date on which the addition of shares from rights issue is registered on the stock exchange

2.3.1 Purpose Of Rights Issue Rights issue serves as an alternative of finding fresh funds, among other methods such as a public offering, seeking bank loans, or selling asset of the firm. According to Ramirez (2011), the purpose of the company to do rights issue is to

14 generate additional capital to finance future growth and to increase working capital needed for the firm’s internal operations. The company can use the working capital from rights issue to finance new projects, purchasing assets, business expansion, acquisition, or for corporate debt payment. To obtain additional capital, actually the company can simply issue new shares to offer to the public. Generally, if a firm makes a public offering of new shares, the firm must use underwriting services (which will guarantee that all the new shares will be sold) or offer new shares at prices lower than the current share price. If the new stocks are offered at the same price as the current stocks in the market, then investors will not be interested to buy the new stocks in the primary market because they can buy the same company’s stock at the same price on the secondary market. Both of these options will cause the company to bear the costs; a public offering cause the company to pay fees to the underwriter(s) and offering new shares at a lower price than in the market means distribution of prosperity to the new shareholders. As described in Parsaulian (2014), conducting rights issue does not require underwriting services, which reduces issuing costs for the firm; also, by doing rights issue there is no distribution of prosperity to the new shareholders. In addition, the firms conducting rights issue does not bear interest cost that it would incur if the firm raised funds from loans. Thus rights issue provide a process that can be considered a more cost effective method than a public offering, which makes the companies or issuers interested in doing rights issue.

2.3.2 Advantages Of Rights Issue Based on Husnan (2015), there are several advantages of doing rights issue compared to an ordinary public offering, such as: 1. Rights issue cost less than a public offering, as underwriting services are not required. Firms can save emission costs because the use underwriting services causes the company to pay a large sum of money for underwriting fees. 2. Existing shareholders can maintain the proportion of their holdings by exercising their rights.

15 3. Existing shareholders are prioritized in purchasing new shares. 4. Stocks can become more liquid because the amount of shares outstanding is larger and can increase the frequency of trading.

2.3.3 Effect of Rights Issue When a company does rights issue, the number of outstanding shares of the company will increase. The addition of shares resulting from the rights issue, affects the ownership of the existing shareholders. If the existing shareholders do not exercise their rights, they will experience what is known as dilution, which is a decrease in the percentage of share ownership (Shahid, Xia and Mahmood 2010). Therefore, the existing shareholders must take the right decision related to their rights so that they get beneficial results from the rights issue. According to Budiarto and Baridwan (1999), the decline in stock prices after a rights issue is also influenced by the exercise price of the rights issue, which is lower than the market price. Generally, the stock price will be corrected with the right issue. To measure the amount of correction that arises, one has to pay attention to information on the time, price and ratio of the issuance of the rights issue. The company’s stock price after a rights issuance, theoretically, will experience decline, because the exercise price of right issue is always lower than the market price. As a result, capitalization of the stock market increases in a percentage smaller than the increase in percentage of the number of shares outstanding. With the increase in the number of shares outstanding, the amount of dividends per share that will be received by shareholders become smaller or less, this will occur if the value of company’s profit and percentage of dividend payout is fixed. Decrease in dividends per share can cause a negative psychological impact, because small dividends per share will reduce investor’s interest in buying the shares, resulting in the fall of stock prices. When the additional funds obtained from the right issue are raised for profitable projects such as investments, the impact of rights issues becomes positive towards the stock price. This happens because investors catch on a positive signal, for example the issuing company is planning a new project a

16 positive net present value; this results in a positive effect on stock prices (Tsangarakis, 1996). On the other hand, if the funds are used for matters that are not profitable like firm’s debt payments, the effect of the rights issue becomes negative towards the stock price. In this case, investors catch on a signal that the management of the firm has an unfavorable forecast about the firm’s risks in the coming future (Healy and Palepu, 1990).

2.3.4 Asymmetric Information and Signaling Theory The Signaling Theory is one of the theories that are widely used as a basis for examining the influence of information content in a rights issue announcement on the development of stock prices in the capital market (Van Horne and Wachowicz, 2008). The situation in which it is assumed that investors have the same information about a firm’s prospects as its managers is called symmetric information. However, in reality managers often have better information than outside investors, this situation is known as asymmetric information. In signaling theory, it is assumed that a firm’s managers has information about the value of the company that is not known by external parties, and management is a party that continually tries to maximize their expected incentives they expect. In general, managers have more complete and accurate information compared to external investors regarding the factors that influence the value of the company since they are insiders that work in the company (Brigham and Houston, 2015). The signaling theory indicates that investors consider the announcement of rights issue as a signal that can affect the value of their shares. The signal from the company must be effective in order for it to be perceived well by the investors so they are able to determine the right investment. When management releases information to the market, the market generally responds to that information as a signal of certain events that can influence the value of the firm, which is reflected in the stock price changes that occur. As an implication, the company’s announcement to increase the number of new shares outstanding, through rights issue, will be responded by the market as a signal that conveys the existence of new information released by the management that will subsequently affect the value of the company’s shares price.

17 The signaling effect assumes that information asymmetry exists between the company management and investors in the market. Asymmetric or unequal information will occur when managers does not fully convey all the information it obtains concerning all things that can affect the value of the company in the capital market. An information or signal effect that causes a stock market reaction may occur when a public company announces a corporate action, for example, a rights issue. One of the effects relates to asymmetric information between management and investors. The Asymmetric Information theory suggests that managers have the advantage of accessing internal information; therefore managers are at a significant informational advantage in comparison to outsiders (e.g. investors) regarding the firm’s value, activities and prospects in investments (Van Horne and Wachowicz, 2008). In asymmetric information, there is potential for one party to have private information about the value of the stock that is not known to the opposite party. This indicates that there are investors who have private information and there are investors who do not. Those who do not have private information will try to obtain information by observing changes in stock prices that occur as reflection on information from investors who have private information. Information asymmetry in the capital market may result in losses for companies that issue shares; the issuer company must be willing to provide information to the public in order for information asymmetry to decrease. The information can be published to the public with announcements, so that investors can use the information to make investment decisions.

2.4 Stock Price A stock price is the value of one unit share of the stocks of a company. There are various terms related to the price of stock. Widoatmodjo (2012) explained several types of stock price, which includes:

18 1. Nominal Price The price set by the issuing company to value each share that is issued. Issuers are free to set the nominal price per share it issues, so the price depends on the issuer’s desire. Nominal price is also known as par value. 2. Initial Price Initial price, or issue price, is the price at which a stock is offered for sale in the primary market when the stock first becomes available to the public. The amount of the initial price is determined on the agreement between the issuer and the underwriter; in determining the initial price, several aspects such as market conditions and company prospects are considered in their negotiation. 3. Market Price The selling price of stock that an investor offers to another investor. The price at which an investor sells their stock is the price referred to as the secondary market price.

There are also various terms regarding stock prices that are widely used in the stock exchange. According to Darmadji and Fakhruddin (2012), stock prices terms are as follows: 1. Previous Price: the price at the closing of the previous day 2. Open or Opening Price: the first price at the opening of the first trading session; the price requested by the seller or buyer when the stock exchange is opened for the day 3. High or Highest Price: the highest price for a stock that occurred during the trading on that day; also a term used for the highest price at a certain period of time, like a month or a year, depending on the need 4. Low or Lowest Price: the lowest price for a stock that occurred during the trading on that day; also a term used for the lowest price at a certain period of time, like a month or a year, depending on the need 5. Last Price: the last price that occurred on a stock 6. Change: the difference between the opening price and the last price that occurred

19 7. Close or Closing Price: the closing price of a stock; the price requested by the seller of buyer at the end of the exchange day. Closing price of a stock in one trading day is determined at the end of session II, which is 16.00 in the afternoon The price of a stock is strongly influenced by the level of supply and demand of the stocks in the market. In accordance with the law of demand and supply, the price of a stock will tend to rise if there is large demand for the stock and tends to fall if there excess supply. When the price of stock in the market become too high, the demand will decrease, because high price of the stock will decrease the number of investors that are able to buy the stock. The law of demand applies in this situation, and the price of the stocks will decrease until it meets the equilibrium point. There are other factors that can affect the price of stock. Sindhu (2014) explained that there are internal and external factors that can influence the stock price of a company. Internal factors that affect stock price movement include the current state of the firm and corporate actions taken by the firm, such as distribution of dividends, stock split, rights issue and other actions. In addition, external factors that influence stock price include macroeconomic, political, environmental, market sentiments, overall stock market influence, or other events that are considered to affect the performance of the issuing company. Furthermore, the price of a firm’s stock is normally observed at fixed intervals of time to empirically assess the stock price movement; these intervals of time can be days, weeks, or months (Bashir, 2013).

2.5 Stock Price Return A Return, in simple explanation, is the money made or lost on an investment. Based on Van Horne and Wachowicz (2008), Return is defined as the income an investor receives on an investment plus any change in market price, usually stated as a percent of the beginning market price of the investment. Return is the advantage an investor can receive from doing investments. In addition, return can be expressed nominally as the change in dollar value of an investment over time, or as a percentage resulting from the ratio of profit to investment.

20 Investors invest their money with the main objective of earning as much profit as possible while bearing the smallest risk of loss possible. When investors make an investment, the return they receive from their shares can come in the form of dividends and capital gains. According to Ross, Westerfield, Lim and Tan (2015), Dividend is payment made by a company to its owners; a dividend is also known as the income component of the return on an investment in stock. In other words, dividend can be described as a portion of a company’s earnings that is paid by a company to its stockholders; the board of directors, with approval of the majority shareholders, decides the distribution of dividends (Brealey, Myers and Allen, 2013). An investor is entitled to dividend after the investor has held the shares for a relatively long period of time. A dividend can be either in cash or in stocks; the term dividend generally refers to cash distribution of a company’s earnings. Cash dividend is the most common type of dividend, where shareholders receive a certain amount of cash in rupiah for each share they own. Another type of dividend is paid out in shares of stock, known as stock dividend, in which each shareholder get a number of additional shares in proportion to the number of shares they currently hold. When a capital asset is sold, a capital gain or loss is generally incurred. According to Van Horne and Wachowicz (2008), Capital gain is the amount by which the proceeds from the sale of a capital asset exceeds the asset’s original cost, in contrast capital loss is when proceeds of the sale is less than the original cost. For an investor, capital gain is the profit from the trade of stocks in the secondary market when the investor sells the stock at a price of higher than the original purchase price (Ross et al., 2015). To illustrate, an investor purchases shares of Company X at stock price per share of Rp. 1,000 then sells it to another investor at the price of Rp. 1,500 per share, this means that the investor obtains a capital gain of Rp. 500 for every shares sold.

21 2.5.1 Abnormal Return Return is the profit that an investor receives from capital investment or securities (Ross et al., 2015). An investor’s return can be an expected return, which is a return that an investor expects a stock to earn over a period of time in the future. Return can also be an actual return that an investor gets; actual return can be either higher or lower than the investor’s expectation. The company’s past data provides information for calculation of actual return; actual return is an important aspect in measurement of company performance because it can be used as a basis for measuring expected return and risks. Furthermore, the difference between actual and expected return is termed abnormal return. Jogiyanto (2015) explained there are three models that can be used to measure abnormal return. This research uses the market-adjusted return model, in which the market index at the time is assumed the best estimator for estimation of expected return on a stock. Therefore the formula for abnormal return is:

퐴푅푖푡 = 푅푖푡 − 푅푚푡 (2.1)

Where:

ARit : Abnormal Return stock i at period t

Rit : Stock price return stock i at period t

Rmt : Market portfolio return at period t

Furthermore, to find the actual return of stock, the following formula can be used:

푃푖,푡−푃푖,푡−1 푅푖,푡 = (2.2) 푃푖,푡−1

Where:

Rit : Stock price return stock i at period t

Pit : Stock price i at period t

Pit-1 : Stock price i at period t-1

22 The method used to compute the expected market return is the market-adjusted model because this model assumes that the market index return is the best estimator for estimating the future returns of a security. The expected market return can be measured using the Jakarta Composite Index or Indeks Harga Saham Gabungan (IHSG):

퐼퐻푆퐺푡 − 퐼퐻푆퐺푡−1 푅푚푡 = (2.3) 퐼퐻푆퐺푡−1

Where:

Rmt : Market portfolio return at period t

IHSGt : Jakarta Composite Index at period t

IHSGt-1 : Jakarta Composite Index at period t-1

The average abnormal return of all companies can be used for calculating the increase and decrease in abnormal return. According to Jogiyanto (2015), the formula to calculate average abnormal return of day t is as follows:

∑푛 퐴푅 퐴퐴푅 = 푖=1 푖,푡 (2.4) 푡 푛

Where: AAR : Average Abnormal Return at period t

ARit : Abnormal Return stock i at period t n : Number of sample

23 2.5.2 Cumulative Abnormal Return As stated in Ross et al. (2015), Cumulative abnormal return, or CAR for short, is the sum of differences between the expected return on a stock and the actual return. The cumulative abnormal return of an individual stock is computed by aggregating the abnormal returns of the stock over the event period, which in this research is eleven days (t-5 to t+5). According to Peterson (1989), cumulative abnormal return is necessary to examine the cumulative effect of a particular event; the formula for cumulative abnormal return is:

푡 퐶퐴푅푖푡퐵 = ∑휃=−5 퐴푅푖휃 (2.5a)

Where:

퐶퐴푅푖푡퐵 : Cumulative Abnormal Return stock i before rights issue t : – 5, – 4, – 3, – 2, – 1

퐴푅푖휃 : Abnormal Return stock i at period t

푡 퐶퐴푅푖푡퐴 = ∑휃=1 퐴푅푖휃 (2.5b)

Where:

퐶퐴푅푖푡퐴 : Cumulative Abnormal Return stock i after rights issue t : 1, 2, 3, 4, 5

퐴푅푖휃 : Abnormal Return stock i at period t

푡 퐶퐴푅푖푡푂 = ∑휃=−5 퐴푅푖휃 (2.5c)

Where:

퐶퐴푅푖푡푂 : Cumulative Abnormal Return stock i for overall t : –5, –4, –3, –2, –1, 0, 1, 2, 3, 4, 5

퐴푅푖휃 : Abnormal Return stock i at period t

24 2.6 Profitability A company’s performance is reflected on its financial reports; these reports present information regarding the company’s financial position, capital structure, cash flows and other information related to the performance of the company. The performance of a company can be assessed through analyzing the profitability of the company. A financial ratio, which is a ratio of two measures of firm status or performance, can be used to measure the profitability of a company (Ross et al., 2015). A firm’s profitability is one of the indicators an investor can use to see the firms future prospects. Saidi (2004) defined profitability as the company’s ability to generate the profit, which will be the basis of the company’s dividend distribution. Profitability measures how well a company utilizes its capital, and is also one of the best indicators of the company’s financial health. Information on the profitability of the company will help shareholders to know the company’s fundamental condition and also help other investors make informed investment decisions. Financial ratio is a method used to compare and examine relationships between different parts of financial data from the company’s financial statement. One of the financial ratios used to analyze the performance of a company are profitability ratios, which are possibly the most popular and most widely used of all financial ratios. According to Ross et al. (2015), profitability ratios are intended to measure how efficiently the firm uses its assets and how efficiently the firm manages its business operations.

2.6.1 Profit Margin Titman et al. (2011) identified three different profit margin ratios that measure the profit or income of a company. Data used in calculation of profit margins are obtained from a company’s income statement. Management pays close attention to the company’s profit margins because they are an important indicator of how well the firm is doing financially.

