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 Politically Connected Outside Directors on the Relationship between Stock Price Crash Risk and the Cost of Debt 사외이사의 정치적 관계가 주가붕괴위험과 타인자본비용의 관계에 미치는 영향
박민경 Min Kyung Park , 전성일 Seong Il Jeon
DOI:10.24056/KAR.2020.08.001 KAR Vol.45(No.6) 1-35, 2020
This study investigates the economic impact after stock price crash risk. First, we examine the cost of debt after stock price crash risk. The rate of return on investment required by an investor is positively related to the level of risk, therefore the cost of debt will increase relatively. Secondly, we examine the possible effect of political connections of outside directors on the relationship between stock price crash risk and the cost of debt. There are doubts whether ex-bureaucrat outside directors are used as expensive insurance, so-called lobbyists for the company, regarding to the reason of appointment ex-bureaucrat outside directors. Using the firms listed from 2010 to 2017, our findings are follows. First, the risk of stock price crash increase the cost of debt. The higher the risk of stock price crash, the higher the borrowing rates and the lower bond ratings. Secondly, we find weak evidence that the companies with ex-bureaucrat outside directors show lower cost of debt even after stock price crash risk. This indicates that the effect of stock price crash risk on cost of debt is different between the companies with ex-bureaucrat outside directors and without ex-bureaucrat outside directors. It is meaningful in that we attempt to find the incentives to appoint ex-bureaucrats as outside directors and their external influence. We expect the results of this study will help regulatory agency to make the policy and operate of outside director system.
Audit Market Competition, Auditor’s Economic Dependence, and Audit Quality 감사시장의 경쟁 수준, 감사인의 피감사회사에 대한 경제적 의존도, 그리고 감사품질
조미옥 Meeok Cho , 안혜진 Hyejin Ahn , 하원석 Wonsuk Ha
DOI:10.24056/KAR.2020.08.002 KAR Vol.45(No.6) 37-73, 2020
This study investigates whether the auditor’s economic dependence on the client moderates the effect of audit market competition on audit quality. Prior studies document that the intensity of audit market competition, measured by the number of auditors available in the year and industry, negatively affects audit quality. Extending the prior studies, this study focuses on the auditor’s economic dependence as a factor that mitigates the detrimental effect of audit market competition on audit quality. The auditor’s economic dependence is measured as the relative size of audit fees paid by an auditee out of total audit fees earned by the auditor. We expect that although auditors have incentives to sacrifice audit quality in a highly competitive audit market, the incentives will be significantly reduced when auditors are less dependent economically on their clients such that the benefits of compromising the audit quality are limited. Based upon on a sample of Korean listed firms for the period of 2005-2018, our empirical analyses support our prediction. Furthermore, we find that our results are driven primarily by the clients of non-Big 4 auditors, suggesting that non-Big 4 auditors, who are economically dependent on a small number of clients, are more susceptible to the competitive pressure in the market while Big 4 auditors provide relatively stable quality of service. In sum, our study provides important insights into auditor behavior for various interested parties, including researchers, regulators, and practitioners.
감사시장의 경쟁 수준, 감사인의 경제적 의존도, 감사품질, 회계법인의 수, audit market competition, auditors’ economic dependence, audit quality, number of auditors
Incentives of Bio-pharmaceutical Firms to Provide High-quality Disclosures in Quarterly and Annual Reports 제약·바이오 기업이 자발적으로 질 높은 사업보고서 공시를 제공할 유인에 관한 연구
금병욱 Byounguk Keum , 전영순 Youngsoon S. Cheon
DOI:10.24056/KAR.2020.08.003 KAR Vol.45(No.6) 75-110, 2020
In order to improve disclosures of R&D activities in bio-pharmaceutical industries, the Financial Supervisory Service (FSS) issued a guideline as to how to disclose R&D activities in quarterly and annual reports in 2018. Given that the guideline was not a mandatory requirement, not all bio-pharmaceutical firms adopted the FSS guideline for 2018 Q3 quarterly and annual reports. Thus, this study examines what determines bio-pharmaceutical firms’ decisions to voluntarily adopt the FSS guideline. Our results reveal that bio-pharmaceutical firms tend to adopt the FSS guideline when foreign equity ownership is lower, investment in tangible assets is high, firms are larger, and firms are listed on the KOSDAQ market, after controlling for other variables. These results are consistent with the information asymmetry theory. Moreover, firms that have good operating performance and report net income tend to adopt the guideline in consistent with the management signaling theory. Finally, firms are less likely to adopt the guideline when they have higher growth opportunities, they have been listed on stock exchanges for shorter time periods, and their major products are brand-name drug. These results are consistent with the proprietary cost theory. Our results suggest that management of bio-pharmaceutical firms simultaneously consider incentives driven by diverse disclosure theories for voluntary disclosure decisions.
