Your browser does not support the PubReader view.
Go to this page to see a list of supporting browsers.
Korean Academic Society of Business Administration
[ Article ]
korean management review - Vol. 49, No. 5, pp.1211-1231
ISSN: 1226-1874 (Print)
Print publication date 31 Oct 2020
Received 05 Mar 2020 Revised 01 Jul 2020 Accepted 09 Jul 2020
DOI: https://doi.org/10.17287/kmr.2020.49.5.1211

개별사업장의 미청구공사 손상차손누계액이 자본비용에 미치는 효과

Sung-Ho Choi
(First Author) Associate Professor, Division of Business Administration College of Business, Chosun University, Korea csh@chosun.ac.kr
The Effect that Accumulated Impairment Losses of Due From Customers for Contract Work of Individual Workplaces on Cost of Capital


Copyright 2011 THE KOREAN ACADEMIC SOCIETY OF BUSINESS ADMINISTRATION
This is an open access article distributed under the terms of the Creative Commons Attribution License 4.0, which permits unrestricted, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

Following the implementation of the “Contract Industry Accounting Transparency Improvement Measures” (hereafter “Improvement Measures”), firms are required to disclose detailed information (completion rates, due from customers for construction work, accumulated impairment losses, etc.) for each individual workplace in the case of contracts that account for 5% or more of the firm’s sales. Therefore, this study examined if investors discriminately interpreted the construction contract information of individual workplaces after the implementation of the Improvement Measures and reflected the same in their decision-making process. Through this, it weighs the usefulness of the reporting amendments following the Improvement Measures.

The analysis results show that the larger the accumulated impairment losses of due from customers for construction work in individual workplaces that are nearing completion (over 90% completion rate), the cost of capital in the next period was significantly higher.

However, there was no significant relationship between the accumulated impairment losses of due from customers for construction work in individual construction workplaces with completion rates below 90% and the cost of capital in the next period. This is the result of investors estimating that the larger are accumulated impairment losses at individual workplaces that are nearing completion, the higher will be the uncertainty associated with future profit and cash flow. Therefore, they made negative decisions.

Keywords:

Completion rates, Contract industry, Cost of capital, Due from customers for construct work accumulated impairment losses

