Earnings response coefficient and its association with firm size, leverage, and earnings persistence: Sustainability implications

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Abstract

The earnings response coefficient (ERC) reflects how the market reacts to a company’s earnings announcements. Several factors, such as firm size, leverage, and earnings persistence, are often associated with ERC, as they are believed to influence investors’ perceptions of earnings quality. However, the relationship between these variables and ERC remains debated. Wulandari and Herkulanus (2015) state that ERC can serve as an indicator of earnings quality, while Ahabba and Sebrina (2020) note that its relationship with financial indicators varies across industries. This study investigates the impact of firm size, leverage, and earnings persistence on ERC in manufacturing firms listed on the Indonesia Stock Exchange (IDX) from 2018 to 2021. A purposive sampling method is applied, producing a final sample of 47 firms. The data is analyzed using EViews 12, applying classical assumption testing, panel data regression, and hypothesis testing. The findings reveal that firm size, leverage, and earnings persistence do not significantly affect ERC. This supports the findings of Dewi and Putra (2022), who reported similar outcomes in the Indonesian context. These results suggest that investors may consider other variables when responding to earnings announcements. Future research should expand the sample, observation period, and scope of variables.

Keywords: Firm Size, Leverage, Profit Persistence, Earnings Response Coefficient

Authors’ individual contribution: Conceptualization — K.K. and M.M.; Methodology — K.K.; Formal Analysis — K.K.; Investigation — M.M.; Resources — M.M.; Data Curation — K.K.; Writing — Original Draft — K.K.; Writing — Review & Editing — M.M.; Visualization — K.K.; Supervision — M.M.; Project Administration — K.K.; Funding Acquisition — M.M.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G14, G32, M41, M42, L60

Received: 04.03.2025
Revised: 22.06.2025; 29.09.2025; 14.11.2025
Accepted: 21.11.2025
Published online: 24.11.2025

How to cite this paper: Markonah, M., & Kusnadi, K. (2025). Earnings response coefficient and its association with firm size, leverage, and earnings persistence: Sustainability implications. Corporate Governance and Sustainability Review, 9(4), 89–101. https://doi.org/10.22495/cgsrv9i4p8