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Korean Academic Society of Business Administration
[ Article ]
korean management review - Vol. 50, No. 6, pp.1595-1620
ISSN: 1226-1874 (Print)
Print publication date 31 Dec 2021
Received 11 Jun 2021 Revised 28 Jul 2021 Accepted 05 Aug 2021
DOI: https://doi.org/10.17287/kmr.2021.50.6.1595

상장중소기업의 강화된 내부회계관리제도 모범규준 적용이 자기자본비용에 미치는 영향

Sang Hyuk Lee ; Namchul Jung ; Jinwook Choi
(First Author) Korea University Business School tkdqur@korea.ac.kr
(Corresponding Author) School of Business Administration, Hongik University jnc1208@hongik.ac.kr
(Co-Author) Smart media Service Research Center in Korea University jwc87@korea.ac.kr
The Effect of Small and Medium Listed Companies’ Applying of Reinforced Standards for Internal Accounting Control System on Cost of Equity 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

Listed small and medium-sized companies (SMEs), when applying the standards (Standards) for internal accounting control system (IACS), can apply a relaxed Standards unlike large listed companies. This study analyzes the effect of SMEs’ applying the Standards applied to large companies (applying of reinforced Standards) on the cost of equity capital (COE). In addition, this study examines whether the differential role of external corporate governance appears in the relationship between the two.

Empirical results show a negative relationship between the applying of reinforced Standards of SMEs and the COE. This suggests that reinforced application of SMEs’ increases the reliability of the accounting information process and ultimately is related to the reduction of information risk. Specifically, the result is found firms without industry specialized auditors, firms without institutional shareholders and firms with low foreign investor equity, suggesting the application of reinforced Standards is more effectively related to information risk reduction when external corporate governance is weak.

This study has a differentiated contribution by presenting empirical results that SME’s selection of the Standards affects the COE. In particular, the results of this study that proactive design and operation of IACS are related to the reduction of cost of capital.

Keywords:

Internal Accounting Control System, Standards, Cost of Equity Capital, Industry Specialized Auditor, Institutional Investor, Foreign Investor, External Governance

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∙ The author Sang Hyuk Lee is a Ph. D., Korea University Business School. He is a CPA and received a B.A. from Korea University, Korea. His main research focus is financial reporting, disclosure, and firm valuation.

∙ The author Namchul Jung is currently an assistant professor in the School of Business Administration, Hongik University. He received his Ph. D. from Korea University Business School, and worked at Deloitte Anjin and BC Card Co., Ltd. His major research areas include audit quality, disclosure, and other fields of auditing and financial accounting.

∙ The author Jinwook Choi is a research professor of Smart media Service Research Center in Korea University. He received his Bachelor degree in Business at Gachon University and his PhD from Korea University Business School. His current research interests include data mining, machine learning, unstructured text analysis.