25 1. Net Profit Margin Net profit margin captures the effects of all the firm’s expenses and indicates the percentage of revenues left over after interest and taxes have been considered. The net profit margin measures how much profit is generated per dollar of sales, it is calculated as:

Net Profit Margin = Net income after tax / Sales (2.6)

2. Gross Profit Margin A firm’s gross profit equals its sales revenues minus the cost of goods sold. The gross profit margin is a ratio of gross profit divided by sales. Gross profit margin ratio measures the firm’s efficiency or cost control in production costs, it indicates the firm’s ability to produce efficiently. The formula is expressed as:

Gross Profit Margin = Gross profits / Sales (2.7a)

Gross Profit Margin = Net sales – cost of goods sold / Sales (2.7b)

3. Operating Profit Margin Operating profit margin (OPM) is a ratio of the firm’s net operating income divided by sales. The objective of managing operations is to keep costs and expenses low relative to sales; OPM ratio tells managers how much profit is generated from each dollar sales after accounting for both costs of good sold and operating expenses. OPM is calculated as:

Operating Profit Margin = Net operating income or EBIT / Sales (2.8)

2.6.2 Return on Assets Return on Assets (ROA) is a measure of profit per dollar of assets (Ross et al., 2015). The ROA is sometimes referred to as “return on investment”; it is a ratio that indicates how profitable a company is relative to its total assets. ROA gives information about how efficient the management of a firm is using its assets

26 to generate profit. ROA is shown in percentage; the higher the ROA number, the better, because it means that the company is earning more money on less investment. The ROA ratio is most commonly defined as:

ROA = Net income after tax / Total assets (2.9)

2.6.3 Return on Equity According to Ross et al. (2015), Return on Equity, also known as return on book equity or return on net worth, is a measure of profit per dollar of equity. Return on equity (ROE) reveals how much profit the company generates with the money shareholders has invested; it shows how the shareholders fared during the year. In accounting sense, ROE is the true bottom-line measure of performance, because benefitting its shareholders is the goal of the company. The higher the ROE ratio, the more profit generated from the equity funds invested in the company. ROE is expressed as a percentage, below is the formula used to calculate ROE:

ROE = Net income after tax / Total equity (2.10)

ROE analysis is widely used by investors and company management. ROE shows the investors how much profit is generated with the equity they have invested, and lets the investors know what benefit they can expect from their investment. ROE is important to the management because it shows how efficient the company’s operations are making use of the funds, which can attract investors to make investments. Based on Van Horne and Wachowicz (2008), profitability ratios can be differed into two types: ratios that show profitability in relation to sales and ratios that show profitability in relation to investment. For this research, the author uses the ratios related to investment, which include to ROA ratio and ROE ratio. The author uses both ratios to measure the effect of rights issue towards the profitability of a company.

27 2.7 Hypothesis Development According to Catranti (2009), there are significant stock returns at the time of rights issue conducted by the companies. The study, titled The Effect of Rights Issue on Stock Return and Trading Volume, found that there is relatively significant difference in stock return, in terms of the companies’ average abnormal returns, on the day of rights issue. In addition, the study found that there is no significant difference in average abnormal return in the period before and after surrounding the occurrence of rights issue. Furthermore, the study titled Shareholder Wealth Effect of Equity Issues in Emerging Markets: Evidence From Rights Offerings In Greece by Tsangarakis (1996) documented that rights issues in Greece are associated with statistically significant stock returns. The study finds that there are significant positive abnormal returns and cumulative abnormal returns on and surrounding the announcement day, indicating that rights issue announcements are considered good news by investors in the market. Based on the findings of these researches, the first hypothesis can be formulated as follows:

Hypothesis 1

H1a : The stock price performance before rights issue is better than market

H1b : The stock price performance during rights issue is better than market

H1c : The stock price performance after rights issue is better than market

There are mixed findings from previous studies concerning the change in stock price performance after rights issue. Larasati, Mardani and Wahono (2018) in the study titled The Effect of Merger, Acquisition and Rights Issue Announcement on Stock Return (Case Study of Companies Listed in the Indonesia Stock Exchange Period 2013-2016) explained that there is no significant difference between the average stock return before the announcement of rights issue and after the company rights issue. Additionally, the study by Miglani (2011) titled An Empirical Analysis of Impact of Right Issues on Shareholders Returns of Indian Listed Companies found that there is no significant cumulative abnormal return before and at the time of rights issue, however there was significant cumulative abnormal return after rights issue.

28 Moreover, the study found no significant abnormal return at the time of rights issue, but found significant abnormal returns surrounding the rights issue. Results of a study done by Kithinji, Oluoch and Mugo (2014), found that rights issue announcement has a significant, positive effect on the stock price performance; the study stated that there were significant difference in abnormal returns of the companies after doing rights issue. Based on the results found in these studies, the second hypothesis can be formulated as follows:

Hypothesis 2

H2 : There are differences in stock price performance before, during, and after rights issue

The studies done by previous researchers vary in their findings concerning the effect of rights issue on the performance of the issuing companies in terms of profitability. The study titled The Relationship Between Seasoned Equity Offerings and Financial Performance of Firms Listed at the Nairobi Securities Exchanges by Kiama (2013) stated a positive relationship between seasoned equity offerings and financial performance, represented by Return on Assets. The study found that there is positive relationship, although not significant, between seasoned equity offerings and financial performance. Meanwhile, study done by Kabir and Roosenboom (2003), titled Can the Stock Market Anticipate Future Operating Performance? Evidence from Equity Rights Issues, found that there is no significant change in the profitability measures of the companies during the time of rights issue. The study stated that companies’ profitability showed a declining trend, but the change is also not significant in the year after rights issue. Furthermore, Pratama (2017) in the study titled Analysis of Company Operating Performance Before and After the Rights Issue of Companies Listed in Indonesia Stock Exchange 2009-2013, analyzed the effect of rights issue on companies’ operating performance as measured in Return on Assets, Return on Equity, Total Assets Turnover and Sales Growth. The study found that there is no significant difference in the ROA, ROE, Total Assets Turnover and Sales Growth between before and after the announcement of rights issue. In the meantime, the findings

29 of the study entitled Effect of Rights Issue Announcements on Equity Returns of Firms Listed at the Nairobi Securities Exchange (NSE) by Swanya (2017) revealed that the rights issue announcement have a positive effect on the equity returns of companies listed at the NSE. The results presented significant effect on equity returns, measured in Return on Equity, around and during the rights issue. Based on these researches and their findings, the third and fourth hypothesis can be formulated as follows:

Hypothesis 3

H3a : The profitability before rights issue is positive

H3b : The profitability during rights issue is positive

H3c : The profitability after rights issue is positive

Hypothesis 4

H4 : There are differences in profitability before, during, and after rights issue

30 CHAPTER 3

METHODOLOGY

3.1 Research Framework

Performance Abnormal Before Return & Stock Price Cumulative At the time Abnormal Return After Rights Issue Before

Profitability ROA & ROE At the time

After

Figure 3.1 Research Framework

3.2 Research Design In keeping with the background of the study and the problem formulation described in the previous section, the research design used in this research is the event study method. According to Bodie, Kane, and Marcus (2011), an event study is an empirical financial research method designed to measure impact of a particular event of interest on a firm’s stock price. Furthermore, Jogiyanto (2010) described event study as a research method that studies the market reaction to an event in which information is published as an announcement from the company. The event study method can be used to study events such as corporate actions that include initial public offering, dividend distribution, stock split, rights issue, bonus shares and other actions. The event study method enables the researcher to analyze the effect of an event that has occurred and the changes in the object under investigation initiated by the event. This research focuses on the announcement of rights issue from the companies listed on the Indonesia Stock Exchange in the period of 2006 to 2015, and examines the effect of the announcement on the performance of the issuing

31 companies. The variables studied in this research for causality are rights issue activity as the independent variable, stock price measured in terms of abnormal return and cumulative abnormal return, and profitability measured in terms of ROA and ROE.

3.3 Measurement of Variables There are two variables in this research, namely: the dependent variable and independent variable.

3.3.1 Independent Variable In Sekaran and Bougie (2010), an independent variable is defined as the variable that influences the dependent variable. The independent variable in this research is: Rights Issue – X

3.3.2 Dependent Variable A dependent variable, also known as criterion variable, is the variable of primary interest to the researcher; it is the main variable that lends itself for investigation as a viable factor (Sekaran and Bougie, 2010). In this research, the dependent variables are:

Stock Price Return

 Average Abnormal Return – Y1

퐴푅푖푡 = 푅푖푡 − 푅푚푡 (3.1)

Where:

ARit : Abnormal return stock i at period t

Rit : Stock return i at period t

Rmt : Market return at period t

32

푃푖푡 − 푃푖푡−1 푅푖푡 = 푃푖푡−1 (3.2)

Where:

Rit : Stock return i at period t

Pit : Stock price i at period t

Pit-1 : Stock price i at period t-1

퐼퐻푆퐺푡 − 퐼퐻푆퐺푡−1 푅푚푡 = (3.3) 퐼퐻푆퐺푡−1

Where:

Rmt : Market return at period t

IHSGt : Jakarta Composite Index at period t

IHSGt-1 : Jakarta Composite Index at period t-1

푛 ∑ 퐴푅푖,푡 퐴퐴푅 = 푖=1 (3.4a) 푡 푛

푏, 푏푒푓표푟푒 푟𝑖푔ℎ푡 𝑖푠푠푢푒 푡 = { 푎, 푎푓푡푒푟 푟𝑖푔ℎ푡 𝑖푠푠푢푒

Where:

AARt : Average Abnormal Return at period t

ARit : Abnormal Return stock i at period t n : Number of sample

33

∑푛 ∑−1 퐴푅 퐴퐴푅 = 푖=1 푡=−5 푖,푡 푏 5푛 (3.4b)

Where:

AARb : Average Abnormal Return before right issue

ARit : Abnormal Return stock i at period t n : Number of sample

∑푛 ∑5 퐴푅 퐴퐴푅 = 푖=1 푡=1 푖,푡 푎 5푛 (3.4c)

Where:

AARa : Average Abnormal Return after right issue

ARit : Abnormal Return stock i at period t n : Number of sample

 Cumulative Abnormal Return – Y2

푡

퐶퐴푅푖푡퐵 = ∑ 퐴푅푖휃 (3.5a) 휃=−5

Where:

퐶퐴푅푖푡퐵 : Cumulative Abnormal Return stock i before rights issue

퐴푅푖휃 : Abnormal Return stock i at period t t : – 5, – 4, – 3, – 2, – 1

34 푡

퐶퐴푅푖푡퐴 = ∑ 퐴푅푖휃 (3.5b) 휃=1

Where:

퐶퐴푅푖푡퐴 : Cumulative Abnormal Return stock i after rights issue

퐴푅푖휃 : Abnormal Return stock i at period t t : 1, 2, 3, 4, 5

푡

퐶퐴푅푖푡푂 = ∑ 퐴푅푖휃 (3.5c) 휃=−5

Where:

퐶퐴푅푖푡푂 : Cumulative Abnormal Return stock i for overall

퐴푅푖휃 : Abnormal Return stock i at period t t : –5, –4, –3, –2, –1, 0, 1, 2, 3, 4, 5

Profitability

 Return on Assets – Y3

푛푒푡 푝푟표푓𝑖푡 푎푓푡푒푟 푡푎푥푖,푡 푅푂퐴푖,푡 = (3.6a) 푡표푡푎푙 푎푠푠푒푡푖,푡

Where:

ROAi,t : Return on Assets company i at period t

Net profiti,t : Net profit company i at period t

Total assetsi,t : Total assets company i at period t

35 푏, 푏푒푓표푟푒 푟𝑖푔ℎ푡 𝑖푠푠푢푒 푡 = { 푎, 푎푓푡푒푟 푟𝑖푔ℎ푡 𝑖푠푠푢푒

푛 ∑푖=1 푅푂퐴푖푏 (3.6b) 푅푂퐴푏푒푓표푟푒 = 푛

Where:

푅푂퐴before : Mean of ROA before rights issue

ROAib : ROA company i before rights issue n : Number of sample

∑푛 푅푂퐴 푅푂퐴 = 푖=1 푖푎 푎푓푡푒푟 푛 (3.6c)

Where:

푅푂퐴after : Mean of ROA after rights issue

ROAia : ROA company i after rights issue n : Number of sample

 Return on Equity – Y4

푛푒푡 푝푟표푓𝑖푡 푎푓푡푒푟 푡푎푥푖,푡 푅푂퐸푖,푡 = (3.7a) 푠ℎ푎푟푒ℎ표푙푑푒푟푠 푒푞푢𝑖푡푦푖,푡

Where:

ROEi,t : Return on Assets company i at period t

Net profit after taxi,t : Net profit after tax company i at period t

Shareholders equityi,t : Shareholders equity company i at period t

36 푏, 푏푒푓표푟푒 푟𝑖푔ℎ푡 𝑖푠푠푢푒 푡 = { 푎, 푎푓푡푒푟 푟𝑖푔ℎ푡 𝑖푠푠푢푒

∑푛 푅푂퐸 푅푂퐸 = 푖=1 푖푏 푏푒푓표푟푒 푛 (3.7b)

Where:

푅푂퐸before : Mean of ROE before rights issue

ROEib : ROE company i before rights issue n : Number of sample

∑푛 푅푂퐸 푅푂퐸 = 푖=1 푖푎 (3.7c) 푎푓푡푒푟 푛

Where:

푅푂퐸after : Mean of ROE after rights issue

ROEia : ROE company i after rights issue n : Number of sample

3.4 Data Collection There are two types of data differentiated based on the source from which the data is obtained. According to Sekaran and Bougie (2010, p. 180), Primary data refers to information obtained first-hand by the researcher on the variables of interest for the specific purpose of the study. Information gathered from sources that already exist is called Secondary data. Sources of primary data includes individuals, focus groups, or panels of respondents, meanwhile secondary data are collected from various sources such as books, government publications, statistical abstracts or databases and more (Sekaran and Bougie, 2016). In this research, secondary data is gathered from annual reports of companies, financial databases and government publications of economic indicators. This research uses data from audited financial statements of companies

37 that conducted rights issue in the period of 2006 to 2015. The data for this study is obtained from the Indonesia Stock Exchange (IDX) database in their official website (www.idx.go.id) and from the website of Yahoo finance (www.finance.yahoo.com), as well as from official websites of the companies.

3.5 Sampling Design 3.5.1 Population Based on Sekaran and Bougie (2010, p. 262), the Population refers to the entire group of people, events, or things of interest that the researcher wishes to investigate. The population that is used in this research includes all companies that are listed in IDX. In total, companies that have go public and conducted rights issue in the period of 2006 - 2015 is 169 companies. A ten-year period is used to obtain more samples, considering the few amount of companies that do rights issue in a year.

3.5.2 Samples As stated in Sekaran and Bougie (2016, p. 235), the process of selecting a number of items from the population is called sampling. For this research, the design used for sampling is the judgmental sampling, a type of purposive sampling design, which is included as one of the nonprobability sampling method. Judgmental sampling is a sampling design in which the sample subject is chosen on the basis of the individual’s ability to provide the type of special information needed by the researcher. A Sample is a subgroup or subset of the population; it comprises some members selected from the population (Sekaran and Bougie, 2016). The sample of this research the companies is selected from population of all companies listed in IDX. The companies are selected as the subject of this research based on the following criteria for the sample: 1. The companies are listed in IDX and do rights issue during the period of 2006 - 2015. 2. The companies are listed in IDX at least two years before, two years after, and the year the rights issue is conducted

38 3. Companies that just listed or made IPO in the previous 2 years before rights issue is not included. 4. The companies are actively traded at least 5 days before and 5 days after and at the time of the rights issue activity. Data for five days before and after rights issue is used for study because the effect of rights issue does not take long; accordingly, in order to prevent bias in the study a 5-day time frame is used. 5. The companies only carry out rights issue and do not conduct other activities such as stock split, warrant, dividend, bonus shares, and/or other actions. This is to ensure that the companies’ rights issue is not conducted simultaneously with other activities that would affect the price and volume of stock directly. 6. The companies must have complete data available for analysis purposes; in other words the company must release annual report consistently for a minimum of 2 years before, 2 years after, and the year the rights issue is conducted (a total of 5 years). 7. Companies in the banking industry are not included in this study.

