TUNNELING AND ITS IMPLICATION TO THE VALUE RELEVANCE OF

FINANCIAL REPORTS

Intan Nur Inayah (Accounting- 07/ 252096/EK/16660)

Counselling lecturer: Dr. Sony Warsono, MAFIS., Akt

ABSTRACT
The purpose of this research is to provide empirical evidence about whether groupbusiness firm doing cash flow tunneling, act as a financing source to their related parties and the
implication of tunneling to their value relevance of financial report.
The sample used in this research is 44 group business firms and 32 non-group business
firms which listed as manufacturing firm in Indonesia Stock Exchange (IDX) each year along 5
year of observation period (2005-2009). The variables in this research are sales to related parties,
net credit to related parties, book value equity (BVE), earnings and market value equity.
The research proves group business firms are doing cash flow tunneling through sales to
related parties, and their financial reports are low of value-relevance which showed by book
value equity and earnings cannot influence market value equity in significant. Meanwhile, both
group business and non-group business firms are act as a alternative financial resource to their
related parties.

Key Words: Tunneling, Sales to Related Parties, Net Credit to Related Parties, Book Value
Equity (BVE), Earnings, Market value Equity, Value Relevance of Financial Report.