References

  • Bae, H. G., D. H. Yang, & J. H. Choi(2018), “Do audit efforts constrain earnings management in production-to-order industries?,” Korean Accounting Journal, 27(5), pp.29-74. [https://doi.org/10.24056/KAJ.2018.05.004]
  • Choi, S. H(2019), “The study on the effectiveness of order-made production industry accounting transparency improvement,” Korean Accounting Journal, 28(1), pp.33-162. [https://doi.org/10.24056/KAJ.2019.01.002]
  • Choi, S. H., & J. H. Choi(2017), “The effect of due form customers for contract work on cost of debt,” Korean Accounting Review, 42(4), pp.107-139. [https://doi.org/10.24056/KAR.2017.04.006]
  • Easley, D., S. Hvidkjaer, & M. O’Hara(2002), “Is information risk a determinant of asset returns?,” Journal of Finance, 57(5), pp. 2185-2221. [https://doi.org/10.1111/1540-6261.00493]
  • Fama, E., & K. French(1992), “The Cross-Section of expected stock returns,” The Journal of Finance, 47(2), pp.427-465. [https://doi.org/10.1111/j.1540-6261.1992.tb04398.x]
  • Fama, E., & K. French(1997), “Industry costs of equity,” Journal of Financial Economics, 43(2), pp.153-193. [https://doi.org/10.1016/S0304-405X(96)00896-3]
  • Financial Service Commission(2015), “The improvement of accounting transparency in the order made production industry,” (Press Oct. 28. 2015).
  • Francis, J., R. LaFond, P. M. Olsson, & K. Schipper (2004), “Costs of equity and earnings attributes,” The Accounting Review, 79(4), pp.967-1010. [https://doi.org/10.2308/accr.2004.79.4.967]
  • Francis, J., R. LaFond, P. M. Olsson, & K. Schipper (2005), “The market pricing of accruals quality,” Journal of Accounting and Economics, 39(2), pp.295-327. [https://doi.org/10.1016/j.jacceco.2004.06.003]
  • Ha, S. G(2018), “The value relevance of accounting information in the contract industries,” Review of Accounting and Policy Studies, 23(2), pp.25-49. [https://doi.org/10.21737/kjar.2018.05.23.2.25]
  • Hwang, I. T(1996), “The information content of contract balances in the construction industry,” Korean Accounting Review, 21(3), pp.63-77.
  • K-IFRS 1115: Revenue from Contracts with Customers.
  • Kim, B. H(1995), “The improvement and problem of accounting standards on Korean construction industry,” Korean Accounting Journal, 3(1), pp.209-235.
  • Kim, H. S., M. J. Oh, & I. S. Kim(2010), “The effect of IFRS adoption on construction industry,” Korean Accounting Journal, 19(5), pp.245-280.
  • Kim, J. B., & B. C. Shon(2013), “Real earnings management and cost of capital,” Journal of Accounting and Public Policy, 32(6), pp. 518-543. [https://doi.org/10.1016/j.jaccpubpol.2013.08.002]
  • Kim, J. K., & S. M. Shin(2004), “Understanding and improvement of current Korean accounting standard No.12(Construction Contract),” Korean Accounting Journal, 13(2), pp.117-153.
  • Kim, Y. H., & S. O. Park(2019), “A study on the value relevance of unbilled revenue,” Journal of Taxation and Accounting, 20(4), pp.125-151. [https://doi.org/10.35850/KJTA.20.4.05]
  • Korea Investors Service(KIS)(2015), “The analysis result about potential risk of due from customers for contract work increase in construction firms,” (Press Oct. 23. 2015).
  • Korea Investors Service(KIS)(2016), “Potential risk analysis of due from customers for contract work II,” (Press Mar. 28. 2016).
  • Korea Investors Service(KIS)(2017), “2017 construction industry risk factor check II: Overseas sector,” (Press May. 15. 2017).
  • Lang, M., & R. Lundholm(1993), “Cross-sectional determinants of analyst ratings of corporate disclosures,” Journal of Accounting Research, 31(2), pp.246-271. [https://doi.org/10.2307/2491273]
  • Lee, J. E(2017), “Relations of abnormal unbilled contract receivables with discretionary accruals, audit hours, audit fees and stock prices: Evidence on accounting issues of constructions and shipbuilding industries,” Study on Accounting, Taxation & Auditing, 59(3), pp.213-254.
  • Lee, Y. S., & J. C. Park(2017a), “The effect of the unbilled revenue on a firm’s credit rating and audit hours and audit fees,” Study on Accounting, Taxation & Auditing, 59(1), pp.69-97.
  • Lee, Y. S., & J. C. Park(2017b), “The effect of the unbilled revenue on the stock prices,” Accounting Information Review, 35(2), pp. 367-394. [https://doi.org/10.29189/KAIAAIR.35.2.15]
  • Leuz, C., & R. E. Verrecchia(2000), “The economic consequences of increased disclosure,” Journal of Accounting Research, 38, pp.91-124. [https://doi.org/10.2307/2672910]
  • Leuz, C., & R. E. Verrecchia(2004), “Firms’ capital allocation choices, information quality, and the cost of capital,” Working Paper, pp.1-26. [https://doi.org/10.2139/ssrn.495363]
  • Park, J. H., & J. S. Cho(2015), “The effects of corporate governance characteristics on information asymmetry and stock price synchronicity,” Korean Accounting Review, 40(4), pp.285-325.
  • Shin, H. J., & S. I. Kim(2019), “The impact of adopting key audit matters on value relevance of unbilled revenue account,” Korean Accounting Journal, 28(2), pp.149-171. [https://doi.org/10.24056/KAJ.2019.03.007]
  • Shin, S. H., & S. M. Kim(2018), “Audit fees and discretionary accruals: Focused on order-taking industries,” Korea Management Review, 47(2), pp.221-250. [https://doi.org/10.17287/kmr.2018.47.2.221]
  • Yu, S. M., & H. J. Kim(2010), “The effect of K-IFRS on construction industry: A case study of H construction company,” Korean Accounting Journal, 19(2), pp.445-481.

• The author Sung-Ho Choi is an associate professor in the department of business administration at Chosun University. He obtained a Ph.D. degree from Sungkyunkwan University. The main research area is financial accounting.