Table 3.1 Total Rights Issue Companies (Period 2006 - 2015) Total Companies Total Rights Issue Total Rights Issue Year Listed on IDX Companies Companies (non-bank) 2006 344 companies 17 12 2007 383 companies 23 18 2008 396 companies 27 24 2009 398 companies 11 7 2010 420 companies 31 20 2011 440 companies 26 19 2012 459 companies 21 15 2013 483 companies 30 21 2014 506 companies 22 17 2015 521 companies 21 16 Total 229 169 Source: IDX

39 Based on data in Table 3.1, the total sample of non-bank companies that do rights issue during 2006 - 2015 is 169 companies. Out of 169 companies, there are 138 companies that do not meet the criteria above; therefore these companies are not eligible to be included in this research. Furthermore, Table 3.2 below presents the filtering process:

Table 3.2 Sample Filtering Process Beginning Last Year Sample Sample Explanation 4 companies cash dividend 2006 12 2 5 companies do other corporate action 1 company not actively traded 4 companies cash dividend 2007 18 5 8 companies do other corporate action 1 company not actively traded 4 companies cash dividend 2008 24 4 10 companies do other corporate action 6 companies not actively traded 4 companies cash dividend 2009 7 2 1 company do other corporate action 5 companies cash dividend 2010 20 2 11 companies do other corporate action 2 companies not actively traded 6 companies cash dividend 2011 19 2 11 companies do other corporate action 6 companies cash dividend 2012 15 2 7 companies do other corporate action 3 companies cash dividend 2013 21 5 12 companies do other corporate action 1 company not actively traded 1 company cash dividend 2014 17 3 11 companies do other corporate action

40 2 companies not actively traded 7 companies cash dividend 2015 16 4 5 companies do other corporate action Total 169 31

The filtering process results in 31 companies that fulfilled the sample criteria. The following table shows the samples that can be used for this study:

Table 3.3 Rights Issue Companies Samples (Period 2006 - 2015) Year Stock Code Company Name Ratio ENRG Energi Mega Persada Tbk 29:15 2006 SULI Sumalindo Lestari Jaya Tbk 6:1 ELTY Bakrieland Development Tbk 14:35 CITA Cipta Panelutama Tbk 10:29 DSFI Dharma Samudera Fishing Industries 1:1 2007 Tbk BRPT Barito Pacific Tbk 3:5 ADES Ades Waters Indonesia Tbk 100:294 RODA Roda Panggon Harapan Tbk 5:109 SSIA Surya Semesta Internusa Tbk 25:6 2008 ABBA Abdi Bangsa Tbk 500:117 BMSR Bintang Mitra Semestaraya Tbk 20:49 LPLI Star Pacific Tbk 5:8 2009 INDX Indoexchange Tbk 20:24 ENRG Energi Mega Persada Tbk 11:20 2010 ABBA Mahaka Media Tbk 16:15 KIJA Kawasan Industri Jababeka Tbk 500:219 2011 PNLF Panin Financial Tbk 6:1 PSAB Pelita Sejahtera Abadi Tbk 125:3025 2012 SMMT Eatertainment International Tbk 4:41 2013 CNKO Exploitasi Energi Indonesia Tbk 110:122

41 SRAJ Sejahteraraya Anugrahjaya Tbk 1:1 CENT Centrin Online Tbk 1:12 TRIM Trimegah Securities Tbk 1:1 DNET Dyviacom Intrabumi Tbk 23:1750 ICON Island Concepts Indonesia Tbk 2:1 2014 GIAA Garuda Indonesia (Persero) Tbk 701409:100000 BUMI Bumi Resources Tbk 20:31 ARTI Ratu Prabu Energi Tbk 5:1 WOMF Wahana Ottomitra Multiartha Tbk 27:20 2015 RELI Reliance Securities Tbk 1:1 CENT Centratama Telekomunikasi Indonesia 5:2 Tbk Source: IDX

3.6 Observation Period In this research, the period of observation or event period used for examining the effect of rights issue on the performance of a company is eleven days. The time frame of 11 days consists of: five days before rights issue announcement (t-1 to t-5), the day on which the rights issue is announced (t0), and five days after the announcement of rights issue (t+1 to t+5). The time period used for observation is set as 11 days because the event under study can be determined easily in terms of its economic value in the market, so the investors can react quickly to the information they receive. Therefore the event period observed does not need to be long so that the changes that occurred is expected to be affected only by the announcement of rights issue.

3.7 Techniques of Data Analysis The method for data analysis utilized in this research is the T-tests to describe the relationship between the independent variable and dependent variable; the analysis was conducted using SPSS 23. There are several stages of analysis through which the collected data are analyzed. The data gathered is first analyzed with descriptive statistics analysis, and will move on to testing of the

42 hypothesis. Hypothesis testing consists of tests for each variable; the tests used in this research include Paired Sample T-test for the before and after rights issue and One Sample T-test for at the time (the day) of rights issue. Further explanation for the test stages described as follows.

3.7.1 Descriptive Statistics As stated in Sekaran and Bougie (2016), descriptive statistics are statistics that provide descriptive information about a set of data; descriptive statistics simply describes what is or what the data shows, without trying to make conclusions or generalizations of the data. Descriptive statistics are broken down into two measures. Measures of central tendency include mean, median and mode, which describe the center position of a distribution for a set of data. Measures of variability (spread) include standard deviation, minimum variable and maximum variable, which aid in analyzing how spread-out the distribution is for a set of data. In this research, the data is analyzed with descriptive statistics, such as the mean and the standard deviation of the rights issue companies in the period of 2006 to 2015.

3.7.1.1 Mean The mean, or the average, is the sum of the values observed divided by the total number of observations (Ross et al., 2015). The mean is a measure of central tendency; it shows the central location of the data.

푛 푥 + 푥 + 푥 … + 푥 1 푥 = 1 2 3 푛 = ∑ 푥 푛 푛 푖 (3.8) 푖=1

Where: 푥 : Mean

푥푖 : Stock price of company i 푛 : Number of sample

43 3.7.1.2 Standard Deviation Standard deviation is the square root of the variance (Sekaran and Bougie, 2016). It is a popular measure of variability, or dispersion. Standard deviation is denoted s for standard deviation of a sample; and denoted with 휎, which is the Greek letter sigma, for standard deviation of a population. The following equations, respectively, are population and sample standard deviation.

푁 (푥 − 휇)2 + (푥 − 휇)2 … + (푥 − 휇)2 1 휎 = √ 1 2 푛 = √ ∑(푥 − 휇)2 (3.9) 푁 푁 푖 푖=1

Where: 휎 : Population standard deviation

푥푖 : Stock price of company i 휇 : Mean 푁 : Population size

푛 1 (3.10) 푠 = √ ∑(푥 − 푥)2 푛 − 1 푖 푖=1

Where: s : Sample standard deviation

푥푖 : Stock price of company i 푥 : Mean 푛 : Number of sample

44 3.8 Hypothesis Testing A hypothesis is tested with a statistical procedure that utilizes sample data to decide if a statement about the value of a population parameter should or should not be rejected; hypothesis is tested because it has not yet been proven to be true. Hypothesis testing is the use of statistics to determine the probability that a given hypothesis is true.

3.8.1 Linear Regression Model Linear regression is an analysis that examines the relationship between two variables. A linear regression is used to predict the value of a variable based on the value of another variable. One variable, denoted by x, is regarded as the independent, predictor, or explanatory variable; the independent variable predicts the value of the other variable, denoted by y, which is regarded as the dependent, response, or outcome variable. A linear regression equation represents a straight line, and is expressed as:

푦푖 = 훽0 + 훽1푥1+ . . . + 휀푖 (3.11)

Where: 푦 : Dependent variable

훽0 : Intercept

훽1 : Slope 푥 : Independent variable 휀 : Random error

To determine the relationship of the independent variable towards the dependent variable, the regression with dummy model that will be used are as follows:

45 For the Abnormal Return, the regression model used will be:

풀푨푹풊풕 = 풂ퟏ + 풃ퟏ푿풊풕 + 풆풊풕 −1 ∑ 퐴푅 , 푏푒푓표푟푒 푟𝑖푔ℎ푡푠 𝑖푠푠푢푒 푖푡 푡=−5 푌퐴푅푖푡 = 5 ∑ 퐴푅푖푡, 푎푓푡푒푟 푟𝑖푔ℎ푡푠 𝑖푠푠푢푒 { 푡=1

0, 푡 푏푒푓표푟푒 푟𝑖푔ℎ푡푠 𝑖푠푠푢푒 푋 = { 푖푡 1, 푡 푎푓푡푒푟 푟𝑖푔ℎ푡푠 𝑖푠푠푢푒

For the Cumulative Abnormal Return, the regression model used will be:

풀푪푨푹풊풕 = 풂ퟐ + 풃ퟐ푿풊풕 + 풆풊풕 −1 ∑ 퐴푅 , 휃 푏푒푓표푟푒 푟𝑖푔ℎ푡푠 𝑖푠푠푢푒 푖푡 푡=−5 푌퐶퐴푅푖푡 = 5 ∑ 퐴푅푖푡, 휃 푎푓푡푒푟 푟𝑖푔ℎ푡푠 𝑖푠푠푢푒 { 푡=1

0, 푡 푏푒푓표푟푒 푟𝑖푔ℎ푡푠 𝑖푠푠푢푒 푋 = { 푖푡 1, 푡 푎푓푡푒푟 푟𝑖푔ℎ푡푠 𝑖푠푠푢푒

For the Profitability Ratio (ROA), the regression model used will be:

YROAi = a3 + b3Xi + e3i

푅푂퐴푖푡, 푏푒푓표푟푒 푟𝑖푔ℎ푡푠 𝑖푠푠푢푒 푌푅푂퐴푖 = { 푅푂퐴푖푡, 푎푓푡푒푟 푟𝑖푔ℎ푡푠 𝑖푠푠푢푒

0, 푏푒푓표푟푒 (𝑖) 푟𝑖푔ℎ푡푠 𝑖푠푠푢푒 푋 = { 푖 1, 푎푓푡푒푟 (𝑖) 푟𝑖푔ℎ푡푠 𝑖푠푠푢푒

46 For the Profitability Ratio (ROE), the regression model used will be:

YROEi = a4 + b4Xi + e4i

푅푂퐸푖푡, 푏푒푓표푟푒 푟𝑖푔ℎ푡푠 𝑖푠푠푢푒 푌푅푂퐸푖 = { 푅푂퐸푖푡, 푎푓푡푒푟 푟𝑖푔ℎ푡푠 𝑖푠푠푢푒

0, 푏푒푓표푟푒 (𝑖) 푟𝑖푔ℎ푡푠 𝑖푠푠푢푒 푋 = { 푖 1, 푎푓푡푒푟 (𝑖) 푟𝑖푔ℎ푡푠 𝑖푠푠푢푒

3.8.1.1 Test of Regression Coefficient Regression coefficient, identified as b, tells about the change in the value of dependent variable corresponding to the unit change in the independent variable. A regression coefficient is used to estimate the unknown population parameters and to describe the relationship between a predictor variable and the response variable. In linear regression, the significance of a regression coefficient is tested with the following equation:

̂ 푏푖 푡 = 푆 ̂ 푏푖 (3.12)

Where:

푏̂I : Estimated regression coefficient for variable i : Standard Deviation of b 푆푏̂푖 i

3.8.2 T-Test Based on Sekaran and Bougie (2010), a T-test is a statistical test that establishes a significant mean difference in a variable between two groups. In other words, the t-test is used to determine whether the individual independent variable have significant relationship with the dependent variable.

47 3.8.2.1 One Sample T-test One sample t-test is a statistical procedure that is used to compare the mean of a single sample; the mean score of an observed sample is compared to a hypothetically assumed value. The one sample t-test is used to determine a sample of observations generated by a process where the mean of a sample drawn from the population is compared to a pre-specified comparison standard. In this research, a confidence level of 95% (훼 = 0.05) will be used and the t Stat is obtained through the following formula:

퐴퐴푅 − 푚0 푡 = (3.13) 푆⁄√푛

Where: 퐴푅 : Mean of Average Abnormal Return (AAR)

푚0 : Hypothesized value (which is zero, 0) S : Standard deviation of the sample 푛 : Number of sample

The t Stat obtained is later compared with the ttable; in conclusion, the criteria for T-test are:

t Stat > ttable = Reject H0

t Stat < ttable = Do Not Reject H0

Or:

P-value ≤ 0.05 = Reject H0

P-value > 0.05 = Do Not Reject H0

48 3.8.2.2 Paired Sample T-test A paired sample t-test is used to examine the differences in the same group before and after and event; in this case, there are two observations, which is before and after the event. A paired sample t-test tests the null hypothesis that the average of the differences between the before and after measure is zero. In this research, a confidence level of 95% (훼 = 0.05) will be used and the t Stat is obtained through the following formula:

∆푅푂퐴 푡 = (3.14) S∆ √푛

Where:

∆푅푂퐴 : Mean difference of Return on Assets (ROA) after and before Rights issue S : Standard deviation of ROA of the difference 푛 : Total number of samples

The t Stat obtained is later compared with the ttable; in conclusion, the criteria for T-test are:

t Stat > ttable = Reject H0

t Stat < ttable = Do Not Reject H0

Or:

P-value ≤ 0.05 = Reject H0

P-value > 0.05 = Do Not Reject H0

49

∆ 푡 = 푅푂퐸 S (3.15) √푛

Where:

∆푅푂퐸 : Mean difference of Return on Equity (ROE) after and before Rights issue S : Standard deviation of ROE of the difference 푛 : Total number of samples

The t Stat obtained is later compared with the ttable; in conclusion, the criteria for T-test are:

t Stat > ttable = Reject H0

t Stat < ttable = Do Not Reject H0

Or:

P-value ≤ 0.05 = Reject H0

P-value > 0.05 = Do Not Reject H0

50 3.9 Research Process

Go Public Company listed in Indonesia Stock Exchange 2006-2015

Rights Issue (X)

Return Profitability

Average Cumulative ROA ROE Abnormal Return Abnormal Return (Y3) (Y4) (Y1) (Y2)

At the At the At the At the Before After Before After Before After Before After time time time time

One Sample T-test One Sample T-test Paired Sample T-test Paired Sample T-test

Regression with Dummy Variable

Result

Figure 3.2 Research Process

51 CHAPTER 4

FINDINGS, ANALYSIS AND DISCUSSION

4.1 Research Object Description The following companies are the rights issue sample used in this research:

1. PT Energi Mega Persada Tbk (ENRG) PT Energi Mega Persada Tbk is an upstream oil and gas company primarily engaged in the exploration, development and production of oil and gas, both onshore and offshore, in Indonesia. The company has operations spanning the Indonesian archipelago from the northern part of Sumatra to East Kalimantan, Java and Eastern Indonesia. It currently has seven oil and gas blocks, including Bentu Production Sharing Contract (PSC), Gebang PSC, Kangean PSC, Korinci PSC, Malacca Strait PSC, Sangatta II CBM PSC and Tonga PSC. The company’s subsidiaries, such as PT EMP Tonga, PT EMP Energi Indonesia, EMP Energy Ltd, and EMP Holdings Singapore Pte Ltd. operate these oil and gas blocks.

2. PT SLJ Global Tbk (SULI) Incorporated in 1980 under the name of PT Sumalindo Lestari Jaya Tbk, the company later changed it name to PT SLJ Global Tbk in December of 2012. Headquartered in Jakarta, SULI specializes in the field of forestry and timber industry and has factory located in East Kalimantan. The company is involved in integrated timber manufacturing; the development/exploitation of natural forest and timber forest products; logging activities; and both import export and local trading activities. It also engages in natural forest management, industrial plywood, and medium density fiberboard businesses. Together with its subsidiaries, such as PT Karya Wijaya Sukses and PT Essam Timber, the company currently manages six natural forests with total areas of 770,455 hectares. SULI also operates other business units; its subsidiary PT Kalimantan Powerindo

52 manages a power plant with a total capacity of 22.5 MW, and PT Suli Inti Resources is engaged in mining.

3. PT Bakrieland Development Tbk (ELTY) PT Bakrieland Development Tbk, formerly known as PT Elang Realty Tbk, is an integrated property company engaged in property development and property-related infrastructure business in Indonesia. The company develops a range of urban properties, residential estates, hotels and resorts across Indonesia including Rasuna Epicentrum, Rasuna Office Park, Sentra Timur Residence, The Convergence Indonesia, The Grove Condominium, The Grove Suites and the Wave. The company has three business units, namely City Property, Landed Residential, and Hotels and Resorts; its business is divided into thre operational divisions that comprises development and sale of land, housing, apartment, and office space; leases space for offices and commercial facilities; operates hotels and manages the recreation and tourism areas.

4. PT Cita Mineral Investindo Tbk (CITA) Founded in 1992, PT Cipta Panelutama Tbk is an Indonesia-based company engaged in bauxite and alumina mining activities. The company changed its name in 2007, it is known today as PT Cita Mineral Investindo Tbk. It operates mining concessions in the Ketapang Regency, West Kalimantan through its subsidiaries: PT Harta Prima Abadi Mineral and PT Karya Utama Tambangjaya.