경영자 신호이론, 금융감독원 모범사례, 전유정보 공시비용이론, 정보비대칭이론, 제약·바이오기업, bio-pharmaceutical firm, FSS guideline, information asymmetry theory, proprietary cost theory, signaling theory
Compliance Costs of Auditor Designation Rules: Evidence from Client Surplus Losses 주기적 감사인 지정제의 이행비용: 피감법인의 효용변화를 중심으로
선우희연 Hee-yeon Sunwoo , 이우종 Woo-jong Lee
DOI:10.24056/KAR.2020.09.002 KAR Vol.45(No.6) 111-147, 2020
This study aims to prove the significance of compliance costs incurred by a recently adopted policy related to external audits - the periodical auditor designation rule. This rule imposes periodical breaks to audit engagements continuing over 6 years with the regulatory body designating incoming auditors. We measure the compliance costs based on changes in client surplus due to the rule implementation. In so doing, we first estimate a demand curve for audit services, allowing the services provided by individual Big 4 auditors and mid-sized auditors to be differentiated products. We then explore how the rule would affect client firms’ consumer surplus, based on the estimated demand curve. Analyzing listed firms in Korea for the periods from 2005 to 2018, we estimate that consumer surplus losses induced by the auditor designation rule would range between KRW 70 billion and 76 billion. These figures indicate that the volume of compliance costs accompanying the enhanced regulation is considerable. However, our results should not be taken as the counterevidence for the rule’s effectiveness because our approach does not discuss its merits. Rather, our results highlight the importance of cost-benefit analyses in setting a regulation.
The Effects of the Stock Price Crash on the Dividend Policy 주가붕괴가 배당의사결정에 미치는 영향
남기만 Giman Nam , 전경민 Kyeongmin Jeon
DOI:10.24056/KAR.2020.09.003 KAR Vol.45(No.6) 149-188, 2020
The purpose of this study is to examine whether the stock price crash affects the dividend policy. The divided policy is measured by the amount of dividend paid, compared with the size of the firm. Firms that experience stock price crash have strong incentives to reduce agency costs. Specifically, we examine whether firms with stock price crash use dividend policy to reduce agency costs between the management and the outside investors and to inform an information about firm’s future profitability to the market. In particular, we analyze whether this relationship would be different depend on the level of agency problem. In addition, we investigate the dividend paying firm's future value. The sample of this study is 7,736 Korea listed firm-year observations from 2001 to 2016. Empirical findings are summarized as follows. First, we find that firms with stock price crash are more likely to pay dividend to reduce the agent cost and provide additional an information to outside investors, and this relationship is more pronounced with higher agent costs. In addition, we find that firm's value increase after the dividend payment. This paper contributes to extant literature by showing the empirical results for the signaling effect of the dividend, and provides an additional information for the firm with stock price crash.
