Stock Return Predictability with Audit Quality Concept

Investors of Indonesian Stock Exchange (IDX) have interest to audited financial statements quality. Audit quality describes how well the auditor may detect material misstatements of financial statements, reducing information asymmetry between agents and principals to protect the stakeholder’s interests. This study aim is to test and identifies the effect of price on earnings ratio, dividend yield and book to market ratio of stock return predictability with audit quality as a moderating variable. Study population is audited financial statements of 35 banking firms in 2015 at IDX and 35 public accountants. The population is relatively small so all are used as samples. Primary data is public accountant’s perception to audit quality, obtained by sending a questionnaire to respondents. Secondary data as financial statements and closing share price in 2014-2015 are obtained through access to internet www.idx.co.Id. The data is analyzed by Partial Least Square (PLS). This study results found evidence that price to earnings ratio, dividend yield, and book to market ratio partially affect on stock returns predictability and audit quality enlarge the effect of price to earnings ratio, dividend yield and book to market ratio on stock returns predictability. Keywords: stock returns, price to earnings ratio, dividend yield, book to market ratio, audit quality