5. PT Dharma Samudera Fishing Industries Tbk (DSFI) PT Dharma Samudera Fishing Industries Tbk, established in 1973, is an integrated seafood enterprise and a leading processor and exporter of Indonesian seafood products. The company’s operations in Jakarta and Kendari are specialized in fish processing, as well as catching, purchasing, marketing and trading activities. Besides operating its own vessel fleet for catching, DSFI also purchases from local fishing fleets. The company is

53 committed to negotiating mutually beneficial price agreements, supplying onboard facilities and providing assistance in constructing vessels for the local Indonesian fishing communities. The company distributes its products to both local markets and also exports its products to Japan, Hong Kong, Malaysia, Australia, Europe and the United States.

6. PT Barito Pacific Tbk (BRPT) PT Barito Pacific Tbk, formerly known as PT Barito Pacific Timber Tbk, is an Indonesia-based company founded in 1979, and primarily engaged in petrochemicals industry. The company’s business activities are grouped into four segments, which are petrochemical, wood manufacturing, property and plantations. BRPT, together with its subsidiaries, operates as a diversified resource-based company that produces petrochemical products such as petroleum, ethylene, crude C4, propylene and Pyrolysis gasoline (Py-gas). The company also engages in logging and timber operations, manufactures wood products, develops and manages properties, and develops palm oil plantations.

7. PT Akasha Wira International Tbk (ADES) PT Akasha Wira International TBK, previously PT Ades Waters Indonesia Tbk, is based in Jakarta and was founded in 1985. The company started out in the consumer goods industry as a manufacturer and distributor of bottled drinking water. At the moment, ADES is engaged in two business segments: beverage and beauty care. The company produces and markets bottled drinking water under the trademark of Nestlé Pure Life, owned by Nestlé SA, and Vica Royal, its own brand name. The company also manufactures and distributes hair care products under the brand name Makarizo. The manufacturing plants for bottled water and cosmetics are located in Bogor and Pulogadung, respectively.

54 8. PT Pikko Land Development Tbk (RODA) PT Pikko Land Development Tbk was established in 1984 with the name of PT Roda Panggon Harapan. RODA is an Indonesia-based company whose currently engaged in real estate and property development. Its core activity is development and sale of real estate and/or unit apartment or office; it also invests in shares of stock and various properties assets. The company’s property portfolio includes residential properties, such as Botanica Residence, Sahid Sudirman Residence, Signature Park, Lebak Lestari Garden and Thamrin District Bekasi; mixed used developments, such as Grand Kemayoran; and commercial properties, such as Sahid Sudirman Center and Sultan Office Building. Its subsidiaries include PT Multi Pratama Gemilang, PT Tiara Sakti Mandiri, PT Fortuna Cahaya Gemilang, PT Bangun Megah Pratama, PT Unggul Kencana Persada and PT Megatama Karya Gemilang.

9. PT Surya Semesta Internusa Tbk (SSIA) Formerly known as PT Multi Investments Limited, the company changed its name to PT Surya Semesta Internusa TBK in 1995. SSIA is a company based in Jakarta, which mainly engages in provisioning construction services. Through its subsidiaries, SSIA operates its business in 3 segments: property development and management, construction and hospitality. In the property business, its subsidiaries PT Suryacipta Swadaya develops and manages Suryacipta industrial estate (Karawang), PT TCP Internusa develops Tanjung Mas Raya residential complex (Jakarta) and manages Graha Surya Internusa commercial building (Kuningan), and PT Sitiagung Makmur develops Banyan Tree Ungasan Resort (Bali). PT Nusa Raya Cipta operates the company’s construction business, and PT Suryalaya Anindita International, PT Ungasan Semesta Resort and PT Surya Internusa Hotels operate the hospitality business. SSIA also invests in other companies through PT Enercon Paradhya International.

55 10. PT Mahaka Media Tbk (ABBA) PT Mahaka Media is a multiplatform media holding company with four business lines: new media and business development, publishing, broadcasting, and out of home media. The company changed its name from PT Abdi Bangsa Tbk to PT Mahaka Media Tbk in 2010. It engages in making, selling, collecting and distributing community content through various platforms. The new media and business development branch focuses on new wave media with specialization in digital marketing. Its publishing unit owns a book-publishing house named Republika Penerbit, and publishes magazines (e.g. Parents Indonesia and Golf Digest Indonesia) and daily newspaper (e.g. Harian Indonesia and Harian Republika). Its broadcasting division operates several television stations such as Jak TV and Alif TV, as well as several radio stations such as Jak FM, Gen FM, Prambors and Delta FM among others. Its out of home media unit, which operates under the name Mahaka Advertising, is engaged in advertising business.

11. PT Bintang Mitra Semestaraya Tbk (BMSR) On establishment, PT Bintang Mitra Semestaraya Tbk was initially engaged in real estate construction with various businesses comprising of housing estate and construction of commercial building. In 2008, the company added another business as distributor for PT Sulfindo Adiusaha to market and sell chemical products across Indonesia, such as sodium hypochlorite, ethylene dichloride, polyvinyl chloride, hydrogen gas and more. BMSR made major diversification in 2009, by investing in oil and gas companies. The company participates in other business activities through its subsidiaries including PT Binatek Reka Kruh, PT Retco Prima Energi, Bittlestone Capital Inc. and PT Bintang Raya Anugerah Lestari.

12. PT Star Pacific Tbk (LPLI) PT Star Pacific Tbk is an investment company primarily engaged in media industry and is based in Tangerang. It was established in May of 1983, and

56 initially named PT Asuransi Lippo Jiwa Sakti; in October of the same year, the company changed its name to PT Asuransi Lippo Life. Over the years the company changed its name several times; in 2000, its name was changed to PT Asuransi Lippo E-Net Tbk. Then it changed again in 2009, to PT Star Pacific Tbk, the name by which the company is currently called. Its subsidiary, PT Multi Media Interaktif, runs a mass media publishing business that operates under the name BeritaSatu Media Holdings. The publications are categorized into three types such as (1) online media: beritasatu.com and thejakartaglobe.com; (2) daily newspapers: Investor Daily, Suara Pembaruan, and Jakarta Globe; as well as (3) monthly magazines: Majalah Investor, Globe Asia, The Peak and the Student Globe. LPLI provides advertising agency services through its subsidiary, PT Lippo Media Jasa. The company also provides general trading and radio broadcasting services, and has other subsidiaries including PT Anggraini Mulia, PT Samiaji Duta Perkasa and PT Sarikreasi Dinamika.

13. PT Tanah Laut Tbk (INDX) PT Tanah Laut Tbk, previously known as PT Indoexchange Tbk, is a company engaged in the marine port services industry; it was founded in 1991, and headquartered in Jakarta, Indonesia. The company operates two business units: Ports and Terminal Development and Operations, which provides operation and maintenance services for port and terminal facilities in Indonesia and Southeast Asia, and Logistics and Marine Transportation Services, which provides tugs, barges, vessels, floating cranes along with barge and vessel conversions for bulk transshipment or storage activities. The company and its subsidiaries’ operating revenue originate from three segments, namely business management consultancy, port and marine logistics services, and domestic sea transportation and trans-loading services.

57 14. PT Kawasan Industri Jababeka Tbk (KIJA) PT Kawasan Industri Jababeka Tbk or Jababeka was established in 1989 and is the first publicly listed industrial estate developer in Indonesia, being listed on the stock exchange in 1994. Jababeka is a leading and fully integrated enterprise that develops commercial and residential real estate as part of its integrated industry-based township development. The company’s flagship project is Kota Jababeka, in Cikarang, which is strategically located 35 kilometers east of Jakarta along the Bekasi- Cikampek corridor and connects Jakarta and Bandung. Kota Jababeka is an integrated township with industrial, residential and commercial estates; public transportation network; shopping, leisure, and entertainment establishments; dry port; power plants, water treatment plants, waste water treatment plants and other facilities. Jababeka’s other projects are spread across Indonesia, such as: Kawasan Industri Kendal, a township located in Central Java; Tanjung Lesung resort located in Banten, and Morotai resort located in Halmahera Islands. Jababeka subsidiaries include PT Grahabuana Cikarang, PT Mercuagung Graha Realty, PT Jababeka Infrastruktur, PT Indocargomas Persada, PT Saranapratama Pengembangan Kota and PT Banten West Java Tourism Development.

15. PT Panin Financial Tbk (PNLF) PT Panin Financial Tbk is an Indonesia-based consulting and investment company that operates in the financial industry. The company was established in 1974, under its previous name PT Panin Life Tbk, as a company engaged in life insurance field. The company’s business activities were involved in various financial service sectors such as banking, life insurance, general insurance, financing and securities. In 2010, the company changed its business area to the field of management, business and administration consultant; the company changed its name to PT Panin Financial Tbk, and the life insurance portfolio was transferred to its subsidiary, PT Panin Anugrah Life. The company has other subsidiaries including PT Panin Internasional that engages in provisioning

58 management consulting for archiving industry, and PT Epanin Dotcom that engages is provisioning information technology services and management information system.

16. PT J Resources Asia Pasifik Tbk (PSAB) PT J Resources Asia Pasifik Tbk, or J Resources, is as an Indonesia-based holding company, which operates, mines, explores and invests in the gold mining sector through its operating subsidiary, PT J Resources Nusantara. The company primarily invests in and manages gold mining businesses along with other precious metals businesses within the Australasian region. J Resources currently owns 8 projects, some of which are operating and actively in production while some in development or at an advanced stage of exploration. The entire portfolio is located in Indonesia with the exception of the gold producing Penjom Mine that is located in Malaysia. The primary producing mines in Indonesia is located in Bakan, Seruyang and Lanut in North Sulawesi. The development projects are Pani and Doup, while and the exploration projects are located at Bulagidun and Bolangitang in North Sulawesi. The company was founded in 2002, formerly named PT Pelita Sejahtera Abadi, and changed its name to PT J Resources Asia Pasifik in January 2012.

17. PT Golden Eagle Energy Tbk (SMMT) PT Golden Eagle Energy Tbk is an Indonesia-based coal mining company founded in 1980, and formerly known as PT Eatertainment International Tbk. The company operates coal-mining activities through its subsidiary, PT Triaryani, which runs the coal concession in Samarinda, East Kalimantan, and its affiliate, PT Internasional Prima Coal, which runs three coal concessions in Musi Rawas Regency in South Sumatera. Other subsidiaries include PT Rajawali Resources, PT Mega Raya Kusuma and PT Naga Mas Makmur Jaya.

59 18. PT Exploitasi Energi Indonesia Tbk (CNKO) PT Exploitasi Energi Indonesia Tbk operates as an integrated coal-based energy company based in Indonesian. Its scope of activities is divided into coal mining and trading, steam power plant, port services and other segments. The company operates coalmines in Riam Andungan and Kintap, South Kalimantan and other regions in Indonesia. It operates steam power plants in Pangkalan Bun, Central Kalimantan, Rengat, Riau and Tembilahan Riau. CNKO is also involved in logistics and transportation of coal, and electricity power development, as well as port services. Its subsidiary is PT Energi Batubara Indonesia.

19. PT Sejahteraraya Anugrahjaya Tbk (SRAJ) Founded in 1991, PT Sejahteraraya Anugrahjaya Tbk is an Indonesian company that operates in hospital and health care services. It owns and manages hospitals under the Mayapada Hospital name, which are located in Tangerang, Bantan and South Jakarta. Its subsidiaries are PT Nirmala Kencana Mas and PT Fajar Kharisma Nusantara.

20. PT Centratama Telekomunikasi Indonesia Tbk (CENT) PT Centratama Telekomunikasi Indonesia Tbk, formerly known as PT Centrin Online Tbk, is a company that engages in provisioning telecommunication infrastructure solution and services. Its business activities include operating and leasing telecommunication towers and base transceiver stations through its subsidiary, PT Centratama Menara Indonesia, which focuses in the provision and maintenance of telecommunication tower infrastructures.

21. PT Trimegah Sekuritas Indonesia Tbk (TRIM) Formerly named PT Trimegah Securities Tbk, the company changed its name in 2016, and is known currently as PT Trimegah Sekuritas Indonesia Tbk. It is an Indonesia-based, integrated securities company that is engaged in provision of financial services; it consists of several divisions

60 supporting its operations. Equity capital markets division provides equity brokerage service and margin lending facility for retail and institutional clients. Debt capital market division facilitates government bond transactions, including retail government bond, retail Sharia government bond, and corporate bond. Investment banking division provides bonds and equity underwriting service, arranger as well as financial advisory. Its subsidiary, PT Trimegah Asset Management is engaged in investment management.

22. PT Indoritel Makmur Internasional Tbk (DNET) Incorporated in 1995 and previously named PT Dyviacom Intrabumi Tbk, the company changed its business focus from the provision of internet services to become an investment holding company focused primarily on the consumer and retail industries in Indonesia, and also changed its name to PT Indoritel Makmur Internasional Tbk in June 2013. DNET has strategic interests in PT Indomarco Prismatama, which is engaged in operating a convenience store franchise chain with brand name Indomaret; PT Fast Food Indonesia, which is engaged in operating the outlets of a quick service restaurant chain called KFC; and PT Nippon Indosari Corporindo Tbk (ROTI), which is engaged in the manufacture of packaged bread and cake. In addition to its investment in the associated companies, DNET is also involved in Internet-related business that consists of management of an online business portal, Ogahrugi.com, and information technology consulting services.

23. PT Island Concepts Indonesia Tbk (ICON) PT Island Concepts Indonesia Tbk is an Indonesia-based company engaged in the hospitality industry, with business activities consisting of accommodation services, catering services and urban facility maintenance services. The company provides catering services and urban facilities maintenance services through its subsidiary, PT Patra Supplies and Services. Headquartered in Bali, the company provides accommodation

61 services and operates Bali Island Villas and Spa, located in Bali, whose customers include customers in Australia and Asian markets.

24. PT Garuda Indonesia (Persero) Tbk (GIAA) PT Garuda Indonesia Tbk, founded in 1949, is one of the major commercial airlines in Indonesia; originally a state-owned company until its initial public offering in 2011. It business is classified into three segments: flight operation, aircraft maintenance services and other operations. Flight operation segment comprises of passenger flights, which offer both scheduled and non-scheduled airline services, and cargo flights; GIAA provides both domestic and international flights for passenger and cargo flights. Aircraft maintenance services segment, which provides aircraft repair and maintenance and overhaul services is operated by its subsidiary, PT Garuda Maintenance Facility Aero Asia. Other operations segment includes flight services (e.g. ticketing and in-flight catering), travel agency, ground handling, information technology, hotel, healthcare services, training facilities, aircraft rental and other business activities related to air transportation. The company provides full service carrier (FSC) through its Garuda Indonesia brand, headquartered at the Soekarno- Hatta International Airport, as well as low cost carrier (LCC) service through its Citilink brand, which is separate from the Garuda Indonesia brand and operated by its strategic business unit in Surabaya. GIAA has three service hubs in Indonesia: Soekarno-Hatta International Airport in Jakarta, Ngurah Rai International Airport in Denpasar (Bali), and Sultan Hasanuddin International Airport in Makassar (South Sulawesi). GIAA is a 5-star aviation company that currently offers flights to 68 domestic and 20 international destinations; as of 2017, it operates 202 aircraft fleets.

25. PT Bumi Resources Tbk (BUMI) PT Bumi Resources Tbk is a leading natural resources group based in Indonesia, which focuses primarily on coal mining. It is a holding company operating in the mining industry through four core business

62 segments: Coal, Services, Oil and Gas, and Gold. Its coal-mining segment comprises exploration, exploitation, mining and sale of coal deposits conducted through subsidiaries and associates such as PT Kaltim Prima Coal, PT Arutmin Indonesia, PT Fajar Bumi Sakti and PT Pendopo Energi Batubara. BUMI produces thermal coal from its coalmines located in areas across Indonesia such as Sangatta, Bengalon, Batulicin and Kintap, among others. The services segment offers marketing and management services, while oil and gas segment covers exploration of oil and gas, and gold segment explores gold. BUMI is also engaged in other minerals mining operations through PT Bumi Resources Mineral Tbk.

