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. 52, No. 5, pp.1193-1215
ISSN: 1226-1874 (Print)
Print publication date 31 Oct 2023
Received 11 Apr 2023 Revised 14 Aug 2023 Accepted 07 Sep 2023
DOI: https://doi.org/10.17287/kmr.2023.52.5.1193

재무제표 재작성이 횡단면적 비교가능성에 미치는 영향: 경영권 보호수준의 조절효과

Jeong Taek Kim ; Sang Hyuk Lee
(First Author) Assistant Professor, College of Business & Economics, Dankook University jtkim01@dankook.ac.kr
(Corresponding Author) Assistant Professor, School of Social Science, Hansung University tkdqur@hansung.ac.kr
Restatement of Financial Statements and Cross-sectional Comparability: Moderating Effect of Managerial Defence Measures


Copyright 2023 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

Managers have an incentive to prepare financial statements as comparable to that of peer firms as possible regardless of their economic substance. Thus, in order to understand the implications of cross-sectional comparability of financial information, the quality of financial information itself should be taken into consideration. Using 2015-2018 Korean listed firms’ data, we investigate how the cross-sectional comparability of firms that have experienced the restatement of financial statements has changed before and after the restatement. Our findings reveal that the cross-sectional comparability of financial statements is significantly reduced for firms that have experienced financial statement restatement. Furthermore, we find that this aspect is more pronounced in firms with less antitakeover provisions. This may be due to the fact that managers in such firms have a great incentive to exert influence on the production of accounting information in order to preserve their positions. Collectively, our findings suggest that managers(especially those with less protected privileges) tend to distort accounting information to maintain the cross-sectional comparability at a desirable level. This study expands related research by confirming that financial reporting quality should be considered in evaluating the financial statements comparability.

Keywords:

financial statements comparability, financial statements restatements, financial reporting quality, managerial entrenchment

Acknowledgments

This research was financially supported by Hansung University.

