Korean Accounting Review (KAR) is the official journal of the Korean Accounting Association. The Korean Accounting Association (KAA) is the largest and oldest academic organization of accounting scholars and practitioners in Korea. It aims to create a fertile environment for innovation and collaborative research, to foster and improve research for the development and the promotion of accounting, and to develop a powerful network among scholars, practitioners, and authorities concerned with political decision making in this field.
Earnings Management and Stock Performance of IPO Firms with Corporate Bond Credit Ratings 회사채 신용등급을 보유한 IPO 기업의 이익조정과 주식성과
김경순 Kyung-soon Kim , 김유진 Yu-jin Kim , 이진훤 Jin-hwon Lee
DOI:10.24056/KAR.2025.02.001 KAR Vol.50(No.1) 1-52, 2025
Abstract
This study aims to empirically investigate the impact of corporate bond credit ratings on the agency risk and pricing efficiency of IPO firms in the Korean initial public offering market. We conducted an empirical analysis using a sample of 1,493 newly listed IPOs over the past 21 years, and the results are as follows. First, firms with corporate bond ratings have significantly reduced discretionary accruals in the IPO year compared to firms without ratings. This means that credit analysts’ risk analysis activities play a positive role in limiting opportunistic earnings management by IPO firms. Second, we find that the long-term post-IPO stock performance of firms with corporate bond credit ratings is higher than that of firms without credit ratings. This indicates that information provision and continuous monitoring by credit analysts contribute to the pricing efficiency of IPOs. Third, unlike non-rated firms, the aggressive earnings reporting strategy of IPOs with corporate bond credit ratings did not result in long-term underperformance. This suggests that the upward earnings management of IPO firms with corporate bond credit ratings may reflect management signaling or a reversal of past conservative accounting treatment. Overall, the empirical results show that bond credit ratings positively influence Korean IPO firms’ information efficiency.
Key Words
신규상장, 채권 신용등급, 이익조정, 장기주식성과, 정보전이효과, initial public offering, corporate bond credit rating, earnings management, long-term stock performance, information transfer effect
The Impact of the Internal Accounting Control Staffing Levels and Expertise on Income Tax Filing Errors 내부회계관리인력의 배치수준 및 전문성이 법인세 신고오류에 미치는 영향
김유찬 Yoo Chan Kim , 박성환 Sung Whan Park
DOI:10.24056/KAR.2025.02.002 KAR Vol.50(No.1) 53-85, 2025
Abstract
This paper aims to empirically examine the impact of internal accounting control(hereinafter, IAC) staffing levels and expertise on income tax filing errors. The staffing sufficiency and expertise, as one of control environment sub-factors, serves as foundations for the effective functioning of IAC. The policies on IAC human resources management should support the effective control of all information (including tax information) as a basis of financial reporting, as well as the reliability of accounting information as an output of the system. The discussion on the relation between IAC human resources management policies and uncertain tax information is important because it implies that the enhancement of control environment can lead to the improvement in the quality of various information (including accounting information) internally recorded, stored, and controlled. The results of the analyses in this paper are summarized as follows. It is found that both staffing levels and expertise significantly negatively affect income tax filing errors. The additional analysis shows that the effect of additional staffing is only significant in the under-reported income taxes, and the effect of the enhanced expertise is significant in both under- and over-reported income taxes. Furthermore, the additional analysis also shows that both IAC staffing levels and expertise significantly negatively affect the possibility of income tax filing errors.
Key Words
내부통제, 인적자원, 인력배치수준, 전문성, 법인세 신고오류, internal control, human resource, staffing level, expertise, income tax filing error
The Impact of CEO Overconfidence and Fraud Risk on Audit Effort
Seulgi Oh , Grace Goun Kim
DOI:10.24056/KAR.2025.02.003 KAR Vol.50(No.1) 87-109, 2025
Abstract
This study investigates the relationship between CEO overconfidence and audit efforts, with a particular focus on the moderating effect of fraud risk. Utilizing data from firms listed on KOSPI and KOSDAQ between 2017 and 2021, we explore how CEO overconfidence influences auditors’ assessment of inherent risk and subsequent audit efforts. Hypothesis 1 reveals that in the Korean context, the supply side of the audit process, driven by auditors’ assessment of inherent risks associated with overconfident CEOs, plays a more significant role than the demand side. Furthermore, we find that the occurrence of fraud events significantly strengthens the positive association between CEO overconfidence and audit effort. This heightened scrutiny from stakeholders following a fraud incident serves as a critical monitoring mechanism, compelling auditors to increase their efforts to mitigate the risk of financial misstatements. Our findings contribute to the broader understanding of audit pricing dynamics, offering new insights into the interplay between management behavior and audit practices. The results also have practical implications for policymakers and auditors, highlighting the importance of considering both inherent and fraud risks in audit planning and execution.
