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. 6, pp.1219-1252
ISSN: 1226-1874 (Print)
Print publication date 31 Dec 2023
Received 18 Apr 2023 Revised 28 Aug 2023 Accepted 11 Sep 2023
DOI: https://doi.org/10.17287/kmr.2023.52.6.1219

최대주주의 경영참여와 분기이익품질

Jungmin Kim
(First Author) Associate Professor, Department of Accounting and Taxation, Keimyung University jminjmin@kmu.ac.kr
Largest Shareholder’s Participation in Management and Quarterly Earnings Quality


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

It has been considered that the higher the stake of the largest shareholder, the higher the possibility of a company's opportunistic behavior. However, the prior studies have not succeeded in showing consistent results between the largest shareholder's stake and accounting numbers. Therefore, this study empirically tried to examine the effect of the largest shareholder's share on quarterly earnings quality depending on whether the largest shareholder directly manages the business or not. Quarterly accruals quality was measured based on the Francis et al. (2005) model and then, it was used as a proxy for quarterly earnings quality. As a result of analyzing 14,060 company-year-quarter data of KRX-listed companies from 2015 to 2021, it showed that the higher the share ratio of the largest shareholder, the quarterly earnings quality would deteriorate when the largest shareholder participates in management. Additional analysis reflecting the non-linear relation of the largest shareholder's ratio to the accounting numbers also showed that the quarterly earnings quality was more affected when the largest shareholder directly participated in management. In addition, it was confirmed that the largest shareholder's opportunistic behavior was more prominent in the fourth quarter when earnings management motives were expected to be higher than in other quarters.

Keywords:

Agency theory, Largest shareholders, Quarterly earnings, Earnings quality

Acknowledgments

This research was supported by the Bisa Research Grant of Keimyung University in 2022 (2022-0194).

