• The Journal of Asian Finance, Economics and Business
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• v.8 no.12
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• pp.323-336
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• 2021

The present study aims to examine the impact of real earnings management on the future value of the firm and its persistence. The study also tests suspect firm effects on the relationship between real earnings management and the future value of the firm. The sample of the present study consists of all listed non-financial firms from the year 2011 to 2018. Real earnings management has been measured in three alternative ways viz., abnormal operating cash flows, abnormal discretionary spending, and abnormal production cost. Tobin's Q is used as a measure of firm value. The interaction term of real earnings management and Tobin's Q is used to test firm value persistence. The results of the analysis disclose that out of three measures of real earnings management, abnormal reduction in discretionary spending only has a significant negative impact on the persistence of firm value. Moreover, the suspect firm analysis reveals that when the underlying motive of real earnings management is to meet zero earnings, both abnormal increases in operating cash flows and abnormal reduction in discretionary spending have a significant negative impact on firm value persistence.

• Management & Information Systems Review
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• v.35 no.4
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• pp.169-184
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• 2016

Deferred tax assets (liability) in a company's financial statements are to reflect the temporary difference between taxable income and accounting income and therefore can provide useful information as a proxy for discretionary accruals. In addition, deferred tax assets allow a company to manage its earnings by reviewing the feasibility of the assets' recognition. As such, this study focused on deferred tax assets to examine their relationship with discretionary accruals, which were measured by a modified Jones model (Dechow et al. 1995), and investigated the impact of audit quality on this relationship. In order to control for the effects of tax rate change and measurement credibility, deferred tax assets of 2,670 non-financial firms from 2009 to 2010 were collected as samples for the study. The results of the empirical analysis are as follows. First, the samples as a whole indicated that deferred tax assets have a negative relationship with discretionary accruals in a general sense, but a high-quality audit did not reveal a significant relationship between them. Second, the 1,379 samples with negative discretionary accruals did not reveal a significant relationship between deferred tax assets and discretionary accruals; however, the result showed a significant negative relationship under a high-quality audit. These findings suggest that in the case of negative discretionary accruals, a high-quality audit restricts an earnings management technique that utilizes deferred tax assets and that the assets can be a useful tool for detecting discretionary accruals. The present study is meaningful in that, unlike previous research, it combined the two contrasting roles of deferred tax assets-that of an earnings management detector and an earnings management tool-to examine their general relationship. The study also suggested that audit quality could influence the usefulness of deferred tax assets in providing information on discretionary accruals.

• The Journal of the Korea Contents Association
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• v.15 no.7
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• pp.477-488
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• 2015

This study investigates the association between non-audit services and audit quality, using a sample of firms in which audit services and non-audit services are provided by a same audit firm. This study extends previous studies by separating auditors into Big4 and Non-Big4 audit firms as each group may have different incentives to impair their independence. According to the empirical results, audit quality, proxied by absolute value of discretionary accruals has significant negative association with non-audit service fee for Non-Big4 audit firms, but not for Big4 audit firms, suggesting that Non-Big4 audit firms may impair their independence with increased non-audit service fees. Non-Big4 audit firms are known to be relatively small and local firms that might be highly economically dependent upon a specific client firm whereas Big4 audit firms are not. This results may be of interest to regulators and capital market investors and standard setters who concern a recent trend of increasing non-audit services that are provided by an audit firm which also provides audit service at the same time.

• Journal of Distribution Science
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• v.17 no.6
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• pp.33-42
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• 2019

Purpose - We investigate whether a firm's engagement in socially responsible activity affects the quality of financial reporting within the retail industry of Korean market. Recent studies argue that more socially responsible firms tend to show a better quality of financial reporting. Research design, data, and methodology - We use a variety of proxy variables related to the use of discretionary accruals and real activity manipulation to measure the quality of financial reporting. The total of environmental, social and governance score is used to represent the degree of socially responsible activity in the retail industry. We use regression models to examine whether more socially responsible firms show a higher quality of financial reporting. The sample of publicly traded Korea retail firms is analyzed from 2011 to 2016. Results - Our analysis finds supporting evidence for limited earning management via the use of discretionary accruals. We find, however, no significant relationship between the degree of social responsibility and the quality of financial reporting within chaebol affiliates unlike non-chaebol affiliates. Conclusions - Our results weakly support a better quality of financial reporting for more socially responsible firms. The results highlight the importance of firm characteristics in deciding the effect of socially responsible activity on corporate policies.

• The Journal of Asian Finance, Economics and Business
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• v.9 no.7
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• pp.185-196
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• 2022

The purpose of this study is to examine the effects of split ratings on earnings management through cost adjustments based on asymmetric cost behaviors. Using a sample of 2,027 Korean firm-year observations over the 2002-2019 period, we analyze whether a firm deliberately reduces discretionary costs, such as selling, general, and administrative (SG&A) expenses, to improve profits when it receives multiple ratings from credit rating agencies (CRAs). While examining earnings management incentives in the presence of split ratings, we also investigate the moderating effects of Chaebols, Korea's unique corporate governance structure. We find that split-rating firms show less stickiness in SG&A costs compared to non-split-rating firms when sales decrease. This result implies the deliberate reduction of discretionary costs to improve earnings in the presence of split ratings, which are more likely to change in future credit assessments. We also find that the incentives for earnings management of split-rating firms are limited in Chaebol firms, which have high levels of socio-economic surveillance and support affiliated firms through the internal market of corporate groups. This study contributes to existing research by identifying new determinants of cost behavior by using the framework of asymmetric cost behavior in relation to earnings management incentives.