Analysts’ Textual Tone and Stock Price Crash Risk: Evidence from Analysts’ Reports in Korea
Sangyoon Lee , Hyung Ju Park
DOI:10.24056/KAR.2025.02.004 KAR Vol.50(No.1) 111-139, 2025
Abstract
This study investigates whether an optimistic tone in analysts’ reports is linked to future stock price crashes. The findings support this proposition, showing that an optimistic tone is positively associated with future crash risk, suggesting that such optimism may delay the disclosure of negative information, thereby posing risks to investors. Two mechanisms are proposed to explain this relationship: analysts as information mediators and as external monitors. We hypothesize that the association between optimistic tone and crash risk is pronounced in firms with higher information asymmetry and weak corporate governance, where analysts’ roles are crucial. The findings confirm these hypotheses, underscoring the importance of analysts in providing timely bad news and monitoring corporate disclosures to prevent the concealment of negative information. This study contributes to the literature by exploring the relationship between analysts’ report tone and future stock price crash risk, highlighting mechanisms through which optimistic reports increase crash risk, and providing empirical evidence of analysts’ dual role as information intermediaries and external monitors. This research emphasizes the critical function of financial analysts in mitigating the adverse effects of information imbalances, especially for investors in firms with significant information asymmetry or weak governance.
Client Importance and Audit Quality at the Individual Auditor Level 감사파트너에 대한 피감사기업의 상대적 중요도가 감사품질에 미치는 영향
황지회 Jihoe Hwang , 이종은 Jong Eun Lee
DOI:10.24056/KAR.2025.02.005 KAR Vol.50(No.1) 141-181, 2025
Abstract
This paper examines the effect of client importance on the input-based and output-based audit quality. Client importance affects the auditor's behavior, which may have either a positive or negative impact on the performance of the external auditor's role. Carcello et al.(2002) emphasize the input factors of audit and audit procedure. Most prior studies have focused on the output-based audit quality, but this study is expected to provide valuable insights into both the input- and output-based aspects in the study of the effect of client importance on the audit quality. The main results of this study are as follows. First, we find that total audit hours are positively correlated with client importance. Second, when total audit hours are disaggregated into labor mix hours, client importance shows a differential effect on labor mix hours. Furthermore, the positive relationship between client importance and partner hours is observed. Third, the relationship between client importance and the output-based audit quality, proxied by discretionary accruals, is found to be significant. In addition, the negative relationship between client importance and discretionary accruals is observed when the effect of audit hours is considered. Moreover, this study shows that senior hours have a significant negative effect on the relationship between client importance and absolute discretionary accruals. This study is expected to provide potential implications for policymakers and regulators.
The Effects of Controlling Shareholders’ Share Pledging on Corporate Decision: Focusing on Earning Management
Taegon Moon
DOI:10.24056/KAR.2025.02.006 KAR Vol.50(No.1) 183-223, 2025
Abstract
This study examines the effect of share pledging by controlling shareholders on earnings management. Share pledging is a strategy in which shareholders use their owned shares as collateral to secure personal loans, enhancing their liquidity while maintaining control of the company. However, if the stock price drops significantly below a certain threshold, a margin call can be triggered, and failure to meet this call may lead to the liquidation of pledged shares, resulting in a loss of control rights. This study explores whether controlling shareholders engage in earnings management to avoid potential margin calls associated with pledged shares, thereby preserving their control rights. The findings reveal that controlling shareholders who pledge their shares engage in real earnings management, particularly among Chaebol shareholders prioritizing control rights. The robustness of these results is validated through alternative measures of share pledging, subsample tests using stock price performance and agency cost, and endogeneity tests by 2SLS and lag tests. This study is the first to examine how Korean controlling shareholders use earnings management as a strategic tool to mitigate margin call risks. It reveals how differing priorities on control rights influence earnings management practices, offering new insights into shareholder behavior related to share pledging.
The Effect of Human Resource Investment in Internal Control on Unfaithful Disclosure Designations and their Subsequent Remediation 내부회계관리제도에 대한 인적자원 투자와 불성실공시지정 및 이후 개선효과
신보선 Bosun Shin , 한종수 Jongsoo Han , 박채린 Chairin Park
DOI:10.24056/KAR.2025.02.007 KAR Vol.50(No.1) 225-259, 2025
Abstract
The number of companies involved in unfaithful disclosure practices, such as the late or inaccurate reporting of key management issues, is rising annually, accompanied by an increase in repeated offenders. This study examines the influence of internal control personnel (IC personnel) responsible for disclosure tasks on the likelihood of being classified as an unfaithful disclosure firm. The results are as follows. Firms with more-experienced IC personnel are less likely to be designated as an unfaithful disclosure firm, and even when they are designated, the penalties imposed are smaller. It shows that the expertise of IC personnel plays a significant role in controlling errors and irregularities in financial reporting. In the remediation analysis, a firm that appoints a new IC personnel with more experience after being designated as an unfaithful firm is found to be less likely to be re-designated as such in the subsequent year. It indicates that for an unfaithful firm, enhancing the expertise of IC personnel following its designation can lead to improved quality in subsequent disclosures. The findings of this study suggest to regulators that policies promoting investment in IC personnel can effectively enhance firms’ disclosure capabilities. In addition, this study measured the severity of sanctions imposed on unfaithful disclosure firms by incorporating both penalty points and fines, contributing to improved reliability of the analysis results.
