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.
The Effect of CEO Career Horizon on Voluntary Corporate Social Responsibility (CSR) Disclosure Decisions
DOI:10.24056/KAR.2023.12.001 KAR Vol.48(No.6) 1-27, 2023
This paper examines the effect of CEO career horizon on voluntary corporate social responsibility (CSR) disclosure decisions. Within the framework of career concern, I conjecture that CEOs with shorter career horizon (e.g., soon-to-retire) have a tendency to prioritize short-term performance over long-term performance compared to those with longer horizon. This, in turn, may result a lower propensity of voluntary CSR disclosures. Analyzing hand-collected data on stand-alone CSR reports from S&P 1500 firms for the period from 2016 to 2019, I find that CEOs with shorter career horizons are less likely to issue CSR reports compared to those with longer horizons, consistent with the prediction. Overall, the present study makes contributions in two-folds. First, this study extends to the existing literature on voluntary CSR disclosures by highlighting CEO career horizon is potential determinant of CSR disclosure decisions. Second, in comparison with the prior literature largely focusing on the role of firm and board attributes as drivers of voluntary CSR disclosures, the present study introduces the first empirical evidence that CEO career horizon plays a significant role in shaping CSR disclosure decisions.
CEO career horizon, corporate social responsibility, voluntary disclosure
The Effect of Market Competition on Executive Pay Cap
Sohee Park , Jae Yong Shin
DOI:10.24056/KAR.2023.12.002 KAR Vol.48(No.6) 29-51, 2023
This paper investigates how market competition affects the adjustment of executive pay cap in Korean firms. The effect of market competition can be two-fold: Competition either increases the necessity to motivate executives by raising the maximum possible amount of compensation, which supports the role of executive pay cap as an effective compensation mechanism, or decreases the ease of executives’ self-serving upward adjustment of the pay cap to extract rents, which supports the role of executive pay cap as a justification tool for rent extraction. To address the research question, we employ a change regression model. The empirical findings show that an increase in market competition is associated with a decrease in executive pay cap, supporting the argument that concentrated, less competitive market structures facilitate self-serving managers’ rent extraction. Cross-sectional tests reveal that the negative association between market competition and executive pay cap is mitigated for firms with strong corporate governance. Additional test results show that firms that make an upward adjustment of executive pay cap under low market competition tend to increase actual executive pay, providing further support to the rent extraction story.
The Effect of CEO Turnover on the Corporate Risk and the Effect of CEO Tenure on the Relationship 경영자 교체가 기업의 위험에 미치는 영향 및 경영자의 임기가 이들 관계에 미치는 영향
신유진 Yoojin Shin , 김정옥 Jeong Ok Kim
DOI:10.24056/KAR.2023.12.003 KAR Vol.48(No.6) 53-88, 2023
In this study, we analyzes the effect of CEO turnover and the type of CEO turnover on the corporate risk which are measured by the crash risk and the idiosyncratic volatility. The CEO tenure and CEO turnover are determined by their contribution, those are used as measuring the corporate risk by the investor under Efficient Market Hypothesis. We found that the relationship between CEO tenure and the company risk (the crash risk and the idiosyncratic volatility) were showed a U-shaped form. Also the company risk was positively affected by the CEO turnover. However, the effects of CEO turnover on the company risk showed differently according to the type of CEO turnover. Next, as a result of analyzing whether the effect of the CEO turnover on the risk of the company depends on the foreign equity ratio, it was found that the risk of the company due to CEO turnover is lower than the company that do not have more than the 5% foreign ratio. The results of this study contribute to the fact that the CEO turnover generally increases the risk of a company due to skepticism about the ability and uncertainty of new CEO. And this study suggest that the effect of CEO turnover on the company risk depends on the tenure of CEO and the presence of foreign investors.
경영자 교체, 경영자 임기, 기업위험, 주가붕괴위험, 고유변동성, CEO turnover, CEO tenure, Company risk, Stock crash risk, Idiosyncratic volatility
Has the Market Response to Earnings Announcements Increased in the Korean Capital Market? 한국에서 이익 공시에 대한 시장반응은 증가하였는가?
나현종 Hyun Jong Na
DOI:10.24056/KAR.2023.12.004 KAR Vol.48(No.6) 89-120, 2023
Whether accounting information is informative in the capital market is of significant interest in accounting research. Contrary to prior findings from the United States that the market response to earnings announcements has significantly increased during the 21st century (Beaver et al., 2020), this study finds that market response to earnings announcements has not increased in the Korean capital market over a period from 2004 to 2022. Specifically, abnormal stock return volatility (USTAT) and abnormal trading volume (AVOL) changed from 1.69 and 0.51 in 2004 to 1.76 and 0.17, respectively, in 2022. Also, the results of multiple regression do not find statistically nor economically significant increase in time-trends. These findings suggest that there are country-specific differences in the information environment that explains inter-temporal changes in market response to earnings announcements. Specifically, this paper does not find any increase management forecast nor analyst following, both of which prior studies consider as factors contributing to increase in market responses to earnings announcements in the United States. This paper is the first to empirically document market response to earnings announcements in a large cross-section of all listed companies in Korean capital market over a long period of time. Also, this paper contributes to various stockholders and regulators in the Korean capital market by showing that the information environment in the Korean capital market may not have improved over the past 20 years.
이익 공시, 시장반응, 자본시장, 실적전망공시, 재무분석가 예측, 정보환경, earnings announcements, market response, capital market, management forecasts, analyst forecasts, information environment
Auditors’ Audit Adjustment Decisions and Financial Reporting Quality: Comparative Analysis on Pre- and Post-Audit Financial Information 외부감사인의 감사조정 결정과 회계품질: 감사 전·후 재무제표 비교를 통한 실증분석
백복현 Bok Baik , 한승엽 Seung-youb Han , 김우진 Woojin Kim , 이찬석 Chanseok Lee
DOI:10.24056/KAR.2023.12.005 KAR Vol.48(No.6) 121-162, 2023
Audit process is unobservable to external financial information users. As a result, despite numerous prior works on auditing, little is known about the characteristics of audit adjustments and their consequences. Exploiting private data on pre-audit financial information from the Korea Institute of Certified Public Accountants, this study provides direct evidence about the determinants of auditors’ audit adjustment and its impact on firms’ financial reporting quality. Our main findings are as follows. First, during our sample period from 2014 to 2021, more than 80% of the Korean listed firms have experienced audit adjustments that affect net income. Among those audit adjustment cases, the portion of downward (upward) adjustments to decrease (increase) net income is higher (lower), suggesting auditors’ conservative approach to audit adjustments. Second, audit adjustments vary with various factors such as firm size, financial stability, profitability, listed market, and auditor-characteristics in a direction that is overall consistent with prior studies. Third, after audit adjustments, the magnitude of accruals decresases, earnings persistence increases, and small profits (losses) decrease (increases). These results collectively suggest auditors in Korea contribute to enhanced financial reporting quality by hampering managers’ earnings management and strengthening predictability of financial information. However, the decrease of post-audit accrual quality measured by the Dechow and Dichev (2002) model indicates the possibility of auditors’ excessive audit adjustments. Using externally unobservable pre-audit financial data, this study sheds light on existing audit studies by presenting the descriptives of audit adjustments for the Korean listed firms and providing direct evidence on the effects of audit adjustments on financial reporting quality.