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.
Investor Relations and Stock Price Fluctuation Risk: Evidence from Return Distribution Kurtosis 기업설명회(IR) 활동이 주가 급등락위험에 미치는 영향: 수익률 분포의 첨도를 이용한 분석
강나라 Na Ra Kang , 김현태 Hyun Tae Kim
DOI:10.24056/KAR.2026.06.001 KAR Vol.51(No.3) 1-35, 2026
Abstract
This study examines whether investor relations (IR) activities help mitigate stock price fluctuation risk by reducing the frequency of extreme returns, measured using the kurtosis of weekly idiosyncratic returns. Departing from prior research that focuses on volatility (the second moment) or crash risk (the third moment), we analyze the fourth moment of return distributions to capture short-term price spikes driven by transient investor overreactions. Our empirical findings show that firms with active IR programs experience significantly lower kurtosis, suggesting that timely and credible communication with investors decreases the likelihood of extreme price movements. This effect is especially pronounced among smaller firms and those with lower analyst coverage, where information asymmetry and external monitoring are limited. Additional analyses reveal that IR activity primarily dampens transient, extreme fluctuations rather than affecting average volatility, indicating that IR reshapes the structure of stock return risk rather than uniformly suppressing it. Overall, our results highlight IR as an institutional mechanism that enhances information transparency, moderates extreme market reactions, and improves the informational efficiency of capital markets, particularly for firms operating in informationally weak environments. This study contributes to the literature by introducing kurtosis as a novel measure of short-term stock price transience, thereby extending investor relations research beyond information asymmetry and cost-of-capital perspectives to the domain of market stability.
Do Incumbent Auditors Provide Higher-Quality Tax Services?: Focused on Internal and External Knowledge 현행 감사인은 보다 높은 수준의 세무 서비스를 제공하는가?: 내부적 지식과 외부적 지식을 중심으로
김성태 Seong Tae Kim , 박성욱 Sung Ook Park
DOI:10.24056/KAR.2026.06.002 KAR Vol.51(No.3) 37-74, 2026
Abstract
As tax risk management emerges as a key component of corporate risk governance, many firms are engaging external experts―such as tax advisors and consultants―to develop tax strategies. Tax service providers can be broadly categorized into auditors, external specialists, and internal tax departments. Among them, auditors possess unique advantages by maintaining continuous communication with client firms, allowing them to acquire firm-specific “internal knowledge.” Simultaneously, they hold “external knowledge” based on their expertise and experience in tax services. This dual knowledge base facilitates early identification of tax risks and supports more effective tax planning through collaboration between audit and tax teams. This study empirically examines the impact of auditor-provided tax services on long-term tax costs and tax risk. The results show that tax adjustments and advisory services performed by auditors reduce excess corporate tax payments and lower tax volatility. Furthermore, the interaction between audit tenure (internal knowledge) and industry specialization (external knowledge) is significantly associated with reduced tax burdens and volatility. These findings suggest that knowledge gained through audit engagements can be effectively transferred to tax services, highlighting the strategic value of auditors in tax risk management. This study contributes to the literature by emphasizing the underexplored linkage between audit and tax services and expanding the theoretical and practical role of auditors as tax service providers.
Weak Internal Control System and Firm’s Operational Efficiency 내부통제에 대한 취약점의 존재와 기업의 운영 효율성
이혜영 Hye-yeong Lee , 김윤지 Yoonji Kim , 최종학 Jong-hag Choi
DOI:10.24056/KAR.2026.06.003 KAR Vol.51(No.3) 75-105, 2026
Abstract
An internal control system is a set of policies, procedures, and practices established by an organization to safeguard assets, ensure financial reporting accuracy, and comply with laws and regulations. Although prior studies on this issue mostly focus on whether adequate internal control enhances the financial reporting quality, this paper investigates whether firms with internal control weakness have low operational efficiency. In the level analysis, this study documents that firms with weak internal control have low operational efficiency, suggesting that the weaknesses cause poor operating performance of the firms. We find that operational efficiency declines significantly in year t+1 for firms that newly report an internal control weakness after having none in the prior year t, and this decline persists through year t+2. By contrast, firms that report a weakness in year t-1 but not in year t exhibit improvements in efficiency throughout the year t. Taken together, these findings suggest that strong internal control helps firms to improve their operating performance. Through revealing such concrete benefits to the firm, the findings provide important policy implications in demonstrating the benefits of the adequate internal control system.