References

  • Ali, A., and Zhang, W.(2015), “CEO tenure and earnings management,” Journal of Accounting and Economics, 59(1), pp.60-79. [https://doi.org/10.1016/j.jacceco.2014.11.004]
  • Arianpoor, A., and Efazati, S.(2023), “The impact of accounting comparability on CEO incentive plan in an emerging economy: the moderating role of board independence,” Asian Reveiew of Accounting, Forthcoming [https://doi.org/10.1108/ARA-01-2023-0002]
  • Baker, T., D. Collins, and A. Reitenga(2003), “Stock option compensation and earnings management incentives,” Journal of Accounting, Auditing & Finance, 18(4), pp.557-582. [https://doi.org/10.1177/0148558X0301800408]
  • Beasley, M. S.(1996), “An empirical analysis of the relation between the board of director composition and financial statement fraud,” The Accounting Review, 71(4), pp.443-465.
  • Bebchuk, L., A. Cohen, and A. Ferrell(2009), “What matters in corporate governance?,” The Review of Financial Studies, 22(2), pp.783-827. [https://doi.org/10.1093/rfs/hhn099]
  • Blanco, B., Dhole, S., and Gul, F. A.(2022), “Financial statement comparability and accounting fraud,” Journal of Business Finance & Accounting, pp.1-40.
  • Burns, N., and S. Kedia(2006), “The impact of performance-based compensation on misreporting,” Journal of Financial Economics, 79(1), pp.35-67. [https://doi.org/10.1016/j.jfineco.2004.12.003]
  • Chen, C. W., D. W. Collins, T. D. Kravet, and R. D. Mergenthaler(2018), “Financial statement comparability and the efficiency of acquisition decisions,” Contemporary Accounting Research, 35(1), pp.164-202. [https://doi.org/10.1111/1911-3846.12380]
  • Cho, E. H., H. W. Moon, and Y. S. Choi(2015), “The effect of comparability on firm-level stock price crash risk,” Korean Accounting Review, 40(4), pp.179-211.
  • Choi, H. D., and J. W. Yoon(2006), “The effect of corporate governance on conservativeness of accounting information,” Korean Accounting Review, 31(4), pp.145-174.
  • Choi, S. U.(2016), “Are financial statements of the clients that share the same auditor similar? An analysis using audit firms and audit partners,” Korean Accounting Journal, 25(2), pp.239-273.
  • Choi, S. U.(2018), “Can low quality earnings be comparable? Analysis on the relation between discretionary accruals and financial statements comparability,” Study on Accounting, Taxation & Auditing, 60(2), pp.181-220.
  • Choi, H., and Suh, S.(2019), “The effect of financial reporting quality on CEO compensation structure: Evidence from accounting comparability,” Journal of Accounting and Public Policy, 38(5), pp.106681. [https://doi.org/10.1016/j.jaccpubpol.2019.106681]
  • De Franco, G., S. P. Kothari, and R. S. Verdi(2011), “The benefits of financial statement comparability,” Journal of Accounting Research, 49(4), pp.895-931. [https://doi.org/10.1111/j.1475-679X.2011.00415.x]
  • Di Meo, F., J. M. G. Lara, and J. A. Surroca(2017), “Managerial entrenchment and earnings management,” Journal of Accounting and Public Policy, 36(5), pp.399-414. [https://doi.org/10.1016/j.jaccpubpol.2017.07.003]
  • Du, Q., and Shen, R(2018), “Peer performance and earnings management,” Journal of Banking & Finance, 89, pp.125-137. [https://doi.org/10.1016/j.jbankfin.2018.01.017]
  • Endrawes, M., Feng, Z., Lu, M., and Shan, Y.(2020), “Audit committee characteristics and financial statement comparability,” Accounting & Finance, 60(3), pp.2361-2395. [https://doi.org/10.1111/acfi.12354]
  • Fang, V. W., M. Maffett, and B. Zhang(2015), “Foreign institutional ownership and the global convergence of financial reporting practices,” Journal of Accounting Research, 53(3), pp.593-631. [https://doi.org/10.1111/1475-679X.12076]
  • Francis, J., A. H. Huang, S. Rajgopal, and A. Y. Zang(2008), “CEO reputation and earnings quality,” Contemporary Accounting Research, 25(1), pp.109-147. [https://doi.org/10.1506/car.25.1.4]
  • Francis, J. R., M. L. Pinnuck, and O. Watanabe(2014), “Auditor style and financial statement comparability,” The Accounting Review, 89(2), pp.605-633. [https://doi.org/10.2308/accr-50642]
  • Huang, H. H., W. Wang, and J. Zhou(2013), “Share-holder rights, insider ownership and earnings management,” Abacus, 49(1), pp.46-73. [https://doi.org/10.1111/j.1467-6281.2012.00390.x]
  • Jensen, M. C., and W. H. Meckling(1976), “Theory of the firm: Managerial behavior, agency costs and ownership structure,” Journal of Financial Economics, 3(4), pp.305-360. [https://doi.org/10.1016/0304-405X(76)90026-X]
  • Kang, M. J., M. G. Lee, and H. Y. Lee(2013), “The impact of financial reporting comparability on analyst forecasts and value relevance,” Korean Accounting Review, 38(1), pp.281-320.
  • Lee, M. G., Kang, M., Lee, H. Y., and Park, J. C.(2016), “Related-party transactions and financial statement comparability: evidence from South Korea,” Asia-Pacific Journal of Accounting & Economics, 23(2), pp.224-252. [https://doi.org/10.1080/16081625.2014.957706]
  • Lobo, G. J., Neel, M., and Rhodes, A.(2018), “Accounting comparability and relative performance evaluation in CEO compensation,” Review of Accounting Studies, 23, pp.1137-1176. [https://doi.org/10.1007/s11142-018-9447-1]
  • Malmendier, U., and G. Tate(2009), “Superstar CEOs,” The Quarterly Journal of Economics, 124(4), pp.1593-1638. [https://doi.org/10.1162/qjec.2009.124.4.1593]
  • Nam, J.(2020), “Financial reporting comparability and accounting-based relative performance evaluation in the design of CEO cash compensation contracts,” The Accounting Review, 95(3), pp.343-370. [https://doi.org/10.2308/accr-52588]
  • Ozcan, N., Singer, Z., and You, H.(2012), “Mandatory IFRS adoption and the contractual usefulness of accounting information in executive compensation,” Journal of Accounting Research, 50(4), pp.1077-1107. [https://doi.org/10.1111/j.1475-679X.2012.00453.x]
  • Rezaei Pitenoei, Y., and Abdollahi, A.(2019), “Financial statements comparability and the likelihood of fraudulent reporting,” Financial Accounting Research, 11(2), pp.89-104.
  • Schipper, K.(1989), “Earnings management,” Accounting Horizons, 3(4), pp.91-102.
  • Vafeas, N.(2005), “Audit committees, boards, and the quality of reported earnings,” Contemporary Accounting Research, 22(4), pp.1093-1122. [https://doi.org/10.1506/1QYN-2RFQ-FKYX-XP84]
  • Sohn, B. C.(2016), “The effect of accounting comparability on the accrual-based and real earnings management,” Journal of Accounting and Public Policy, 35(5), pp.513-539. [https://doi.org/10.1016/j.jaccpubpol.2016.06.003]
  • Xie, B., N. D. III. Wallace, and J. D. Peter(2003), “Earnings management and corporate governance: The role of the board and the audit committee,” Journal of Corporate Finance, 9(3), pp.295-316. [https://doi.org/10.1016/S0929-1199(02)00006-8]
  • Zellner, A(1962), “An efficient method of estimating seemingly unrelated regressions and tests for aggregation bias,” Journal of the American Statistical Association, 57(298), pp.348-368. [https://doi.org/10.1080/01621459.1962.10480664]
  • Zhao, Y., and K. H. Chen(2008), “Staggered boards and earnings management,” The Accounting Review, 83(5), pp.1347-1381. [https://doi.org/10.2308/accr.2008.83.5.1347]
  • Zhao, Y., K. H. Chen, Y. Zhang, and M. Davis(2012), “Takeover protection and managerial myopia: Evidence from real earnings management,” Journal of Accounting and Public Policy, 31(1), pp.109-135. [https://doi.org/10.1016/j.jaccpubpol.2011.08.004]

∙ The author Jeong-Taek Kim is an Assistant Professor at College of Business & Economics of Dankook University. He received a master's degree from Seoul National University and a Ph.D degree from Korea University. His research interests include ESG, corporate disclosures, and auditing.

∙ The author Sang Hyuk Lee is an Assistant Professor, School of Social Science, Hansung University. He received his Ph.D. in Business Administration at Korea University. As a certified public accountant (KICPA), he worked for Samil PwC and KRX. Sang Hyuk Lee’s research interests are Valuation, Disclosure and Corporate Governance.