ANALYSIS ON THE VALUE RELEVANCE OF FAIR VALUE � BASED ACCOUNTING IMPLEMENTATION IN COMMERCIAL BANK LISTED IN INDONESIA STOCK EXCHANGE YEAR 2010 - 2012

This paper will investigate the value relevance of the fair value accounting implementation to the stock price in Indonesia Banking Industry in year 2010 - 2012. Specifically I examine whether there is an association between accounting information and the st ock price of banking companies listed in Indonesia Stock Exchange. The inquiry focuses on banks because their balance sheet almost entirely contain financial instruments. There is a considerable about that fair value accounting tends to be irrelevant to ce rtain kind of non - negotiable financial instruments. However, the validity of these statement needs to be subjected to empirical scrutiny. The accounting information included in this research are gain or loss of investment, time deposits, security investmen t, hold to maturity and long term debt. They consist of trading book and banking book of banks. Trading book of bank refers to transactions of marketable securities which objective to make profit from short term fluctuation. Banking book of banks which con sist of non- negotiable instrument. This variables will be helpful to define the value relevance of fair value accounting information because of their peculiar features to banking industry. This paper also will investigate how investors react to the informa tion contained in fair value accounting, recalling its early implementation in Indonesia. Our findings reported that the investors significantly and sensitively react to the implementation of fair value based accounting information given in financial stat ement of commercial bank listed in IDX. Gain or loss of investment, time deposits, and long term debt are having significant relation and reacting positively to the stock price of banking industry listed in Indonesia stock exchange . I nvestor reacts significantly to the implementation of fair value accounting in Indonesian accounting standard. Furthermore, the implementation of fair value based accounting in banking industry listed in Indonesia stock exchange doesn�t downgrade the accounting information subs tantial as a whole. The result shows that fair value based accounting is relevant to reflect the stock price in Indonesia banking industry