References

  • Ahn, H. B., Lee, Y. H., and Choi, K. D.(2015), “Governance and Investment Opportunity Set: Tunnelling,” Journal of Business Research, 30(2), pp.283-307.
  • Bae, C. H., and Son, S. K.(2013), “The Effect of Agency Problem Between Controlling Share-holders and Minority Shareholders on Audit Report Lag,” Study on Accounting, Taxation & Auditing, 55(2), pp.249-275.
  • Becker, C., M. DeFond, J. Jiambalvo, and K. Subramanyam(1998), “The Effect of Audit Quality on Earnings Management,” Contemporary Accounting Research, 19(Spring), pp. 1-24. [https://doi.org/10.1111/j.1911-3846.1998.tb00547.x]
  • Bona-Sanchez, C., C. Fernandez-senra, and F. Perez-Aleman(2017), “Related-party Transactions, Dominant Owners and Firm Value,” Business Research Quarterly, 20(1), pp.4-17. [https://doi.org/10.1016/j.brq.2016.07.002]
  • Brown, P., and J. W. Kennelly(1972), “The Informational Content of Quarterly Earnings: An Extension and Some Further Evidence,” The Journal of Business, 45(3), pp.403-415. [https://doi.org/10.1086/295469]
  • Bushman, R. M., Lerman, A., and X. F. Zhang(2016), “The Changing Landscape of Accrual Accounting,” Journal of Accounting Research, 54(1), pp.41-78. [https://doi.org/10.1111/1475-679X.12100]
  • Byeon, J. W., Kang, P. K., and Hwang, K. J.(2018), “Non－linear Properties of the Relation between Largest Shareholder Ownership and Earnings Management: Focusing on Large Business Groups,” Review of Accounting and Policy Studies, 23(3), pp.293-327. [https://doi.org/10.21737/kjar.2018.08.23.3.293]
  • Claessens, S., S. Djankov, and L. H. Lang(2000), “The Separation of Ownership and Control in East Asian Corporations,” Journal of Financial Economics, 58(1-2), pp.81-112. [https://doi.org/10.1016/S0304-405X(00)00067-2]
  • Choi, J. H.(2007), “Corporate Governance and Earnings Quality,” Korean Management Review, 36(2), pp.527-549.
  • Choi, K., and Paek, W. S.(2007), “Accrual Quality Based on Convertibility into Cash and Accrual Anomaly,” Korean Accounting Review, 32(3), pp.1-26.
  • Das S., and P. K. Shroff(2009), “Quarterly Earnings Patterns and Earnings Management,” Contemporary Accounting Research, 26(3), pp. 797-831. [https://doi.org/10.1506/car.26.3.7]
  • Dechow, P. M., and I. D. Dichev(2002), “The Quality of Accruals and Earnings: the Role of Accrual Estimation Eerrors,” The Accounting Review, 77(Supplement), pp.35-59. [https://doi.org/10.2308/accr.2002.77.s-1.35]
  • Degeorge, F., J. Patel, and R. Zeckhauser(1999), “Earnings Management to Exceed Thresholds,” The Journal of Business, 72(1), pp.1-33. [https://doi.org/10.1086/209601]
  • Faccio, M. and L. Lang(2002), “The Ultimate Ownership of Western European Corporations,” Journal of Financial Economics, 65, pp.365-395. [https://doi.org/10.1016/S0304-405X(02)00146-0]
  • Fama, E. F., and M. C. Jensen(1983), “Separation of Ownership and Control,” The Journal of Law & Economics, 26(2), pp.301-325. [https://doi.org/10.1086/467037]
  • Francis, J., R. LaFond, P. Olsson, and 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]
  • Gonzalez, J. S., and Garcia-Meca, E.(2014), “Does Corporate Governance Influence Earnings Management in Latin American Markets?” Journal of Business Ethics, 121, pp.419-440. [https://doi.org/10.1007/s10551-013-1700-8]
  • Hagerman, R., M. Zmijewski, and P. Shah(1984), “The Association Between the Magnitude of Quarterly Earnings Forecast Errors and Risk-adjusted Stock Returns,” Journal of Accounting Research, 22, pp.526-540. [https://doi.org/10.2307/2490662]
  • Hong, J. Y. and Yoo, S. W.(2022), “A Study on the Effectiveness of Tournament Theory in Accordance with the Type of CEO, Korean Accounting Review, 47(5), pp.141-174. [https://doi.org/10.24056/KAR.2022.10.005]
  • Hyun, J. H., Hwang, I., Shin, J. Y., and Kim B. J.(2013), “The Effect of Agency Problem between Controlling Shareholders and Minority Share-holders on Compensation of Outside Directors,” Korean Accounting Journal, 22(3), pp.1-29. [https://doi.org/10.19030/jabr.v29i3.7789]
  • 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]
  • Jeong, G. Y., Kwon, S. Y., and Paek, W. S.(2002), “Ownership Structure and Earnings Informativeness: Evidence from Korea,” Korea Business Review, 31(6), pp.1707-1727.