26. PT Ratu Prabu Energi Tbk (ARTI) PT Ratu Prabu Energi Tbk, founded in 1993, is an Indonesia-based company that provides services in the crude petroleum and natural gas sector. Prior to June 2008, the company was known by the name PT Arona Binasejati Tbk. The company is engaged in production and services of oil and gas through its subsidiary, PT Lekom Maras. It also carries on business in other mining including gold and coal. The company offers inspection and maintenance services for drill pipes and oilfield tubular goods; performs work over to restore or enhance production of oil and gas in old and aged wells; rents out heavy equipment to other energy companies, as well as other services. In addition, it has another business unit where it invests in properties.

27. PT Wahana Ottomitra Multiartha Tbk (WOMF) PT Wahana Ottomitra Multiartha Tbk is a consumer financing services provider founded in in 1982 and headquartered in Jakarta. The company’s business lines include: Leasing of capital goods to lessees, with or without purchase option; Factoring through purchase/transfers of short-term account receivables or liabilities arising from domestic and international trade, credit sales management, and debt collection services for other companies; Consumer Financing in form of funding for purchases of

63 goods to be repaid by consumers; and issuance of Credit Cards. In addition, the company is engaged in consumer financing services for new and used two-wheeled and four-wheeled motor vehicles.

28. PT Reliance Sekuritas Indonesia Tbk (RELI) PT Reliance Sekuritas Indonesia Tbk is a securities company founded in 1993 that was formerly known as PT Reliance Securities Tbk. The company provides securities brokerage, in both equity and fixed income markets, and underwriting services. It operates as an underwriter and a sales agent on the public offering of shares and bonds, which include Indonesian Retail Bond or Obligasi Ritel Indonesia (ORI) and Retail Sovereign Sukuk Bonds or Sukuk Negara Ritel. It is also an underwriter and sales agent on limited public offering with pre-emptive right on shares and mutual funds. The company’s network comprises branches and investment galleries in various areas in Indonesia such as Jakarta, Bandung, Yogyakarta and Surabaya, among others.

4.2 Descriptive Analysis 4.2.1 Abnormal Return Table 4.1 Descriptive Statistics of Average Abnormal Return (AAR) N Mean Median Std. Dev Minimum Maximum AAR before 31 0.008968 0.000751 0.057668 -0.147455 0.200504 AAR at 31 0.025589 0.001424 0.065050 -0.053291 0.247647 rights issue AAR after 31 -0.003991 -0.005747 0.022581 -0.040538 0.066826 Source: Processed Secondary Data

Table 4.1 comprises of the descriptive statistics of five-day event window of Average Abnormal Return (AAR) from all the rights issue companies for the period of 2006 to 2015. The data displayed in the table shows that the average of Average Abnormal Return before rights issue is 0.008968; meanwhile the average of Average Abnormal Return after rights issue is -0.003991. The company with the highest average of abnormal return before rights issue of 0.200504 is PT Dyviacom Intrabumi Tbk (DNET). The lowest average of

64 abnormal return before rights issue is PT Cipta Panelutama Tbk (CITA) with the number of -0.147455. Furthermore, the highest average of abnormal return after rights issue is PT Bintang Mitra Semestaraya Tbk (BMSR) with the number of 0.066826. The company with the lowest average of abnormal return after rights issue of -0.040538 is PT Wahana Ottomitra Multiartha Tbk (WOMF). Based on the mean statistics shown in the table above, the average of abnormal return before and after rights issue decreased from 0.008968 to - 0.003991, which means that the issuance of rights decreases the number of a firm’s abnormal return.

Average Abnormal Return 0.030000

0.020000

0.010000

0.000000 t-5 t-4 t-3 t-2 t-1 t t+1 t+2 t+3 t+4 t+5 -0.010000

-0.020000

-0.030000

Figure 4.1 Average Abnormal Return Statistics Source: Processed Secondary Data

Figure 4.1 is a graph of the Average Abnormal Return before and after rights issue for all companies that do rights issue in 2006-2015. The graph shows that abnormal return is highest at the time of rights issue, with an average abnormal return of 0.025589 on day (t). The numbers of abnormal return before rights issue, from five days prior to the rights issue activity (t-5), decreases until the day before rights issue (t-1) after which abnormal return increases to its highest on the day of rights issue. In the period after the rights issue event, furthermore, the abnormal return decreases to 0.012040 on the day right after the event; the number of abnormal return decreased sharply afterwards. On the second

65 day after the rights issue (t+2), abnormal return reached its lowest number of average abnormal return number of -0.026031. The abnormal return increased to - 0.012059 on day three (t+3) after rights issue, and have also increased relatively on the fourth and fifth day post rights issue event.

4.2.2 Cumulative Abnormal Return Table 4.2 Descriptive Statistics of Cumulative Abnormal Return (CAR) N Mean Median Std. Dev Minimum Maximum CAR before 31 0.040091 0.000154 0.163897 -0.218100 0.649789 CAR at 31 0.070428 0.001283 0.315793 -0.548006 1.250166 rights issue CAR after 31 0.055307 -0.012594 0.317924 -0.647756 1.327271 Source: Processed Secondary Data

Table 4.2 above consists of the descriptive statistics of five-day event window of Cumulative Abnormal Return (CAR) from all rights issue companies for the period of 2006 to 2015. The data presented in the table shows that the average of Cumulative Abnormal Return before rights issue is 0.040091, which increased at the time of rights issue to 0.070428, afterwards however, the average of Cumulative Abnormal Return after rights issue decreased to 0.055307. The company with the highest average of cumulative abnormal return before rights issue of 0.649789 is PT Centratama Telekomunikasi Indonesia Tbk (CENT). In addition, the highest average at the time of rights issue and after rights issue is PT Dyviacom Intrabumi Tbk (DNET) with the number of 1.250166 and 1.327271, respectively. Furthermore, the company with the lowest average of cumulative abnormal return is PT Cipta Panelutama Tbk (CITA), with the numbers of -0.218100 before rights issue, and -0.548006 at the time of rights issue and -0.647756 after rights issue. Based on the mean statistics shown in the table above, the average of cumulative abnormal return before and after rights issue increased from 0.040091 to 0.055307, which means in general, as time passes, the overall cumulative of a firm’s abnormal return increases after rights issue.

66 Cumulative Abnormal Return 0.090000 0.080000 0.070000 0.060000 0.050000 0.040000 0.030000 0.020000 0.010000 0.000000 t-5 t-4 t-3 t-2 t-1 t t+1 t+2 t+3 t+4 t+5

Figure 4.2 Cumulative Abnormal Return Statistics Source: Processed Secondary Data

Figure 4.2 is a graph displaying the average of Cumulative Abnormal Return before, at the time, and after rights issue for all companies that do rights issue in 2006-2015. The graph shows that cumulative abnormal return is highest on the day after rights issue, and not on the day of rights issue activity, with an average of 0.082468 on day (t+1). The numbers of cumulative abnormal return before rights issue, from five days prior to the rights issue activity (t-5), increases until two days before rights issue, with an average of 0.049066 on day (t-2). From day (t-2), the average dropped to 0.044839 on day (t-1), before a sharp increase on the day of rights issue, with the average increasing to 0.070428 on day (t). The average increased further and reached its highest on the day after rights issue. However, the average of cumulative abnormal return decreased sharply from its highest on day (t+1) to an average of 0.056437 on day (t+2). The average of cumulative abnormal return decreased further on the third and fourth day post rights issue event, then it showed an upward trend on the fifth day after rights issue event.

67 4.2.3 Return on Assets Table 4.3 Descriptive Statistics of Return on Assets (ROA) N Mean Median Std. Dev Minimum Maximum ROA before 31 -3.98 0.76 12.65 -55.22 8.96 ROA at 31 -2.46 0.55 16.61 -86.62 15.30 rights issue ROA after 31 -1.48 0.95 14.97 -64.39 23.92 Source: Processed Secondary Data

The Table 4.3 above shows the descriptive statistics of companies’ profitability in terms of Return on Assets (ROA) before, at the time and after rights issue during 2006 to 2015. As shown in the table, the average of ROA before rights issue is -3.98%, meanwhile the average of ROA after rights issue is - 1.48%, which is a 2.5% increase in the average of ROA of the sample companies that do rights issue in 2006 to 2015. Similarly, the median is 0.76% before rights issue, though it decreased to 0.55% prior to increasing to 0.95% after rights issue. Furthermore, the standard deviation also increased from 12.65 before rights issue to 14.97 after rights issue. The firm with highest ROA before rights issue is PT Panin Financial Tbk (PNLF) with 8.96%; at the time of rights issue is PT Pelita Sejahtera Abadi Tbk (PSAB) with 15.30%; meanwhile, the highest ROA after rights issue is PT Star Pacific Tbk (LPLI) with 23.92%. The firm with lowest ROA before and at the time of rights issue is PT Ades Waters Indonesia Tbk (ADES), currently known as PT Akasha Wira International Tbk, with the ROA of -55.22% and -86.62%, respectively. In addition, PT Bumi Resources Tbk (BUMI) has the lowest ROA after rights issue of -64.39%. In accordance with the descriptive statistics of profitability in terms of ROA, it can be concluded that the profitability of all companies listed on Indonesia Stock Exchange that conducted rights issue during 2006-2015 is increasing when comparing before and after rights issue.

68 4.2.4 Return on Equity Table 4.4 Descriptive Statistics of Return on Equity (N 31) N Mean Median Std. Dev Minimum Maximum ROE before 31 13.62 2.20 64.97 -99.32 236.87 ROE at 31 -4.13 1.12 45.28 -230.76 63.56 rights issue ROE after 31 2.12 3.45 23.33 -61.98 75.23 Source: Processed Secondary Data

The descriptive statistics of profitability in terms of Return on Equity (ROE) before, at the time and after rights issue for all companies that do rights issue in 2006 to 2015 is shown in the table above. For the samples of 31 companies, the average of ROE before rights issue is 13.62%, whereas the average of ROE after rights issue is 2.12%. There is a large difference in the numbers of ROE average before and average after; the cause of the significant gap in the overall average is the presence of several outliers. These outliers are the amount of ROE of several sample companies that does not reflect the actual condition of the company. Therefore a second table is made below with descriptive statistics that excludes the outliers from the calculation; the outliers are excluded in order to make a relevant descriptive statistics of the sample data.

Table 4.5 Descriptive Statistics of Return on Equity (N 28) N Mean Median Std. Dev Minimum Maximum ROE before 28 -3.29 1.84 30.41 -99.32 73.85 ROE at 28 1.39 1.24 13.19 -40.58 35.48 rights issue ROE after 28 0.58 3.14 19.17 -61.98 46.26 Source: Processed Secondary Data

For descriptive statistics of ROE of companies that do rights issue in 2006 to 2015, three companies are excluded from the calculation because there are inapplicable information on the ROE of these companies. These companies are PT Akasha Wira International Tbk (ADES), PT Tanah Laut Tbk (INDX), and PT Bumi Resources Tbk (BUMI). The information of these firms mentioned is inapplicable because their ROE does not reflect the firms’ actual condition. For

69 the information on the year before rights issue, ADES reported a net loss and a negative total equity, however the result in calculation of ROE is a positive number. Similarly, INDX and BUMI reported a net loss and a negative total equity, but the ROE result of both companies is positive. The ROE information becomes irrelevant and meaningless because when two negative numbers are calculated in ROE, the result gives a positive number, which does not reflect the real condition of the company. Thus the companies are excluded as sample for descriptive statistics on ROE. The table above presents the descriptive statistics of ROE before, at the time and after rights issue for the sample of 28 companies. It shows that average of ROE before rights issue is -3.29%, while the average of ROE after rights is 0.58%. The average of ROE for the sample companies conducting rights issue in 2006-2015 increased relatively from -3.29% to 0.58%. Concurrently, the median also increased from 1.84 before rights issue to 3.14 after rights issue. The standard deviation, on the other hand, decreased from 30.41 before rights issue to 19.17 after rights issue. The firm with the highest ROE is PT Cipta Panelutama Tbk (CITA), with the number of ROE of 73.85% before rights issue, 35.48% at the time of rights issue and 46.26% after rights issue. Additionally, the firm with lowest ROE before rights issue is PT Energi Mega Persada Tbk (ENRG) with -99.32%; at the time of rights issue is PT Garuda Indonesia (Persero) Tbk (GIAA) with -40.58%; while the lowest ROE after rights issue is PT Dharma Samudera Fishing Industries Tbk (DSFI) with -61.98%. In accordance with the descriptive statistics of profitability in terms of ROE, it can be concluded that the profitability of all companies listed on Indonesia Stock Exchange that conducted rights issue in the period of 2006-2015 is increasing when comparing before and after rights issue.

70 4.3 Hypothesis Testing 4.3.1 Hypothesis 1 The one sample t-test is used to analyze the first hypothesis, which states that companies’ stock price performance before, during, and after rights issue is better than market. The companies’ stock price performance is measured in terms of Abnormal Return (AR) and Cumulative Abnormal Return (CAR).

4.3.1.1 Abnormal Return (AR)

Table 4.6 Abnormal Return (t-5) to (t-1) Before Rights Issue

Std. N Mean Deviation AR t-5 31 .0220 .07280 AR t-4 31 .0159 .07335 AR t-3 31 .0088 .07268 AR t-2 31 .0024 .11062 AR t-1 31 -.0042 .07856

Test Value = 0 95% Confidence Interval Sig. (2- Mean of the Difference t df tailed) Difference Lower Upper AR t-5 1.680 30 .103 .02197 -.0047 .0487 AR t-4 1.209 30 .236 .01593 -.0110 .0428 AR t-3 .673 30 .506 .00879 -.0179 .0355 AR t-2 .120 30 .905 .00238 -.0382 .0430 AR t-1 -.300 30 .767 -.00423 -.0330 .0246 Source: Processed Secondary Data

Shown above in Table 4.5 are the results of the one sample t-test on Abnormal Return in the period before rights issue, which include day (t-5) to day (t-1). As stated in the table, the significant (2 tailed) for each day are: 0.103 on day (t-5), 0.236 on day (t-4), 0.506 on day (t-3), 0.905 on day (t-2), and 0.767 on day (t-1). These probability values for each day are above 훼 that is 0.05, which means that the null hypothesis (H0) is accepted on each test. Based on the

71 probability value, the alternative hypothesis (Ha) is rejected and it can be concluded that the companies’ stock price performance, in terms of abnormal returns, for all the five days in the period before rights issue activity is not better than the market.

Table 4.7 Abnormal Return (t) During Rights Issue

Std. N Mean Deviation AR_t 31 .0256 .06505

Test Value = 0 95% Confidence Interval Sig. (2- Mean of the Difference t df tailed) Difference Lower Upper AR_t 2.190 30 .036 .02559 .0017 .0494 Source: Processed Secondary Data

As stated above in Table 4.6, the t-test for abnormal return at the time of rights issue results in a significant (2 tailed) of 0.036. This probability value is less than the 훼 (0.05), which means that the null hypothesis (H0) is rejected. Based on the probability value, the alternative hypothesis (Ha) is accepted; therefore it can be concluded that companies’ abnormal returns on the stocks are better than the market during rights issue.

Table 4.8 Abnormal Return (t+1) to (t+5) After Rights Issue

Std. N Mean Deviation AR t+1 31 .0120 .06962 AR t+2 31 -.0260 .08755 AR t+3 31 -.0121 .05171 AR t+4 31 -.0016 .04619 AR t+5 31 .0077 .08992 Source: Processed Secondary Data

72

Test Value = 0 95% Confidence Interval Sig. (2- Mean of the Difference t df tailed) Difference Lower Upper AR t+1 .963 30 .343 .01204 -.0135 .0376 AR t+2 -1.655 30 .108 -.02603 -.0581 .0061 AR t+3 -1.298 30 .204 -.01206 -.0310 .0069 AR t+4 -.193 30 .848 -.00160 -.0185 .0153 AR t+5 .477 30 .637 .00770 -.0253 .0407 Source: Processed Secondary Data

Shown above in Table 4.7 are the results of the one sample t-test on Abnormal Return in the period after rights issue, which includes day (t+1) to day (t+5). As stated in the table, the significant (2 tailed) for each day are: 0.343 on day (t+1), 0.108 on day (t+2), 0.204 on day (t+3), 0.848 on day (t+4), and 0.637 on day (t+5). These probability values for each day are above 훼 that is 0.05, which means that the null hypothesis (H0) is accepted on each test. Based on the probability value, the alternative hypothesis (Ha) is rejected and it can be concluded that the abnormal returns of the companies’ stock is not better than the market, in the five days after rights issue.