Key Words
내부통제제도, 운영 효율성, 취약점, 취약점의 발생, 취약점의 개선, internal control system, operational efficiency, occurrence of internal control weakness, remediation of internal control weakness
The Effect of Ownership Dilution on Earnings Management in IPOs: Conditional Monitoring by Underwriters and Shareholder-Type Differences 지분희석이 IPO 기업의 이익조정에 미치는 영향: 주관사의 감시역할과 대주주 유형별 이질성
추현옥 Hyunok Chu , 권세원 Sewon Kwon
DOI:10.24056/KAR.2026.06.004 KAR Vol.51(No.3) 107-151, 2026
Abstract
This study examines the association between controlling shareholders’ ownership dilution and accrual-based earnings management using a sample of 481 firms that newly listed on the Korean stock market between 2013 and 2023. IPOs involve substantial changes in ownership structure and control rights, which may affect controlling shareholders’ incentives regarding financial reporting. Consistent with this prediction, I find a positive association between the extent of ownership dilution and the level of accrual-based earnings management in the fiscal year preceding the IPO. I further document that this positive relation is attenuated when the underwriter has stronger market standing based on IPO performance. When I classify IPO firms by the type of controlling shareholder―individual versus corporate―I find that the positive association between ownership dilution and accrual-based earnings management is concentrated in IPOs of firms controlled by individual shareholders, while no significant relation is observed for firms controlled by corporate shareholders. I also find that the mitigating effect of underwriter monitoring is heterogeneous across controlling shareholder types and appears only for firms with individual controlling shareholders. By focusing on ownership dilution as a key feature of the IPO process and documenting the conditional monitoring role of underwriters, this study contributes to the literature on IPOs, earnings management, and external governance mechanisms.
양승희 Seunghee Yang , 박현준 Hyeunjun Park , 이우종 Woo-jong Lee , 황이석 Lee-seok Hwang
DOI:10.24056/KAR.2026.06.005 KAR Vol.51(No.3) 153-190, 2026
Abstract
This study applies the methodology of Iqbal et al.(2025), which proposes a normal capitalization amount of R&D expenditures based on the relationship between R&D expenditures and current and future economic benefits, to Korean listed firms to estimate abnormal R&D capitalization ratios and evaluate the validity of the estimates. The limitations of the Korean Standard Industrial Classification (K-SIC) are addressed by employing a Text-based Network Industry Classification (K-TNIC) derived from annual reports. The analysis shows that abnormal capitalization ratios, calculated as the difference between actual capitalization ratios and estimated normal capitalization ratios, are 0.4% when using K-SIC and -13.6% when using K-TNIC. Furthermore, abnormal capitalization ratios vary with firm characteristics such as growth opportunities, R&D intensity, profitability, foreign ownership, and incentives for earnings management through R&D capitalization. Firms that capitalize excessively relative to the acceptable level exhibit lower stock returns, while those capitalizing less than the normal level show lower quality of innovation activities measured by the number of patents. Taken together, these findings support the validity of abnormal capitalization estimates based on the Iqbal et al.(2025) methodology. The results of this study provide important implications for R&D capitalization practices in Korea.