  • Jeong, M. G., Kim, D. W., and Kim, B. K.(2017), “Controlling Shareholders’ Tunneling and Firm’s Leverage Decision,” Journal of Industrial Economics and Business, 30(2), pp. 669-689. [https://doi.org/10.22558/jieb.2017.04.30.2.669]
  • Jeter, D. C., and L. Shivakumar(1999), “Cross-Sectional Estimation of Abnormal Accruals Using Quarterly and Annual data: Effectiveness in detecting event-specific earnings management,” Accounting and Business Research, 29(4), pp.299-319. [https://doi.org/10.1080/00014788.1999.9729590]
  • Johnson, S., P. Boone, A. Breach, and E. Fredman(2000), “Corporate Governance in the Asian Financial Crisis,” Journal of Financial Economics, 58(1-2), pp.141-186. [https://doi.org/10.1016/S0304-405X(00)00069-6]
  • Kerstein, J. and A. Rai(2007), “Intra-Year Shifts in the Earnings Distribution and Their Implications for Earnings Management, Journal of Accounting and Economics, 44, pp.399-419. [https://doi.org/10.1016/j.jacceco.2007.04.004]
  • Kim, H. J., and Yoon, S. S.(2010), “The Impact of the Wedge on Corporate Governance and Earnings Management,” Accounting Information Review, 28(2), pp.1-32.
  • Kim, H. S.(2014), “The Fourth Quarter Earnings Management to Avoid Losses,” Business Management Review, 47(2), pp.25-44.
  • Kim, H. Y., Kim, H. S., and Seo, J. G.(2015), “A Study on Owner－Manager, Earning Management and Dividend,” Review of Accounting and Policy Studies, 20(4), pp.85-110.
  • Kim, J. M.(2021), “A Study on the Differentiation of Quarterly Earnings Quality,” Journal of The Korean Data Analysis Society, 23(5), pp.2187-2200. [https://doi.org/10.37727/jkdas.2021.23.5.2187]
  • Kim, J. M.(2022), “Impact of Controlling Shareholders on Earnings Quality in the Fourth Quarter,” Journal of The Korean Data Analysis Society, 24(4), pp.1341-1354. [https://doi.org/10.37727/jkdas.2022.24.4.1341]
  • Kim, J. S., and Cha, S. M.(2013), “Managers' Earnings Management in the Fourth Quarter and Corporate Governance,” Journal of Taxation and Accounting, 14(3), pp.217-252.
  • Kim, J. S., and Lee, S. P.(2015), “Income Smoothing and Tax Avoidance in the Fourth Quarter,” Journal of Finance and Accounting Information, 15(1), pp.1-22.
  • Kim, J. S., and Ko, Y. S.(2012), “Disposition of Assets in the Fourth Quarter for Earnings Management and the Role of Auditors, Study on Accounting, Taxation & Auditing, 54(1), pp.319-354.
  • Kim, K. A., and Kim, K. T.(2012), “The Effect of the Practice to Temporarily Lower Fourth-Quarter Debt Levels in Comparison with Earlier-Quarters Debt Levels on Relation between Debt/Equity Ratio and Earnings Management,” Study on Accounting, Taxation & auditing, 54(1), pp.175-209.
  • Kim, K. T.(2016), “The Association between Temporarily Higher Fourth-Quarter Sales Level Compared with Earlier-Quarters and Earnings Management,” Korean Journal of Business Administration, 29(12), pp.1773-1792. [https://doi.org/10.18032/kaaba.2016.29.12.1773]
  • Kim, K. T.(2018), “The Value Relevance of Temporarily Higher Sales Level,” Study on Accounting, Taxation & Auditing, 60(3), pp.123-148.
  • Kim, M. C., Cheon, Y. S. and Lee, J. Y.(2021), “Comparison of Quarterly Earnings Management Between KOSPI and KOSDAQ Markets: Focusing on Institutional Reforms Related to Accounting Information,” Korean Management Review, 50(5), pp. 1187-1215. [https://doi.org/10.17287/kmr.2021.50.5.1187]
  • Kim, M. C.and Choi, K.(1999), “A Study on the Concept of Earnings Quality,” Korean Accounting Journal, 8(1), pp. 221-249.
  • Kim, M. I., and Choi, J. H.(2008), “The Association between the Wedge between Voting Right and Cash Flow Right and Conservatism,” Study on Accounting, Taxation & Auditing, 47, pp.181-210.
  • Kim, S. M., and Han, J. S.(2015), “The Fourth Quarter Investment Efficiency and Accounting Quality,” Accounting Information Review, 33(4), pp.371-401.
  • Kim, S. R.(2021), “Ownership and Accruals Quality,” Journal of The Korean Data Analysis Society, 23(6), pp.2841-2850. [https://doi.org/10.37727/jkdas.2021.23.6.2841]
  • Ko, D. Y., Ahn, M. K., and Yang, D. J.(2013), “Management Earnings Forecast and Fourth-Quarter Earnings Management,” Korean Accounting Journal, 22(3), pp.199-220.