4.3.1.2 Cumulative Abnormal Return (CAR)

Table 4.9 Cumulative Abnormal Return (t-5) to (t-1) Before Rights Issue

Std. N Mean Deviation CAR t-5 31 .0220 .07280 CAR t-4 31 .0379 .11496 CAR t-3 31 .0467 .17103 CAR t-2 31 .0491 .24354 CAR t-1 31 .0448 .28834 Source: Processed Secondary Data

73 Test Value = 0 95% Confidence Interval Sig. (2- Mean of the Difference t df tailed) Difference Lower Upper CAR t-5 1.680 30 .103 .02197 -.0047 .0487 CAR t-4 1.835 30 .076 .03789 -.0043 .0801 CAR t-3 1.520 30 .139 .04668 -.0161 .1094 CAR t-2 1.122 30 .271 .04907 -.0403 .1384 CAR t-1 .866 30 .393 .04484 -.0609 .1506 Source: Processed Secondary Data

Table 4.8 above presents the results of one sample t-test on cumulative abnormal return in the period before rights issue, which includes day (t-5) to day (t-1). As shown in the table, the significant (2-tailed) for each day are: 0.103 for day (t-5), 0.076 for day (t-4), 0.139 for day (t-3), 0.271 for day (t-2), and 0.393 for day (t-1). The significant (2-tailed) on day (t-4), although marginally significant at 0.076, is above 훼 (0.05). In addition, the probability values for each day is greater than 훼 (0.05), therefore null hypothesis H0 is accepted on each test. Based on the p-value, the alternative hypothesis Ha is rejected, which indicates that companies’ stock price performance, in terms of cumulative abnormal return, is not better than the market in the five days prior to rights issue.

Table 4.10 Cumulative Abnormal Return (t) During Rights Issue

Std. N Mean Deviation CAR_t 31 -.0704 .31579

Test Value = 0 95% Confidence Interval Sig. (2- Mean of the Difference t df tailed) Difference Lower Upper CAR_t 1.242 30 .224 .07043 -.0454 .1863 Source: Processed Secondary Data

74 The analysis results in Table 4.9 above presents a significant (2-tailed) of 0.224 for cumulative abnormal return at the time of rights issue. This probability value is greater than 훼 (0.05), thus null hypothesis H0 is accepted and alternative hypothesis Ha is rejected. Accordingly, it can be concluded that the firms’ cumulative abnormal return is not better than market at the time of the event.

Table 4.11 Cumulative Abnormal Return (t+1) to (t+5) After Rights Issue

Std. N Mean Deviation CAR t+1 31 .0825 .34750 CAR t+2 31 .0564 .30303 CAR t+3 31 .0444 .30755 CAR t+4 31 .0428 .32135 CAR t+5 31 .0505 .33553

Test Value = 0 95% Confidence Interval Sig. (2- Mean of the Difference t df tailed) Difference Lower Upper CAR t+1 1.321 30 .196 .08247 -.0450 .2099 CAR t+2 1.037 30 .308 .05644 -.0547 .1676 CAR t+3 .803 30 .428 .04438 -.0684 .1572 CAR t+4 .741 30 .464 .04278 -.0751 .1607 CAR t+5 .838 30 .409 .05047 -.0726 .1735 Source: Processed Secondary Data

Stated above in Table 4.10 are the results of one sample t-test on cumulative abnormal return in the period after rights issue, which includes day (t+1) to day (t+5). As shown in the table, the sig. (2 tailed) for each day are: 0.196 for day (t+1), 0.308 for day (t+2), 0.428 for day (t+3), 0.464 for day (t+4), and 0.409 for day (t+5). These probability values for each day are above 훼 (0.05), thus the H0 is accepted and Ha is rejected on each test. Based on the probability value, it can be concluded that the companies’ cumulative abnormal returns is not better than the market in the five days after rights issue.

75 4.3.2 Hypothesis 2 The paired sample t-test is used to analyze the second hypothesis, which states that there are differences in companies’ stock price performance before and after rights issue. The firms’ stock price performance is measured in terms of Abnormal Return (AR) and Cumulative Abnormal Return (CAR).

4.3.2.1 Average Abnormal Return (AAR)

Table 4.12 Delta of AAR After - Before Rights Issue

Std. N Mean Deviation Delta 31 -.0130 .16116

Test Value = 0 95% Confidence Interval Sig. (2- Mean of the Difference t df tailed) Difference Lower Upper Delta -1.180 30 .247 -.01296 -.0354 .0095 Source: Processed Secondary Data

The paired sample t-test results for average abnormal return before and after rights issue presented a significant (2-tailed) of 0.247, which is greater than

훼 (0.05). A probability value that is greater than the 훼 means that Ha is rejected and H0 is accepted. The null hypothesis or H0 says that there are no significant differences in companies’ stock price performance, measured in terms of abnormal return, before and after rights issue.

4.3.2.2 Cumulative Abnormal Return (CAR)

Table 4.13 Delta of CAR After - Before Rights Issue

Std. N Mean Deviation Delta 31 -.0648 .30581 Source: Processed Secondary Data

76 Test Value = 0 95% Confidence Interval Sig. (2- Mean of the Difference t df tailed) Difference Lower Upper Delta -1.180 30 .247 -.06479 -.1770 .0474 Source: Processed Secondary Data

Based on the results from the paired sample t-test on cumulative abnormal return before and after rights issue, the significant (2-tailed) is 0.247 as shown above. This probability value is more than 훼 (0.05), which means that the null hypothesis is accepted and the alternative hypothesis is rejected. On that account, there are no significant differences in the firms’ cumulative abnormal return before and after rights issue.

4.3.3 Hypothesis 3 The one sample t-test is used to analyze the third hypothesis, which states that companies’ profitability before, during, and after rights issue is positive. The companies’ profitability is measured in terms of Return on Assets (ROA) and Return on Equity (ROE).

4.3.3.1 Return on Assets (ROA)

Table 4.14 Return on Assets (t-1) Before Rights Issue

Std. N Mean Deviation ROA_before 31 -3.9777 12.64866

Test Value = 0 95% Confidence Interval Sig. (2- Mean of the Difference t df tailed) Difference Lower Upper ROA_ -1.751 30 .090 -3.97774 -8.6173 .6618 before Source: Processed Secondary Data

77 The result of the one sample t-test shows a significant (2-tailed) of 0.090 for Return on Assets before rights issue, which reflects a probability value that is greater than 훼 (0.05). In the case where the probability value number is above 훼, the null hypothesis H0 is accepted and the alternative hypothesis Ha is rejected; which means that the companies’ profitability, in terms of Return on Assets, before rights issue is not positive.

Table 4.15 Return on Assets (t) During Rights Issue

Std. N Mean Deviation ROA_at 31 -2.4571 16.60502

Test Value = 0 95% Confidence Interval Sig. (2- Mean of the Difference t df tailed) Difference Lower Upper ROA_at -.824 30 .417 -2.45710 -8.5479 3.6337 Source: Processed Secondary Data

The result of the t-test for Return on Assets at the time of rights issue presented a significant (2-tailed) of 0.417, which reflects a probability value, or p- value, that is greater than 훼 (0.05). When the probability value number is above 훼, the null hypothesis is accepted and alternative hypothesis is rejected, thus it can be concluded that Return on Assets is not positive at the time of the event.

Table 4.16 Return on Assets (t+1) After Rights Issue

Std. N Mean Deviation ROA_after 31 -1.4781 14.96589 Source: Processed Secondary Data

78 Test Value = 0 95% Confidence Interval Sig. (2- Mean of the Difference t df tailed) Difference Lower Upper ROA_after -.550 30 .586 -1.47806 -6.9676 4.0115 Source: Processed Secondary Data

The analysis results in Table 4.15 shows a sig. (2-tailed) of 0.586 for Return on Assets of the companies after conducting rights issue. This probability value is greater than 훼 (0.05), therefore H0 is accepted and Ha is rejected. This indicates that the companies’ Return on Assets after rights issue is not positive.

4.3.3.2 Return on Equity (ROE)

Table 4.17 Return on Equity (t-1) Before Rights Issue

Std. N Mean Deviation ROE_before 28 -3.2896 30.41355

Test Value = 0 95% Confidence Interval Sig. (2- Mean of the Difference t df tailed) Difference Lower Upper ROE_ -.570 27 .572 -3.28964 -15.0828 8.5035 before Source: Processed Secondary Data

The significant (2-tailed) or probability value, as shown above in Table 4.16, is 0.572 for Return on Equity before rights issue is carried out. This probability value is greater than 훼 (0.05), hence the H0 is accepted, which indicates that companies’ profitability, in terms of Return on Equity, is not positive before the rights issue. For one sample t-test of ROE, three companies were excluded from the calculation due to irrelevant information. The information on ROE of these

79 companies, which are PT Akasha Wira International Tbk (ADES), PT Tanah Laut Tbk (INDX), and PT Bumi Resources Tbk (BUMI), does not reflect the actual situation of the company. Thus, in order to make a meaningful t-test on ROE, the companies are excluded as sample.

Table 4.18 Return on Equity (t) During Rights Issue

Std. N Mean Deviation ROE_at 28 1.3943 13.18909

Test Value = 0 95% Confidence Interval Sig. (2- Mean of the Difference t df tailed) Difference Lower Upper ROE_at .559 27 .581 1.39429 -3.7199 6.5085 Source: Processed Secondary Data

The significant (2-tailed) or probability value of Return on Equity at the time of rights issue, as shown above in Table 4.17, is 0.581. This probability value of ROE, similar to the previous results found on ROA, is greater than 훼 (0.05). On that account, the H0 is accepted, which indicates that Return on Equity is not positive at the time of rights issue.

Table 4.19 Return on Equity (t+1) After Rights Issue

Std. N Mean Deviation ROE_after 28 .5761 19.17033

Test Value = 0 95% Confidence Interval Sig. (2- Mean of the Difference t df tailed) Difference Lower Upper ROE_after .159 27 .875 .57607 -6.8574 8.0095 Source: Processed Secondary Data

80 The analysis results presented in Table 4.18 above shows a significant (2- tailed) of 0.875 for Return on Equity after rights issue. This probability value is greater than 훼 (0.05), accordingly the H0 is accepted, which shows that the companies’ Return on Equity is not positive after rights issue.

4.3.4 Hypothesis 4 The paired sample t-test is used to analyze the fourth hypothesis, which states that there are differences in companies’ profitability before and after rights issue. The companies’ profitability is measured in terms of Return on Assets (ROA) and Return on Equity (ROE).

4.3.4.1 Return on Assets (ROA)

Table 4.20 Delta of Return on Assets During (t) vs. Before (t-1)

Std. N Mean Deviation Delta 31 1.5181 11.51403

Test Value = 0 95% Confidence Interval Sig. (2- Mean of the Difference t df tailed) Difference Lower Upper Delta .734 30 .469 1.51806 -2.7053 5.7414 Source: Processed Secondary Data

Presented above in the Table 4.19 are the results of paired sample t-test on the Return on Assets of companies during and before rights issue activity. It shows that significant (2-tailed) is 0.469, in other words, the probability value is more than 훼 (0.05). When the probability value is greater than 훼, H0 is accepted and Ha is rejected. Therefore, there are no significant differences in companies’ profitability, in terms of Return on Assets, during and before rights issue.

81 Table 4.21 Delta of Return on Assets After (t+1) vs. Before (t-1)

Std. N Mean Deviation Delta 31 2.4984 16.42718

Test Value = 0 95% Confidence Interval Sig. (2- Mean of the Difference t df tailed) Difference Lower Upper Delta .847 30 .404 2.49839 -3.5272 8.5239 Source: Processed Secondary Data

Table 4.20 above shows that significant (2-tailed) is 0.404 for Return on Assets of companies after and before rights issue, which is a probability value that is more than 훼 (0.05). The null hypothesis (H0) is accepted and alternative hypothesis (Ha) is rejected when the probability value is more than 훼, meaning that there are no significant differences in companies’ Return on Assets after and before rights issue.

Table 4.22 Delta of Return on Assets After (t+1) vs. During (t)

Std. N Mean Deviation Delta 31 .9787 20.64264

Test Value = 0 95% Confidence Interval Sig. (2- Mean of the Difference t df tailed) Difference Lower Upper Delta .264 30 .794 .97871 -6.5931 8.5505 Source: Processed Secondary Data

As presented in the table above, the significant (2-tailed) for the companies’ Return on Assets after and during rights issue is 0.794. This probability value is greater than 훼 (0.05), which means that H0 is accepted and Ha

82 is rejected. Accordingly, it can be concluded that there are no significant differences in the companies’ Return on Assets after and during rights issue.

4.3.4.2 Return on Equity (ROE)

Table 4.23 Delta of Return on Equity During (t) vs. Before (t-1)

Std. N Mean Deviation Delta 28 4.6836 31.20448

Test Value = 0 95% Confidence Interval Sig. (2- Mean of the Difference t df tailed) Difference Lower Upper Delta .794 27 .434 4.68357 -7.4163 16.7834 Source: Processed Secondary Data

Stated above in Table 4.22 are the paired sample t-test results on Return on Equity of companies during and before rights issue. The significant (2-tailed) is 0.434; this probability value is above 훼 (0.05), therefore H0 is accepted and Ha is rejected. Similar to ROA, it can be concluded that there are no significant differences in companies’ ROE during and before rights issue. For paired sample t-test of ROE, three companies are excluded from the calculation due to their irrelevant information. The information on ROE of these companies, which are PT Akasha Wira International Tbk (ADES), PT Tanah Laut Tbk (INDX), and PT Bumi Resources Tbk (BUMI), do not reflect the actual situation of the company. Thus, in order to make a meaningful t-test on ROE, the companies are excluded as sample.

Table 4.24 Delta of Return on Equity After (t+1) vs. Before (t-1)

Std. N Mean Deviation Delta 28 3.8657 27.84314 Source: Processed Secondary Data

83 Test Value = 0 95% Confidence Interval Sig. (2- Mean of the Difference t df tailed) Difference Lower Upper Delta .735 27 .469 3.86571 -6.9307 14.6622 Source: Processed Secondary Data

Table 4.23 above presents a significant (2-tailed) is 0.469 for Return on Equity of companies after and before rights issue. This probability value is above

훼 (0.05); therefore null hypothesis H0 is accepted and alternative hypothesis Ha is rejected. Similar to results of ROA, it can be concluded that there are no significant differences in companies’ ROE after and before rights issue.

Table 4.25 Delta of Return on Equity After (t+1) vs. During (t)

Std. N Mean Deviation Delta 28 -.8182 21.78419

Test Value = 0 95% Confidence Interval Sig. (2- Mean of the Difference t df tailed) Difference Lower Upper Delta -.199 27 .844 -.81821 -9.2652 7.6288 Source: Processed Secondary Data

As shown above, the significant (2-tailed) for the companies’ Return on Equity after and during rights issue is 0.844. This probability value is more than 훼

(0.05), which means that H0 is accepted and Ha is rejected. Therefore, it can be concluded that there are no significant differences in companies’ Return on Equity after and during rights issue.

84 4.4 Regression with Dummy Variable 4.4.1 Abnormal Return (AR)

Table 4.26 Linear Regression with Dummy Variable of AR

Adjusted R Model R R Square Square AR .084 .007 .004

ANOVA Sum of Mean Model Squares df Square F Sig. 1 Regression .003 1 .013 2.183 .141 Residual 1.836 308 .006 Total 1.849 309

Coefficients Unstandardized Standardized Coefficients Coefficients Model B Std. Error Beta t Sig. 1 (Constant) .009 .006 1.446 .149 Rightsissue -.013 .009 -.0.84 -1.477 .141 Source: Processed Secondary Data

Shown in the first section of Table 4.25 is the coefficient of determination, or R Square, which is a key output of the regression analysis. The coefficient of determination indicates the proportion of the variance in the dependent variable that is predicted or explained by the independent or predictor variable. The R Square value of the regression model for AR, shown in percentage, is 0.7% (0.007 x 100%). An R Square of 0.007 means that 0.7% of the variance in average abnormal return is predictable by the variable rights issue. The remainder of 97.8% (100% - 0.7% = 99.3%) is explained by other variables outside of this model. The regression coefficient represents the rate of change in the dependent variable for every change in the independent variable; the regression coefficient of AR is negative 0.013, this means that every rights issue done by a company will decrease the AR of the company by 0.013.