The Effect of Cost Stickiness on the Value of Cash Holding 원가의 하방경직성에 따른 보유현금가치
김선화 Sun-hwa Kim , 정용기 Yong-ki Jung
DOI:10.24056/KAR.2020.10.001 KAR Vol.45(No.6) 189-236, 2020
Prior studies indicate that the financial crisis occurred at 2008 affects the value of cash holding. The higher the level of cash holding, the higher the corporate value. However, when cash holding level is increased, the downward stickiness of selling, general and administrative cost (SG&AC) is strengthened. There is a positive aspect that this phenomenon is caused by the maintenance of profitable resources for future growth. However, there is also a negative outlook that this phenomenon comes from spending on privileged consumption or inefficient asset management such as overinvestment. Therefore, this study examines the value of cash holding according to the downward stickiness of SG&AC. The findings of this study are summarized as follows: First, the value of cash holding due to the downward stickiness of SG&AC is decreased in firms with poor governance, but such a relation is not found in firms with good governance. Second, the value of cash holding by the downward stickiness of SG&AC is decreased in the companies with professional managers, but such a relation is not seen in the companies with owner managers. Third, the cash holding value due to the downward stickiness of SG&AC is decreased in low growth companies, but the association disappears in high growth companies. These findings suggest that investors consider the positive and negative impacts of the downward stickiness of SG&AC, when they evaluates the values of corporate cash holdings. The results of this study will be helpful in evaluating investment firms and developing firms’ cash and cost management strategies.
The Effect of Auditor Characteristics on Audit Fee Discount and Audit Quality during the Global Financial Crisis 감사인 특성이 글로벌 금융위기 시 감사보수 할인과 감사품질에 미친 영향
정희선 Heesun Chung , 조미옥 Meeok Cho
DOI:10.24056/KAR.2020.11.001 KAR Vol.45(No.6) 237-278, 2020
This study investigates how auditors react to the fee discount pressure of client firms during the global financial crisis according to the auditor characteristics, which influences audit quality. In particular, we view that the auditors’ ability to adjust audit efforts will determine their decisions to discount audit fees during the recession. Using 3,688 Korean public firm-year observations from 2006 to 2009, we find that audit fees decrease in the crisis period (i.e. FY08 & FY09) than in the pre-crisis period (i.e. FY06 & FY07), consistent with prior findings. Above all, we find that the fee discount during the financial crisis is discovered only in the non-auditor-switching sample, not in the auditor-switching sample. Further, using the non-auditor-switching sample, we find that the fee discount is more pronounced when the client firms are audited by industry-specialized auditors. Relatedly, in order to find why these auditor characteristics (i.e. auditor tenure and industry expertise) induce audit fee discount, we additionally examine the change in audit hour and audit quality during the financial crisis. The results show that the industry-specialized auditors in the non-auditor-switching sample reduce audit hours but exhibit insignificant change in audit quality in the crisis period than in the pre-crisis period. We interpret that industry-specialized auditors who have an ability to adjust their audit efforts for the on-going audits using the accumulated information about client firms and their industry-expertise could discount audit fees without any decrease in profitability of the audit engagement and any deterioration of audit quality.
글로벌 금융위기, 감사인 교체, 산업전문 감사인, 감사보수, 감사품질, global financial crisis, auditor change, industry expertise, audit fee, audit quality
The Misuse and Reporting Behavior of the Term ‘Internal Reserve Amount’ by Media 언론의 ‘사내유보금’ 용어 오용 및 보도 양태
조현권 Hyunkwon Cho , 이준일 Joonil Lee , 심호식 Hoshik Shim
DOI:10.24056/KAR.2020.11.005 KAR Vol.45(No.6) 279-323, 2020
There is a widespread misconception in Korea that the term “internal reserve amount” refers to cash that companies accumulate by limiting their investments and recruitment. This paper investigates the history of how the media has misunderstood this term. While the term “internal reserve amount” first appeared in a 1933 article, the last fifteen years have seen it become widely (misused and) misunderstood. In this study, we collect news articles printed between 2010 and 2019 and find that the progressive media had published significantly more articles mentioning “internal reserve amount” than the conservative media. The difference in misuse rates, however, is not significant. For a large-scale analysis, we examine the articles containing the term and apply K-Means clustering (machine learning methodology) to classify them into two groups. We find that the difference in the use of sensationalistic words is statistically significant between the two media groups, indicating systematic differences in the use of sensationalistic words by press. We further find that the number of sensationalized feelings among readers and the use of offensive language in the comment sections are higher for groups with more sensationalistic words. Such differences in reader reactions imply that words used in press articles may stimulate social conflicts concerning the “internal reserve amount”. Overall, as the first study for the media coverage of “internal reserve amount” using machine learning technology, this study shows that the misuse of words by media may increase social conflict surrounding business environment.