• Resources Recycling
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• v.24 no.5
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• pp.40-55
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• 2015

The purpose of this study is to analyse whether the waste disposal volume level in the construction waste disposal industry makes a different effect on earnings management behaviour by size of the licensed storage capacity and by location of the waste disposal site. The empirical results of this study are as follows. First, the waste disposal volume significantly influences earnings management behavior. When it comes to the size of licensed storage capacity in the small-sized capacity firms, the smaller waste disposal volume firms make more aggressive earnings management by using discretionary accruals. On the other hand, in the large-sized capacity firms, more waste disposal volume firms report higher earnings by adjusting more discretionary accruals. Second, the effects of waste disposal volume on the earnings management show different pattern depending on the location of waste disposal site. When the firms are located in the non-capital regions, the smaller waste disposal volume firms report higher earnings by adjusting discretionary accruals as well as by using real activities earnings management. However, the firms located in the capital regions show more aggressive earnings management when they have higher waste disposal volume level.

• Journal of the Korea Academia-Industrial cooperation Society
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• v.15 no.1
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• pp.165-172
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• 2014

The purpose of this paper is to identify whether the national baseball squad made up of the best players may get the outstanding results in the international competitions or not. Using Data Envelopment Analysis, the relative efficiency of players in Korean Baseball Organization is estimated as performance measure, and compared with the efficiency scores of national squad members. The paper focuses on the proper choice of DEA model in a baseball setting, thereby selecting the BCC model with non-discretionary variable. Two input variables(plate appearances and stolen bases to enforce) and three output variables(runs, on-base plus slugging and stolen base percentage) are used to evaluate the efficiency of the baseball players. Results showed that 22 players among 97 players were classified as efficient and 8 players among 12 national squad members were as efficient. These findings indicate a potential for DEA to be a major part of the analytical approaches in evaluating the relative efficiency of players.

• Journal of Navigation and Port Research
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• v.45 no.3
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• pp.173-180
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• 2021

Although accounting is one of the core fields of corporate management, few studies have reported accounting phenomena involving shipping companies. In addition, although financial reporting is very important to shipping companies that use several financial tools such as ship finance and financial lease, it is difficult to identify studies investigating shipping companies' financial reporting, especially their earnings management. The purpose of this study is to analyze accrual earnings management behavior of shipping companies. Companies with high debt ratios and net losses are known to have incentives for earnings management. Due to the nature of the industry, shipping companies have a high debt ratio and often report net losses. Accordingly, shipping companies are expected to engage in substantial earnings management. Based on the analysis of KOSP I companies listed on the Korea Exchange from 2001 to 2020, it was found that shipping companies are engaged in higher levels of earnings management than non-shipping companies. Discretionary accrual was used as a proxy variable for earnings management. Discretionary accrual was measured using the modified Jones model of Dechow et al. (1995) and the performance matched model of Kothari et al.(2005). In this study, significant results were derived by comparatively analyzing the earnings management practices, which is one of the major accounting behaviors of shipping and non-shipping companies. Stakeholders such as external auditors, investors, financial institutions, analysts, and government authorities need to be aware of the earnings management behavior of listed shipping companies during their external audit, financial analysis, and supervision. Finally, listed shipping companies must conduct stricter accounting based on accounting principles.

• Korean small business review
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• v.42 no.4
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• pp.123-146
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• 2020

This study, targeting KOSDAQ-listed companies, examined the relationship between variability of accruals and corporate characteristics. First, the analysis results show that executives of companies with high debt ratios are more likely to violate debt contracts, so there is a strong temptation to use discretionary accrual items. Second, for companies with large volatility in operating cash flows, Executives of these companies are strongly inclined to utilize accruals for the purpose of abuse of discretion. Third, the larger the company, the more sensitive it is to political costs, so it is less tempted to use the accruals item than a smaller company. Fourth, the corporate age is thought to be the maturity of the company, Executives of such companies have little room to use accruals to abuse their discretion. Fifth, in the case of profit dummy variables, the companies reporting losses have more temporary accrual items than those reporting profits, so this increases the uncertainty in their accounting information than the latter. Sixth, for those companies that are indicated as inappropriate as a result of audit, the more likely their executives are to use the accrual items, and the lower the quality of their accounting profits is. Lastly, Companies audited by 4 Big domestic accounting firms have less discretionary accrual fluctuations than companies audited by non-big 4 accounting firms. Thus, it was found that the accrual amount allows the discretion of corporate executives differently according to the characteristics of the company.

• Journal of Distribution Science
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• v.11 no.6
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• pp.5-11
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• 2013

Purpose - The main question in this study is whether there is any relationship between corporate governance variables and earnings quality. The size of the board and audit committee, the number of stockholding managers and non-executive directors, and management quality are considered as independent corporate governance variables in the hypotheses. Research design, data, and methodology - Earnings quality is used as the dependent variable. Input from the abovementioned variables are drawn from 94 listed companies in the Tehran Stock Exchange for the period between 2006 and 2010. Results - This study examines corporate governance aspects such as the size of the board of directors, the number of shares held by the board, the board's independence, and the percentage of non-executive directors. The results show that establishing an audit committee has a significant role in ensuring higher quality reported earnings. Conclusions - The regression statistics output reveals a meaningful relationship between earnings quality and the size of the board of directors, the number of non-executive directors, and the size of the audit committee. This result indicates that improving earnings quality requires that the size of the board of directors be taken into account.