85 4.4.2 Cumulative Abnormal Return

Table 4.27 Linear Regression with Dummy Variable of CAR

Adjusted R Model R R Square Square CAR .149 .022 .006

ANOVA Sum of Mean Model Squares df Square F Sig. 1 Regression .065 1 .065 1.357 .249 Residual 2.877 60 .048 Total 2.942 61

Coefficients Unstandardized Standardized Coefficients Coefficients Model B Std. Error Beta t Sig. 1 (Constant) .045 .039 1.140 .259 Rightsissue -.065 .056 -.149 -1.165 .249 Source: Processed Secondary Data

The coefficient of determination that is denoted as R Square, gives the percentage variation in cumulative abnormal return, as the dependent variable, that is predicted by rights issue, as the independent variable. The value of R Square is 0.022, and in percentage it is 2.2% (0.022 x 100%), this means that the variable rights issue have an effect of 2.2% on the variation of cumulative abnormal return. The remaining 97.8% (100% - 2.2% = 97.8%) is influenced by other factors besides rights issue, which is outside this model. The regression coefficient of Cumulative Abnormal Return is negative 0.065; a negative number means that every rights issue will decrease CAR of a company by 0.065.

86 4.4.3 Return on Assets

Table 4.28 Linear Regression with Dummy Variable of ROA

Adjusted R Model R R Square Square ROA .091 .008 -.008

ANOVA Sum of Mean Model Squares df Square F Sig. 1 Regression 96.850 1 96.850 .504 .480 Residual 11518.994 60 191.983 Total 11615.844 61

Coefficients Unstandardized Standardized Coefficients Coefficients Model B Std. Error Beta t Sig. 1 (Constant) -3.978 2.489 -1.598 .115 Rightsissue 2.500 3.519 .091 .710 .480 Source: Processed Secondary Data

The value of R Square (R2) or coefficient of determination is a statistical measure that analyzes how differences in the dependent variable, Return on Assets, can be explained by a difference in the independent or predictor variable, rights issue. The R Square value of 0.008 in percentage is 0.8% (0.008 x 100%), which means that 0.8% variations in the variable Return on Assets are explained by the variable rights issue. Meanwhile, other variables or elements outside this model influences the remaining 99.2% (100% - 0.8%). Furthermore, Return on Assets has a positive regression coefficient of 2.500, which indicates that every rights issue a company do will increase the ROA of a company by 2.500.

87 4.4.4 Return on Equity

Table 4.29 Linear Regression with Dummy Variable of ROE

Adjusted R Model R R Square Square ROE .077 .006 -.012

ANOVA Sum of Mean Model Squares df Square F Sig. 1 Regression 209.212 1 209.212 .324 .572 Residual 34897.113 54 646.243 Total 35106.326 55

Coefficients Unstandardized Standardized Coefficients Coefficients Model B Std. Error Beta t Sig. 1 (Constant) -3.290 4.804 -.685 .496 Rightsissue 3.866 6.794 .077 .569 .572 Source: Processed Secondary Data

The coefficient of determination or R Square indicates the proportion of the variance in the dependent variable that is predictable by the independent variable. The R Square value equals to 0.006, which means the percentage of the effect of variable rights issue on the variable Return on Equity is 0.6% (0.006 x 100%). Whereas the rest of 99.4% (100% - 0.6%) is influenced by variables outside this model other than rights issue. Additionally, the regression coefficient of ROE is positive 3.866, which means that for every rights issue, the number of ROE will also increase by 3.866.

88 4.5 Discussion  Hypothesis 1 For the first hypothesis, the one sample t-test is used for abnormal return and cumulative abnormal return on each day in the period before, during and after rights issue. The results of the test on abnormal return before and after rights issue are not significant. On the other hand, the test on abnormal return at the time of rights issue showed significant result. Thus it can be concluded that the companies’ abnormal return on the stocks is better than market price during rights issue, and that abnormal return on the stocks is not better than market in the period before and after rights issue. In addition, the results of one sample t-test conducted on cumulative abnormal return in the period before, during and after rights issue are not significant. Therefore, the companies’ cumulative abnormal return is not better than the market, indicating that rights issue does not affect cumulative abnormal return of the firms. An announcement of a firm’s corporate action, which in this example is rights issue, can bring about different reactions from the market (Fahmi, 2012). The reaction towards the announcement of rights issue is positive if the market considers the announcement as a positive signal that conveys a future growth or strong business prospects. So there is higher possibility that the rights issue will get positive reaction from investors if the company announcing the action has good performance. However, the investors’ reaction can be negative if the market perceives the performance of the company is not good or that the company requires the new funds to sustain the business operations. Based on the signaling theory, which states that asymmetry of information exists between managers and investors; managers can give signal to the market through the announcement of the actions that the company plans to take. The firm’s managers can use the rights issue to send positive signal to the investors about the firm’s prospects. Furthermore, investors in general tend to make informed investments; investors will invest in stocks that they are certain about or know more about. The investors may regard the announcement of rights issue activity as a signal that relays favorable information about the company from the managers, which is a possible reason behind the increased abnormal returns

89 during the announcement of rights issue. This indicates that the information of the rights issue can influence an investor’s decision in making an investment. When investors in the market pick up information or signal about an impending event that will occur at the company, there is possibility that the event can change the prices and returns of stock days or even weeks before the event actually take place, and continue to influence the stocks for some time thereafter. In this research, however, the results obtained from the t-test shows that rights issue does not affect stock returns in terms of companies’ cumulative abnormal returns. This result does not align with the signaling theory, which states that an announcement of an event affects the companies’ stock returns. There are slight variations in the average of cumulative abnormal returns of the companies before, at the time and after rights issue, but the differences are not significant.

 Hypothesis 2 The paired sample t-test was used to test whether there are differences in the companies’ stock price performance after carrying out the rights issue. The results of the test are not significant for both abnormal return and cumulative abnormal return, which means that the second hypothesis is rejected. For that reason, it can be concluded that there are no significant differences in stock price performance, as measured in abnormal return and cumulative abnormal return, before and after rights issue. As mentioned earlier, according to the signaling theory, asymmetric information occurs between managers and investors, where it is assumed that managers have access to deeper or comprehensive knowledge concerning the information on current condition and performance of a company that the market do not have. Therefore, the investors in the market receive the announcement of corporate actions taken by management of a firm as a signal that communicates information regarding the firm that the managers want to pass on. News of the event could change the pattern of stock returns for a company. Assuming that investors see the event as good news and believe the event indicates a bright prospect or future growth for the company, the price of the firm’s stock will increase as a result. The increase in price represents capital gain, which raises the

90 return on company’s stocks. Nonetheless, stock returns might have changed due to other factors; for instance, stock price could have fluctuated due to the overall movement in the stock market itself, leading to change in stock returns. In contradiction to the signaling theory, however, the t-test that was conducted specifies that there are no differences in the average abnormal return as well as the cumulative abnormal return of the companies before and after rights issue announcement. The difference in average abnormal return of the companies before, at the time and after the rights issue is not significant and shows slight decrease in the overall average of abnormal return after rights issue from the average abnormal return before rights issue. Furthermore, the companies’ cumulative abnormal return before, at the time and after rights issue event moves in generally similar fluctuations; the returns before rights issue do not significantly differ with the returns after the event.

 Hypothesis 3 The results of one sample t-test on Return on Assets are not significant, meaning that the companies’ return on assets in the period before, during and after rights issue is not positive. Furthermore, the test done for Return on Equity shows similar outcome. Therefore, it can be concluded that the profitability of the companies, as measured in ROA and ROE, is not positive. The analysis results show that there is no significant difference in Return on Assets of the companies around the time of rights issue; a possible reason why is because the companies are focusing their efforts in carrying out their business prospects. The companies’ funds are concentrated on investments such as business expansion through new production and manufacturing facilities, acquiring new equipment or assets, or research and development of new products; in such cases, the company would require funds to spend on the investments. In general, the results of these investments cannot be realized in a short period of time; some companies would not make increased profits through their investment, and some may even undergo losses before gaining returns. Such cases may be one of the underlying reasons, among others, why Return on Assets of the companies is not positive around the time of rights issue.

91 Return on Equity of the companies also shows no significant difference around the time of rights issue. For similar reasons in explanation of the result found for return on assets, it could be assumed that no immediate, substantial increase in the value of the companies occurs at the time of rights issue. Furthermore, as funds are spent on investments that aim to achieve business growth, the companies would not see direct, significant gains from their investments around the time of rights issue.

 Hypothesis 4 For the fourth hypothesis, the paired sample t-test was used to determine whether there are differences in the amount of ROA during (t) and before (t-1), after (t+1) and before (t-1), or after (t+1) and during (t) rights issue. The same was done for ROE. Furthermore, the results of the tests on ROA as well as ROE are not significant. On that account, there are no significant differences in both ROA and ROE before, during and after rights issue. Results of the analysis, in alignment with results found by Pratama (2017), showed that rights issue activity undertaken by the companies has no significant effect on ROA; accordingly, there are no major differences in the number of ROA of the firm before, during, and after rights issue. In the Table 4.3 earlier, the average number of ROA before rights issue increased by an overall 2.5%. Furthermore, the majority of the firms’ ROA in the year following the rights issue event showed small increase from their ROA in the year prior to event. The reason for the slow increase in profits of the firm, as explained earlier, is likely because the company’s funds are used for projects that provide long-term results. In addition, the differences in return on the companies’ equity are not significant, as the rights issue announcement does not have notable affect on the ROE before, during, or after the event. The average number of ROE before rights issue, shown earlier in Table 4.4, increased by more or less 3.87%. The firms may have used the funds raised from rights issue to conduct investment activities that increase value of the company; in addition, most of the firms experienced slight improvement in ROE of the year after rights issue.

92 4.6 Summary of Results Table 4.30 Summary of Results Objective Hypothesis Results Comment Abnormal The stock price  At the time of  Study by Catranti (2009) Return & performance Rights Issue: has similar results stating Cumulative before, during, abnormal return there is positive, significant Abnormal and after is better than abnormal return on the day Return rights issue is market of rights issue; meanwhile better than  Before and there is no effect on market After Rights abnormal returns in period Issue: there is before and after rights issue. no effect on  The result of this research abnormal return differs from the evidence  Rights issue reported in the study by does not affect Tsangarakis (1996), which cumulative documented a significant abnormal return positive effect on abnormal return and cumulative abnormal return on and surrounding the date of rights issue. Abnormal There are Rights issue does  Study by Larasati, Mardani Return & differences in not have an effect and Wahono (2018) present Cumulative stock price on stock price similar results that state Abnormal performance performance there is no significant Return before, during, difference in abnormal and after return before and after the rights issue occurrence of right issue.  Study by Miglani (2011) present similar results that state there is no significant abnormal return during rights issue; the study also found no significant cumulative abnormal return before and during the event, however, there is significant cumulative abnormal return after rights issue.

93 Profitability The Profitability in  The result of this research – Return on profitability terms of both differs from the result of the Assets & before, during, return on assets study by Kiama (2013) in Return on and after and return on that the effect of seasoned Equity rights issue is equity is not equity offering on return on positive positive assets is positive, but is similar in that the results are not significant.  The result of this research is similar to result of the study by Kabir and Roosenboom (2003), which found that profitability measures of the firm shows a negative trend or decline in the period surrounding rights issue Profitability There are Rights issue does  Study by Kabir and – Return on differences in not have an effect Roosenboom (2003) found Assets & profitability on profitability similar result, which states Return on before, during, that there is no statistically Equity and after significant difference in rights issue companies’ profitability at the time of rights issue  The result of this research is consistent with the result of the study by Pratama (2017), which stated that there is no significant difference in the level of return on assets and return on equity before and after rights issue.

94 CHAPTER 5

CONCLUSION AND RECOMMENDATION

5.1 Conclusion This research was conducted to determine the effect of rights issue on the company financial and stock performances of companies listed at Indonesia Stock Exchange that conducted rights issue within the period 2006 to 2015. The analysis conducted in the research determines whether rights issue affects stock price performance and profitability of the companies, which is measured in the companies’ abnormal stock returns and in ROA and ROE, respectively. The research studies a sample of 31 companies within an event window of eleven days. As explained in the previous chapter, based on the results and discussion of the analysis, the conclusion that can be drawn from this research are as follows:  Rights issue has an effect on the performance of companies’ stock prices, in terms of abnormal returns, at the time of rights issue. The test analysis on abnormal return at rights issue results in a significant value of 0.036, a p- value below 훼 (0.05), which means that abnormal return at the time of rights issue is better than the market. However, abnormal returns in the event window of before and after rights issue shows no significant effect. In addition, test results on cumulative abnormal return for each day presented a p-value that is above 훼 (0.05), which means there is no effect of rights issue. Therefore, stock price performance, as in cumulative abnormal return, is not better than market in the period before, during, and after rights issue.  The performance of companies’ stock prices, in terms of abnormal return and cumulative abnormal return, does not show significant differences and is not affected by rights issue. The analysis on abnormal return and cumulative abnormal return in the period of five days prior to and five days posts rights issue results in a significant value of 0.247, which is a probability value above 훼 (0.05). From the test results it can be concluded that companies’ stock price performance does not experience significant difference after the rights issue.

95  The profitability of the companies that conduct rights issue, in the period before, during and after rights issue, is not positive. Analysis on the companies’ Return on Assets as well as Return on Equity in the period before, at the time and after rights issue results in a p-value is above 훼 (0.05); these results indicate that rights issue does not affect profitability of the companies.  The companies’ profitability, as measured in Return on Assets and Return on Equity, does not show significant differences from the rights issue. Analysis was conducted on both ROA and ROE to test for differences between the amount during and before rights issue, after and before rights issue, as well as after and during rights issue. The test resulted in a p-value that is above 훼 (0.05), which indicates that there is no significant difference in companies’ profitability before, during and after rights issue.

5.2 Recommendation 5.2.1 Recommendation for Researchers This research analyzed effect of rights issue on company performance and focused on companies listed on IDX in the period 2006 to 2015. Accordingly, there is a need for future similar studies related to rights issue as well as stock returns and company performance; the following are several suggestions for future research:  Further research that analyzes the effect of rights issue on company performance in further detail. The research can include more measures of performance besides profitability; such as liquidity, turnover and leverage of a company.  Further research that focus on the sample in more detail; for example, the sample can be divided based on the size of the company to determine whether rights issue has greater effect on performance of large companies compared to smaller companies. The sample can also be categorized based on their industries to see the differences in effect of rights issue in performance of firms from various industries.

96  Further research that analyze the effect of rights issue on company performance should use a longer event window that will improve the accuracy of the study; for example thirty days before and thirty days after the event, to see the reaction of the market more clearly or to see whether the differences in returns have positive of negative trends before and after the rights issue.  Further research can be done on the factors or determinants of rights issue to find what motivates the companies to do rights issue. Research on the effect of rights issue on other variables can also be done, such as trading volume of the stocks

5.2.2 Recommendation for Investors Investments in capital market come with risks, such as losses on investment. In order to minimize the risks, there are several points of learning that can be done by the investors. Firstly, it is essential for investors to observe the timing of the company’s rights issue to understand the company’s purpose of conducting rights issue. Secondly, investors can make comparisons on the performance of the firm of interest to other firms in the same industry, before deciding on whether to buy the new shares or not. Thirdly, investors should also keep an eye on the issuing company to see how the company fared after rights issue and what the company achieved with the money raised. Last but not least, investors can read more about the news and trends, as well as keep updated on what is going on in the stock market and in the relevant industries. Furthermore, investors should also be active in monitoring the behavior of stocks in the market, such as: the past trend or fluctuations in stock price, the forecast of future stock price, and the performance of the stocks among the industry of the company invested in. Actively monitoring the stocks will prevent investors from being caught in a situation that may arise from an unforeseeable event. Investors should make rational and informed decisions based on the announcements of the listed firms to help enhance the capital gains on their investment. It is also important for investors to take great care in selecting the information available in the capital market, because not all information published

97 in the media concerning the stocks is right or might not reflect the actual situation. Investors should regularly monitor the performance of the listed firms they are interested in. The information contained in the announcement of corporate action may indicate that the company conducting the action is in good condition or may indicate the opposite; investors may respond to the firm’s announcement, but it is important that investors obtain in-depth and reliable information on the firm before taking actions and making investments.