  • Koh, P. S.(2003), “On the Association between Institutional Ownership and Aggressive Corporate Earnings Management in Australia,” The British Accounting Review, 35, pp. 105-128. [https://doi.org/10.1016/S0890-8389(03)00014-3]
  • Kothari, S. P., A. Leone, and C. Wasley(2005), “Performance matched discretionary accrual measures.” Journal of Accounting and Economics, 39, pp.163-197. [https://doi.org/10.1016/j.jacceco.2004.11.002]
  • Kwak, J. M., and Cho, M. K.(2010), “Differential Earnings Informativeness according to the Largest Shareholder s Ownership,” Global Business Administration Review, 7(1), pp. 121-144. [https://doi.org/10.17092/jibr.2010.7.1.121]
  • Kwon, S. Y., and Ki, E. S.(2011), “The Effect of Accruals Quality on the Audit Hour and Audit Fee,” Korean Accounting Review, 36(4), pp.95-137.
  • La Porta, R., F. Lopez-de Silanes, and A. Shleifer(1999), “Corporate Ownership around the World,” The Journal of Finance, 54(2), pp. 471-517. [https://doi.org/10.1111/0022-1082.00115]
  • La Porta, R., F. Lopez-De-Silanes, and A. Shleifer(2000), “Investor Protection and Corporate Governance,” Journal of Financial Economics, 58(1-2), pp.3-27. [https://doi.org/10.1016/S0304-405X(00)00065-9]
  • Lee, A. Y., Chun, S. B., and Kim, S. H.(2012), “Controlling Shareholders’ Ownership Structure and Real Earnings Management,” Korean Accounting Review, 37(1), pp.157-189.
  • Lee, G. B., Ryu, Y. R., and Ji, S. H.(2012), “A Study on the Relevance between Firm’s governance and Earning's management: Using the Book-Tax Difference,” Korea International Accounting Review, 42, pp.33-52. [https://doi.org/10.21073/kiar.2012..42.002]
  • Lee, J. Y., Hyun, J. W., Choi, Y. S., and Lee, M. Y.(2018), “Co-CEO Structure and Mutual Monitoring Effect: Focusing on Earnings Management,” Journal of the Korean Entrepreneurship Society, 13(4), pp. 55-84. [https://doi.org/10.24878/tkes.2018.13.4.055]
  • McConnell, J. J., and H. Servaes(1990), “Additional Evidence on Equity Ownership and Corporate Value,” Journal of Financial Economics, 27(2), pp.595-612. [https://doi.org/10.1016/0304-405X(90)90069-C]
  • Morck, R., A. Shleifer, and R. W. Vishny(1988), “Management Ownership and Market Valuation: An Empirical Analysis,” Journal of Financial Economics, 20, pp.293-315. [https://doi.org/10.1016/0304-405X(88)90048-7]
  • Paek, W. S.(2016), “The Settling-up Effect of Quarterly Earnings and its Determinants,” Korean Accounting Review, 41(5), pp.41-77.
  • Paek, W. S., and Cho, H. W.(2006), “Ownership Holding by Second Largest Stockholder and Earnings Management,” Asia-Pacific Journal of Financial Studies, 35(6), pp.103-139.
  • Park, J. I.(2003), “Corporate Governance and Earnings Management: View from the Largest Share-holder's Holding,” Korean Accounting Review, 28(2), pp.135-172.
  • Park, S. Y., Chun, H. M.(2021), “Owner-Managers and the Implied Cost of Equity Capital: Evidence from Chaebol Firms,” Korean Management Review, 50(5), pp. 1255-1277. [https://doi.org/10.17287/kmr.2021.50.5.1255]
  • Shim, D. H., and Lee, Y. S.(2019), “The Effects of The Largest Shareholders` Holding on the Earnings Management: Discriminatory Response based on the Disclosure Status of the Schedule of Manufacturing Costs,” Korea International Accounting Review, 84, pp. 121-145.
  • Sohn, S. K., Goh, J. M., and Paik, H. W. (2009), “The Information Content of Accruals Quality,” Korean Accounting Information Review, 27 (2), pp.273-304.
  • Son, S. G., and Lee, E. C.(2005), “Information Content Study on the Review Opinions of Semi-annual Financial Statements,” Korean Accounting Review, 30(1), pp.1-34.
  • Sun, E. J., Son, U. S., and Paek, W. S.(2015), “Tax Subsidy, Discretionary Accruals and Accruals Quality,” Korean Accounting Review, 40(5), pp.79-104.

∙ The author Jungmin Kim is an associate professor in the Department of Accounting and Taxation at Keimyung University. She graduated from Kyungpook National University and earned a doctoral degree in Economics with a major in accounting from Kyoto University in Japan. Her research interests include accounting institutional change, quarterly disclosures, and earnings management by internal stakeholders.