The study, published in the International Journal of Economic, Finance and Business Statistics (IJEFBS), examined how regulatory compliance and accounting quality influence the readiness of MSMEs to enter the capital market. The topic has become increasingly important as Indonesia seeks to strengthen the contribution of small businesses to economic growth while encouraging greater financial transparency and corporate governance.
Why IPO Readiness Matters for MSMEs
Many MSMEs face difficulties when attempting to scale their operations. Access to funding remains one of the biggest challenges, and an Initial Public Offering represents a strategic path for raising capital and supporting expansion.
However, numerous enterprises are still hindered by weak financial management systems and inconsistent compliance with government regulations. Investors and regulators generally require transparent financial information before supporting a company's transition into the public market.
Indonesia's policy direction has also emphasized the importance of governance standards. Government Regulation No. 20 of 2026 highlights administrative compliance and financial management as key foundations for business development and formalization.
Survey-Based Analysis of Indonesian MSMEs
Rudy Sondang Sinaga and colleagues at Universitas Kristen Indonesia used a quantitative research design involving registered Indonesian MSMEs preparing for business expansion.
The researchers collected information through surveys distributed to business owners and financial managers. Financial reports were also used as secondary data sources. Statistical analysis was conducted to measure the relationship between tax compliance, financial statement quality, and IPO readiness.
Participants included businesses with at least three years of operational experience and structured financial records.
The respondent profile showed:
- 55 percent of MSMEs had operated for more than five years.
- Manufacturing represented the largest sector, accounting for 40 percent of respondents.
- Eighty percent possessed structured financial records, although most had not undergone formal audits.
Financial Reporting Has the Strongest Impact
The study found that both tax compliance and financial statement quality significantly improve IPO readiness. However, the influence of financial reporting quality proved stronger.
Key findings include:
- Tax compliance positively influenced IPO readiness, with a path coefficient of 0.352.
- Financial statement quality showed a stronger effect, with a coefficient of 0.485.
- Both relationships were statistically significant.
- High-quality financial reports reduced uncertainty and strengthened investor confidence.
According to the analysis, companies with transparent and structured accounting systems are better positioned to attract investors and satisfy capital market requirements.
Transparency Builds Investor Confidence
The findings support the idea that transparency acts as a signal of corporate quality. Reliable financial statements allow investors to assess business performance more accurately and reduce information gaps that often affect smaller companies.
Tax compliance also contributes to organizational credibility. Businesses that consistently fulfill their tax obligations demonstrate accountability and legitimacy, strengthening trust among regulators and potential investors.
In an ethical paraphrase of the study's conclusions, Rudy Sondang Sinaga of Universitas Kristen Indonesia emphasized that regulatory compliance is important, but transparent and reliable financial reporting ultimately becomes the strongest factor determining whether an MSME is ready to enter the stock market.
Implications for Businesses and Policymakers
The findings have practical implications for entrepreneurs, regulators, and policymakers.
For MSME owners, the research highlights the importance of professionalizing accounting systems and maintaining tax discipline. Investments in financial transparency can improve access to external funding and increase investor confidence.
For policymakers, the study suggests the need for stronger capacity-building programs in accounting, taxation, and financial documentation. Training initiatives and support systems could help more Indonesian MSMEs meet the standards required for capital market participation.
The results also reinforce broader government efforts to encourage better governance and transparency among small businesses.
As Indonesia seeks to create more competitive and sustainable enterprises, improved financial reporting may become one of the most important foundations for transforming MSMEs into future public companies.
Author Profile
Rudy Sondang Sinaga is an academic and researcher at Universitas Kristen Indonesia (UKI), Indonesia. His expertise includes management, financial governance, corporate transparency, accounting practices, and MSME development. His research focuses on improving financial quality and strengthening business competitiveness through sound governance and regulatory compliance.
Source
Article Title: The Effect of Tax Compliance and Financial Statement Quality on the Initial Public Offering (IPO) Readiness of MSMEs
Author: Rudy Sondang Sinaga
Affiliation: Universitas Kristen Indonesia
Journal: International Journal of Economic, Finance and Business Statistics (IJEFBS)
Year: 2026
Volume: 4, Issue 3, Pages 189–196
DOI: https://doi.org/10.59890/ijefbs.v4i3.7
Official Journal URL: http://journalijefbs.my.id/index.php/ijefbs
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