5.2.3 Recommendation for Issuers The issuers that announce the rights issue should anticipate varied reactions in the market, because the investors may give positive or negative reaction to the announcement depending on how they receive the information. Investors will give positive response if the investors consider the company’s announcement to contain information that the company has good future prospects, therefore issuers should take care in releasing information that reflects the condition of the firm. Furthermore, the issuers should also focus their effort and attention on increasing their performance after the rights issue, so that investors in the market will see that there is investment opportunity and the investment they make have good prospect.

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103 APPENDIXES

Appendix 1: Abnormal Return

Stock AR Code (t-5) (t-4) (t-3) (t-2) (t-1) (t) (t+1) (t+2) (t+3) (t+4) (t+5) ENRG -0.0162 0.0114 0.0013 -0.0211 -0.0111 0.0313 0.0134 -0.0093 -0.0060 -0.0255 -0.0213 SULI 0.0080 -0.0179 -0.0233 -0.0276 -0.0105 -0.0013 -0.0059 0.0060 -0.0031 0.0089 0.0088 ELTY -0.0050 0.0742 0.0218 0.1412 -0.0348 -0.0018 -0.0103 -0.0010 -0.0454 0.0132 0.0600 CITA 0.0238 0.0070 -0.0075 -0.4544 -0.3062 0.1893 0.0586 -0.0653 -0.1704 -0.0036 -0.0123 DSFI -0.0415 -0.0120 -0.0261 -0.0183 0.0040 0.0000 -0.0096 -0.0200 0.0527 -0.0227 -0.0223 BRPT -0.0296 -0.0520 0.0204 -0.0460 -0.0291 0.0690 0.0510 -0.0123 -0.0564 -0.0446 -0.0419 ADES 0.2756 0.0134 -0.0655 -0.1019 -0.0780 0.0239 0.0330 0.1429 0.0080 0.0045 0.0054 RODA 0.0328 -0.0041 -0.0277 -0.0293 -0.0027 0.0090 0.0504 0.0080 -0.0050 0.0480 -0.0319 SSIA -0.0280 0.0241 -0.0270 0.0495 0.0108 -0.0174 -0.0102 -0.0003 0.0370 0.0055 -0.0305 ABBA -0.0185 0.0786 0.0047 -0.0003 -0.0199 -0.0243 0.0174 0.0192 0.0198 0.0500 0.0010 BMSR 0.0275 -0.1214 -0.0618 -0.0217 0.0236 0.0128 0.1069 0.0176 0.1038 0.1129 -0.0070 LPLI 0.0260 -0.0101 -0.0199 -0.0068 -0.0530 0.0074 0.0351 0.0408 -0.0763 0.0121 -0.0157 INDX 0.0002 0.0021 -0.0049 0.0059 -0.0071 -0.0112 -0.0902 0.1186 -0.0556 -0.0179 -0.0108 ENRG 0.0109 0.0313 -0.0106 -0.0125 0.0106 -0.0054 -0.0099 -0.0583 -0.0038 -0.0089 -0.0116 ABBA 0.0009 -0.0343 0.0329 -0.0290 0.0282 -0.0096 -0.0051 -0.0328 -0.0176 -0.1221 0.1859 KIJA 0.0130 -0.0236 -0.0225 -0.0089 0.0717 -0.0533 0.0123 -0.0004 0.0182 -0.0180 -0.0239 PNLF 0.0270 0.0114 -0.0128 -0.0265 -0.0036 0.0014 0.0013 0.0034 0.0190 -0.0487 -0.0143 PSAB -0.0444 0.0467 0.0094 -0.0051 -0.0128 0.0074 0.0000 -0.0066 0.0065 -0.0115 -0.0393

104 SMMT 0.0107 0.0031 0.0082 -0.0045 -0.0138 0.0120 -0.0175 -0.0091 -0.0146 -0.0064 0.0015 CNKO 0.0670 -0.0155 -0.0516 0.0144 0.0333 -0.0191 0.0174 0.0049 -0.0103 -0.0173 -0.1876 SRAJ 0.0406 -0.0016 0.0155 0.0971 0.0049 0.1362 -0.0059 -0.0016 0.0395 -0.0069 -0.0576 CENT 0.2425 0.2429 0.2482 0.1868 -0.0537 0.1297 -0.0044 -0.2429 -0.1463 0.1473 0.2074 TRIM -0.0319 0.0118 0.0641 0.0519 -0.0102 -0.0054 -0.1596 -0.0144 -0.0152 -0.0213 0.3387 DNET -0.0047 0.2637 0.2563 0.2593 0.2280 0.2476 0.2746 -0.2216 -0.0084 -0.0191 -0.0376 ICON 0.0117 0.0432 0.0074 -0.0045 0.0086 0.0014 -0.0393 -0.1024 -0.0145 0.0014 -0.0113 GIAA -0.0030 0.0068 -0.0322 -0.0095 0.0060 -0.0075 0.1188 -0.1718 0.0000 0.0104 -0.0107 BUMI -0.0233 -0.0260 -0.0917 -0.0072 -0.0456 0.0513 -0.0224 -0.0036 -0.0148 -0.0106 0.0227 ARTI -0.0053 -0.0061 0.0037 0.0074 -0.0252 0.0079 0.0006 0.1059 0.0043 -0.0349 0.0020 WOMF -0.0516 -0.0013 0.0455 0.0179 0.0762 -0.0099 -0.0200 -0.1302 -0.0309 -0.0198 -0.0018 RELI 0.0349 -0.0076 0.0261 -0.0010 -0.0108 -0.0037 -0.0144 -0.0031 0.0037 0.0019 -0.0064 CENT 0.1310 -0.0446 -0.0080 0.0785 0.0913 0.0253 0.0068 -0.1673 0.0082 -0.0058 0.0013

105 Appendix 2: Cumulative Abnormal Return

Stock CAR Code (t-5) (t-4) (t-3) (t-2) (t-1) (t) (t+1) (t+2) (t+3) (t+4) (t+5) ENRG -0.0162 -0.0048 -0.0035 -0.0247 -0.0357 -0.0045 0.0089 -0.0004 -0.0064 -0.0319 -0.0532 SULI 0.0080 -0.0099 -0.0331 -0.0607 -0.0713 -0.0726 -0.0784 -0.0724 -0.0755 -0.0666 -0.0578 ELTY -0.0050 0.0692 0.0910 0.2322 0.1975 0.1957 0.1854 0.1844 0.1390 0.1523 0.2123 CITA 0.0238 0.0308 0.0233 -0.4311 -0.7373 -0.5480 -0.4894 -0.5547 -0.7251 -0.7287 -0.7409 DSFI -0.0415 -0.0535 -0.0796 -0.0979 -0.0939 -0.0939 -0.1035 -0.1235 -0.0708 -0.0935 -0.1158 BRPT -0.0296 -0.0816 -0.0612 -0.1072 -0.1363 -0.0673 -0.0164 -0.0286 -0.0850 -0.1296 -0.1715 ADES 0.2756 0.2889 0.2234 0.1216 0.0435 0.0675 0.1004 0.2433 0.2513 0.2558 0.2612 RODA 0.0328 0.0288 0.0011 -0.0283 -0.0310 -0.0220 0.0285 0.0365 0.0315 0.0794 0.0475 SSIA -0.0280 -0.0039 -0.0309 0.0186 0.0294 0.0120 0.0018 0.0015 0.0385 0.0440 0.0136 ABBA -0.0185 0.0601 0.0648 0.0645 0.0445 0.0202 0.0376 0.0568 0.0766 0.1265 0.1275 BMSR 0.0275 -0.0939 -0.1557 -0.1774 -0.1539 -0.1411 -0.0342 -0.0166 0.0872 0.2001 0.1931 LPLI 0.0260 0.0159 -0.0040 -0.0108 -0.0638 -0.0564 -0.0213 0.0195 -0.0568 -0.0447 -0.0604 INDX 0.0002 0.0023 -0.0026 0.0033 -0.0038 -0.0150 -0.1052 0.0135 -0.0421 -0.0600 -0.0709 ENRG 0.0109 0.0422 0.0315 0.0190 0.0296 0.0242 0.0143 -0.0440 -0.0478 -0.0567 -0.0684 ABBA 0.0009 -0.0333 -0.0005 -0.0294 -0.0012 -0.0108 -0.0159 -0.0487 -0.0663 -0.1884 -0.0025 KIJA 0.0130 -0.0107 -0.0331 -0.0420 0.0297 -0.0235 -0.0112 -0.0116 0.0066 -0.0114 -0.0354 PNLF 0.0270 0.0384 0.0256 -0.0008 -0.0044 -0.0030 -0.0017 0.0016 0.0207 -0.0280 -0.0423 PSAB -0.0444 0.0023 0.0117 0.0067 -0.0061 0.0013 0.0013 -0.0053 0.0012 -0.0103 -0.0496 SMMT 0.0107 0.0138 0.0220 0.0175 0.0038 0.0158 -0.0017 -0.0108 -0.0254 -0.0319 -0.0304 CNKO 0.0670 0.0515 -0.0001 0.0143 0.0476 0.0285 0.0459 0.0508 0.0405 0.0232 -0.1644

106 SRAJ 0.0406 0.0390 0.0545 0.1516 0.1565 0.2928 0.2869 0.2854 0.3248 0.3179 0.2603 CENT 0.2425 0.4855 0.7337 0.9205 0.8667 0.9965 0.9921 0.7493 0.6030 0.7503 0.9577 TRIM -0.0319 -0.0201 0.0440 0.0959 0.0857 0.0803 -0.0793 -0.0937 -0.1088 -0.1301 0.2086 DNET -0.0047 0.2589 0.5153 0.7745 1.0025 1.2502 1.5248 1.3032 1.2947 1.2757 1.2380 ICON 0.0117 0.0549 0.0623 0.0578 0.0664 0.0678 0.0285 -0.0739 -0.0884 -0.0869 -0.0982 GIAA -0.0030 0.0038 -0.0284 -0.0379 -0.0319 -0.0394 0.0794 -0.0924 -0.0924 -0.0821 -0.0928 BUMI -0.0233 -0.0493 -0.1410 -0.1481 -0.1938 -0.1425 -0.1649 -0.1685 -0.1833 -0.1939 -0.1712 ARTI -0.0053 -0.0114 -0.0078 -0.0004 -0.0256 -0.0177 -0.0171 0.0888 0.0931 0.0583 0.0602 WOMF -0.0516 -0.0529 -0.0074 0.0105 0.0867 0.0768 0.0568 -0.0734 -0.1043 -0.1241 -0.1259 RELI 0.0349 0.0273 0.0534 0.0523 0.0416 0.0378 0.0235 0.0204 0.0240 0.0259 0.0195 CENT 0.1310 0.0864 0.0784 0.1570 0.2483 0.2736 0.2804 0.1131 0.1213 0.1156 0.1169

107 Appendix 3: Return on Assets

STOCK ROA % CODE t-1 t t+1 ENRG 3.17 2.05 1.23 SULI 1.03 -3.49 1.46 ELTY 2.82 2.35 3.26 CITA 6.23 11.95 21.74 DSFI -20.41 0.66 -29.27 BRPT 0.41 0.26 -19.72 ADES -55.22 -86.62 -8.22 RODA -0.34 -0.66 0.03 SSIA 0.76 -0.52 0.79 ABBA 1.98 0.91 0.22 BMSR 1.28 -4.97 2.53 LPLI 1.14 -12.33 23.92 INDX -15.14 0.14 3.05 ENRG -16.87 -0.54 1.00 ABBA 0.22 0.61 0.66 KIJA 1.86 5.83 5.37 PNLF 8.96 8.80 9.46 PSAB -13.54 15.30 -3.27 SMMT 4.22 2.98 3.09 CNKO 1.47 1.88 -2.00 SRAJ 0.38 -2.71 -5.42 CENT -6.81 -3.77 -4.71 TRIM -27.72 0.55 3.01 DNET 1.31 2.68 5.18 ICON 4.97 1.94 0.95 GIAA 0.45 -12.00 2.36 BUMI -9.42 -7.17 -64.39 ARTI 1.67 0.73 0.35 WOMF 0.70 0.30 0.90 RELI 1.74 2.82 2.89 CENT -4.61 -4.13 -2.27

108 Appendix 4: Delta of Return on Assets

STOCK DELTA ROA % CODE (t) - (t-1) (t+1) - (t-1) (t+1) - (t) ENRG -1.12 -1.94 -0.82 SULI -4.53 0.42 4.95 ELTY -0.47 0.44 0.91 CITA 5.71 15.51 9.80 DSFI 21.07 -8.85 -29.93 BRPT -0.15 -20.13 -19.98 ADES -31.41 47.00 78.40 RODA -0.32 0.37 0.69 SSIA -1.28 0.03 1.31 ABBA -1.08 -1.77 -0.69 BMSR -6.24 1.25 7.49 LPLI -13.47 22.78 36.25 INDX 15.27 18.19 2.91 ENRG 16.33 17.87 1.54 ABBA 0.39 0.44 0.05 KIJA 3.96 3.51 -0.46 PNLF -0.16 0.49 0.65 PSAB 28.83 10.27 -18.57 SMMT -1.24 -1.13 0.11 CNKO 0.40 -3.47 -3.87 SRAJ -3.09 -5.80 -2.71 CENT 3.04 2.10 -0.94 TRIM 28.27 30.73 2.46 DNET 1.37 3.86 2.49 ICON -3.03 -4.03 -1.00 GIAA -12.45 1.90 14.35 BUMI 2.26 -54.96 -57.22 ARTI -0.95 -1.32 -0.37 WOMF -0.41 0.20 0.61 RELI 1.08 1.15 0.07 CENT 0.48 2.34 1.86

109 Appendix 5: Return on Equity

STOCK ROE % CODE (t-1) (t) (t+1) ENRG 29.01 11.07 3.45 SULI 5.88 -12.83 4.76 ELTY 5.13 3.25 6.04 CITA 73.85 35.48 46.26 DSFI -47.79 1.12 -61.98 BRPT 0.68 0.48 -49.81 RODA -0.36 -0.81 0.03 SSIA 1.93 -1.59 2.32 ABBA 3.78 1.35 0.33 BMSR 1.38 -5.18 4.04 LPLI 1.26 -13.61 25.58 ENRG -99.32 -1.08 2.83 ABBA 0.33 2.22 2.15 KIJA 3.72 9.31 9.56 PNLF 12.90 12.86 13.39 PSAB -53.62 30.75 -10.15 SMMT 4.95 3.21 4.17 CNKO 2.20 3.18 -3.51 SRAJ 0.72 -4.46 -8.79 CENT -8.84 -4.29 -4.71 TRIM -56.61 0.70 5.00 DNET 1.74 2.68 5.18 ICON 16.41 3.51 2.47 GIAA 1.21 -40.58 8.20 ARTI 3.07 1.06 0.53 WOMF 6.99 2.07 7.40 RELI 3.49 4.12 4.26 CENT -6.20 -4.95 -2.87

110 Appendix 6: Delta of Return on Equity

STOCK DELTA ROA % CODE (t) - (t-1) (t+1) - (t-1) (t+1) - (t) ENRG -17.94 -25.56 -7.62 SULI -18.72 -1.12 17.59 ELTY -1.88 0.91 2.79 CITA -38.37 -27.59 10.78 DSFI 48.91 -14.19 -63.10 BRPT -0.20 -50.49 -50.29 RODA -0.45 0.39 0.84 SSIA -3.52 0.39 3.91 ABBA -2.43 -3.45 -1.02 BMSR -6.56 2.66 9.22 LPLI -14.87 24.32 39.19 ENRG 98.23 102.15 3.92 ABBA 1.88 1.81 -0.07 KIJA 5.59 5.84 0.25 PNLF -0.04 0.50 0.54 PSAB 84.38 43.47 -40.90 SMMT -1.74 -0.78 0.96 CNKO 0.98 -5.72 -6.70 SRAJ -5.18 -9.51 -4.33 CENT 4.55 4.13 -0.42 TRIM 57.30 61.61 4.31 DNET 0.94 3.44 2.49 ICON -12.90 -13.94 -1.05 GIAA -41.78 7.00 48.78 ARTI -2.01 -2.54 -0.52 WOMF -4.91 0.41 5.32 RELI 0.63 0.77 0.14 CENT 1.25 3.33 2.08

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