Title:
Auditor’s Reputation Moderates the Impact of Free Cash Flow, Leverage, and Profitability on Stock Returns.

Authors:
Suwaldiman, Dalta Fika Nabila Hanif, Indonesia

Abstract:

This study aims to investigate the impact of free cash flow, leverage, and profitability on stock returns. Additionally, it examines the role of auditor reputation in moderating the relationship between these financial factors and stock returns.This the research is quantitative, examining all technology sector companies listed on the Indonesia Stock Exchange (IDX) from 2018 to 2023, totalling 34 companies. A purposive sampling method was used to choose the sample, resulting in 107 financial statement data points from 32 technology sector companies that met the criteria. The data utilized in this research is secondary and obtained from the IDX. The analysis was conducted using multiple regression analysis and moderation regression analysis, with the assistance of SPSS version 25. The findings indicate that both free cash flow and profitability have a positive and significant impact on stock returns, while leverage has a negative and significant impact. Furthermore, the analysis shows that auditor reputation, as a moderating variable, does not moderate the relationship between free cash flow, leverage, profitability, and stock returns. This research provide considerations for investment decision by utilizing the role of auditor reputation in moderating the impact of free cash flow, leverage, and profitability on stock returns. To fill the gap the previous research, this research measure the auditor reputation by the rank of annual auditing fees/revenues, instead of dummy variable. This research has limitations in the subjective measurement of auditor reputation. Commonly it was measured by dummy variable (1 for the big four and 0 for non-big four). In contrast this research measurement is based on the rank of the annual auditing revenue. Therefore the accounting firm that have the highest revenue is measured 5, then decreasing to 4, 3, 2, and 1. It might be other measurements that are more reliable in measuring the auditor reputations.

DOI: https://doi.org/10.51505/IJEBMR.2025.91107