- Apply for Authority
- P-ISSN1738-3110
- E-ISSN2093-7717
- SCOPUS
ISSN : 1738-3110
A study of the relationship between corporate governance and real earnings management: Based on foreign investors and growth
Kim, Tae-Joong
- Downloaded
- Viewed
Abstract
Purpose - This study conducted empirical research on non-financial corporations listed on the stock exchange from 2001 to 2010, focusing on the effects of corporate governance on real earnings management of corporations. In particular, this study examined primarily the impact of the largest shareholder who could use earnings management to pursue his own self-interest, and foreign investors who played a checking role against the largest shareholders. The study also reviewed the relationship between corporate governance and earnings management while also considering corporate growth. Research design, data, and methodology - As for the measurements of real earnings management, abnormal operating cash flow and abnormal production cost were utilized. As for the independent variables, share ratio of the largest shareholder and affiliate person (M) and share ratio of foreign investors (FT) were leveraged. This study excluded those organizations that had changed their fiscal years, those that had not submitted an audit report, corporations under supervision, delisted corporations, corporations that had changed their business type, and so on, from the non-financial corporations out of the publicly traded corporations whose fiscal year ended in December from 2001 to 2010 in addition, KIS values were utilized for the corporate financial data in the study. To verify whether management structure and growth had an impact on real earnings management of a corporation through empirical analysis, a multiple regression analysis model was applied. Result - First, as a result of the analysis, the share ratio (M) of the largest shareholder and affiliate person was found to have a significant positive correlation with abnormal cash flow from operations(ACF) and abnormal production cost (APD). When controlling the growth, the share ratio (M) of the largest shareholder and affiliate person was found to have an insignificant correlation with abnormal cash flow from operations(ACF) but a significant correlation with abnormal production cost (APD). Second, foreign ownership (FT) was found to have a significant positive correlation with abnormal cash flow from operations(ACF) and abnormal production cost (APD) at the confidence level of 1 percent when not including the growth dummy. When controlling the growth, foreign ownership (FT) was found to have a significant negative correlation with abnormal cash flow from operations (ACF) and with abnormal production cost (APD). Conclusion - The results imply that the largest shareholder is closely related to earnings management through real activities regardless of corporate growth. It is also possible to determine from these results that foreign investors are related to earnings management through real activities when not considering corporate growth, but that they would reduce earnings management in the case of considering the growth. Thus, this study verified along with the existing studies that foreign investors were conducting the control function on controlling shareholders.
- keywords
- Corporate Governance, Real Earnings Management, Foreign Investors, Growth
Reference
Ahn, Hong-Bok, & Seo, Ran-Ju (2013). The Corporate Governance and Earnings Management: View from Multiple Large Shareholders and Control Contest. Korean Accounting Review, 38(1), 43-85.
Ahn, Yoon-Young (2006). The Simultaneously Joint Relations among Foreign Ownership, Forecast Accuracy and Firm Value. Journal of Taxation and Accounting, 7(2), 57-78.
Bae, Han-Soo, & Kim, Kyung Hwa (2013). The Effects of Real Earnings Management in Corporaate Life Cycle Stage on Managerial Performance and Stock Return. Accounting Information Review, 31(1), 241-266.
Bae, Jun-Young (2012). Antecedents and Consequences of Expatriate Staffing in MNE Subsidiaries in Korea. International Business Review, 16(4), 1-36.
Chen, X., Harford, J., & Li, K.,( 2007). Monitoring, Which institutions matter?. Journal of Financial Economics, 86(2), 279-305.
Choi, Jong-Seo, & Kwak, Young-Min (2010). Association between Managerial Overinvestment Propensity and Real and Accrual-Based Earnings Management. Korean Accounting Review, 35(4), 25-81.
Choi, Soon-Jae, & Kim, Young-Gil (2013). Market Mispricing on Real Earnings Management and Foreign Investors. Korean Accounting Review, 38(2), 113-144.
Chun, Hong-Min, Kim, Hyun-Hee, & Cha, Seung-Min (2011). Institutional Investors’ Monitoring Role on the Real Earnings Management. Korean Management Review, 40(2), 383-406.
Claessens, S., Djankov, S., & Lang, L.(2002). The Separation of Ownership and Control in East Asian Corporations. Journal of Financial Economics, 58, 81-112.
Hotchkiss, E., & Strickland, D (2003). Does Shareholder Composition Effect Stock Returns? Evidence from Corporate Earnings Announcements. Journal of Finance, 58(4), 1469-1498.
Johnson, S., La Porta, R., Lopez-De-Silanes, F., & Shleifer, A. (2000). Tunneling. American Economic Review, 90(2), 22-27.
Jo, Jeong-Il, & Byun, Jong Cook (2012). The Relationship between Foreign Ownership and Firm Value in Korea. International Business Journal, 20(1), 1-26.
Kim, Sung-hye, Lee, A-young, & Chun, Sung-bin (2012). The Characteristics of Foreign Investors and Real Earnings Management: Focusing on the Role of Foreign Blockholders. Korean Accounting Review, 37(2), 129-165.
Kim, Tae-Wan, & Oh, Sang-Hee (2012). The Information Effect of Audit Quality and Credit Grading on Real Earnings Management. Tax Accounting Research, 33, 1-19.
Lee, A-Young, Chun, Sung-Bin, & Kim, Sung-Hye (2012). Controlling Shareholders’ Ownership Struture and Real Earning Management. Korean Accounting Review, 37(1), 157-189.
López de Silanes, Florencio, La Porta, Rafael, Shleifer, Andrei, & Vishny, Robert (2002). Investor Protection and Corporate Valuation. Journal of Finance, 58(3), 1147-1170.
Park, Hun-Joon, Shin, Hyun-Han, & Choi, Wan-Soo (2004). The Korean Firms’Agency Costs and Firm Value: Role of Foreign Investors’ Equity Ownership. Korean Management Review, 33(2), 655-682.
Park, Kyung-Suh, & Lee, Eun-Jung (2006). The Role of Foreign Investors on the Management and Corporate Governance of Korean Companies. Journal of Money &Finance, 20(2), 73-113.
Park, Mi Hee, & Cho, － Mun－Kee (2013). The Effect of Assets Impairment Recognition on Real Earnings Management. Tax Accounting Research, 35, 1-25.
Park, Young-Kyu (2012). Accrual Based and Real Earnings Management in Korean Firms: Substitutionary or Complementary Relation?. Korean Corporation Management Review, 46, 43-58.
Roychowdhury, S. (2006). Earnings Management through Real Activities Manipulation. Journal of Accounting and Economics, 42, pp. 335-370.
- Downloaded
- Viewed
- 0KCI Citations
- 0WOS Citations