Ownership Structure, Business Group Affiliation, Listing Status, and Earnings Management: Evidence from Korea

Posted: 17 Dec 2009

See all articles by Jeong-Bon Kim

Jeong-Bon Kim

Simon Fraser University; City University of Hong Kong

Cheong H. Yi

Hong Kong Polytechnic University - School of Accounting and Finance

Multiple version iconThere are 2 versions of this paper

Date Written: 2006

Abstract

Using a large sample of both publicly traded and privately held firms in Korea, this paper investigates whether, and how, the deviation of controlling shareholders' control from ownership, business group affiliation, and listing status differentially affect the extent of earnings management. Our results show the following: First, as the control-ownership disparity becomes larger, controlling shareholders tend to engage more in opportunistic earnings management to hide adverse consequences of their self-serving behavior. The result of our full-model regression reveals that an increase in the control-ownership wedge by 1% leads to an increase in the magnitude of (unsigned) discretionary accruals by 1.3% of lagged total assets, ceteris paribus. Second, we find that for our full model regression, the magnitude of (unsigned) discretionary accruals is greater for group-affiliated firms than non-affiliated firms by 0.8% of lagged total assets. This result suggests that business group affiliation provides controlling shareholders with more incentives and opportunities for earnings management. Finally, we find that for our full-model regression, the magnitude of (unsigned) discretionary accruals is greater for publicly traded firms than for privately held firms by 1.2% of lagged total assets. This result supports the notion that stock markets create incentives for public firms to manage reported earnings to satisfy the expectations of various market participants that are often expressed in earnings numbers.

Keywords: Corporate governance, Voting rights, Cash flow rights, Business group, Chaebol, Listing status, Privately held firms, Earnings management, Korea

JEL Classification: M41, M43, G34

Suggested Citation

Kim, Jeong-Bon and Yi, Cheong H., Ownership Structure, Business Group Affiliation, Listing Status, and Earnings Management: Evidence from Korea (2006). Canadian Academic Accounting Association, Contemporary Accounting Research, Vol. 23, No. 2, pp. 427-464, 2006, Available at SSRN: https://ssrn.com/abstract=984130

Jeong-Bon Kim (Contact Author)

Simon Fraser University ( email )

8888 University Drive
Burnaby, British Colombia V5A 1S6
Canada

City University of Hong Kong ( email )

Department of Accountancy
83 Tat Chee Avenue
Kowloon Tong
Hong Kong
852-3442-7909 (Phone)

Cheong H. Yi

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon, Kowloon
Hong Kong
852-2766-7083 (Phone)
852-2330-9845 (Fax)

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