Based on that Korean Fair Trade Commission(KFTC) point out probability of tunneling using chaebol’s affiliated firms outside holding company system, the objective of this paper is to investigate the difference of earnings quality between affiliated firms inside holding company system and affiliated firms outside holding company system before and after of holding company system transformation, and firms' transparency improvement effectiveness resulting from chaebol’s holding company system transformation using a sample of chaebol’s affiliated firms subject to external audit. from 1996 to 2009. The results are as follows. First, resulting from accruals and real earning management of before and after of holding company system transformation, accruals earning quality of affiliated firms inside holding company system is improved, while earning quality of affiliated firms outside holding company system is worsened. To result of hypothesis 1, listed firms have higher levels of earning quality than unlisted firms in affiliated firms inside holding company system, unlisted firms have lower levels of earning quality than listed firms in affiliated firms inside holding company system by resulting from holding company system transformation. Second, after holding company system transformation, affiliated firms inside holding company system have higher levels of earning quality than the matching general company, while affiliated firms outside holding company system have lower levels of earning quality than the matching general company. To result of hypothesis 2, both affiliated firms inside and outside holding company system have bigger the difference the difference of earnings quality than the matching general company to unlisted firm. Third, after holding company system transformation, affiliated firms inside holding company system have higher levels of earning quality than affiliated firms outside holding company system by reducing accruals earning management. To result of hypothesis 3, after holding company system transformation, affiliated firms inside holding company system have higher levels of earning quality than affiliated firms outside holding company system to both listed and unlisted firms. While real earning management shows significantly opposite influence depending on proxies. These result is equal to as pointed out KFTC on existence of internal trading of affiliated firms inside holding company system as well as affiliated firms outside holding company system. Consequently KFTC must add management and supervision about real earning management to the restriction of act on the Monopoly Regulation and Fair Trade Act. Additional analysis examines that we perform propensity score matching (PSM) as a way to reduce sample-selection bias in our study. The results equate to hypothesis 2’s result. This paper contributes to in the existing research in relation to the holding company. Because it examines overall analysis on earning quality of affiliated firms inside and outside holding company system and consider both accruals and real earning management proxy. Also it supplements result of non-identity because of that previous researches analyzed almost using only listed firms and has high preciseness by including both listed and unlisted firms.