Key Words
비정상 연구개발비 자본화, 연구개발비, 표준산업분류, 텍스트 기반 네트워크 산업분류, abnormal R&D capitalization, R&D cost, Standard Industry Classification, Text-based Network Industry Classification
The Two-Dimensional Nature of Quarterly Earnings Smoothing and Idiosyncratic Volatility: Differential Effects of Horizontal and Vertical Smoothing across Information Environments 분기손익 유연화의 이차원성과 주가의 고유변동성: 정보환경에 따른 횡적·종적 유연화의 차별적 효과
강나라 Na Ra Kang , 김희주 Heeju Kim
DOI:10.24056/KAR.2026.06.006 KAR Vol.51(No.3) 191-227, 2026
Abstract
This study proposes a two-dimensional framework of quarterly earnings smoothing and examines how each dimension affects stock price idiosyncratic volatility. We distinguish between horizontal smoothing, which reduces earnings fluctuations within a fiscal year, and vertical smoothing, which reallocates of earnings from a given quarter across fiscal years. We then empirically investigate how these accounting choices interact with the capital market information environment. Although quarterly earnings disclosure is well established, quarterly information inherently contains a high noise-to-signal ratio, leading prior studies to focus primarily on annual earnings when examining earnings quality and market responses. In contrast, this study adopts an information-environment perspective and posits that quarterly earnings smoothing can function not merely as accounting earnings management but as an accounting mechanism that mitigates structural noise and enhances the informational content of earnings. Using quarterly data from KOSPI-listed firms from 2016 to 2024, we find that quarterly earnings smoothing is associated with lower idiosyncratic volatility, particularly in weak information environments. When the exogenous information environment is weak, only horizontal smoothing is significantly associated with lower idiosyncratic volatility. However, when the firm-driven information environment, captured by disclosure effort and disclosure quality, is weak, both horizontal and vertical smoothing are negatively associated with idiosyncratic volatility. These results suggest that horizontal smoothing alleviates short-term noise, while vertical smoothing adjusts the temporal allocation of earnings, with their information-enhancing roles differing by the nature of the information environment.
Audit Pricing Inelasticity: The Roles of Auditor Tenure and Auditor Size 감사보수 조정의 비탄력성: 계속감사기간과 감사인 규모의 역할
하원석 Wonsuk Ha , 양승희 Seunghee Yang
DOI:10.24056/KAR.2026.06.007 KAR Vol.51(No.3) 229-268, 2026
Abstract
This study theoretically derives and empirically quantifies audit pricing inelasticity and examines its determinants. Based on incomplete contract theory, which posits that auditors cannot perfectly predict required audit inputs at the contracting stage, we conceptualize audit pricing inelasticity as the extent to which ex post adjustments in actual audit hours relative to contractual hours are not reflected in actual audit fees (the “inelasticity ratio”) and derive the associated economic cost internalized by auditors (the “inelasticity cost”). Using data from Korean listed firms for the 2018-2024 period, we find that the inelasticity ratio increases with auditor tenure but decreases with auditor size. This result suggests that longer auditor-client relationships are associated with more inelastic pricing, whereas Big 4 auditors adjust fees more elastically than non-Big 4 auditors. In contrast, the inelasticity cost decreases with auditor tenure but increases with auditor size, indicating that the economic cost arising from inelastic pricing is driven primarily by actual audit hours in excess of contractual hours, rather than by the degree of inelasticity itself. In additional analyses, we further explore how this inelastic pricing influences staffing decisions and audit quality. We find that engagements with inelastic fee adjustments tend to allocate a larger share of work to junior staff relative to senior staff and partners, and the positive association between extra audit effort and audit quality is attenuated in those engagements. Overall, this study highlights the broader implications of inelastic audit pricing, advancing our knowledge of audit contracting and fee determination structures.
Financing Behind the Veil of Trade: The Economic Substance and Accounting Risks of Supplier Finance Arrangements 상거래의 외피를 쓴 자금조달: 공급자금융약정의 경제적 실질과 회계적 위험
손혁
DOI:10.24056/KAR.2026.06.008 KAR Vol.51(No.3) 269-303, 2026
Abstract
This study analyzes the economic substance and accounting risks of supplier finance arrangements(SFAs), which have recently expanded as a working capital management tool. SFAs allow suppliers to obtain early payment and improve liquidity, while enabling buyers to extend payment terms and preserve working capital. Although these arrangements appear to be an extension of ordinary trade credit, the involvement of financial institutions combined with extended payment maturities can generate economic effects equivalent to short term borrowing by buyers. Consequently, SFAs may overstate operating cash flows while maintaining the form of trade payables, thereby obscuring financial leverage and underlying liquidity risk. Focusing on the divergence between legal form and economic substance, this study develops a theoretical model based on the buyer’s utility maximization problem. The model examines the buyer’s choice of supplier finance intensity and payment maturity by incorporating liquidity benefits, information related benefits, debt capacity preservation, and supply chain reinforcement effects, as well as deterministic operating costs, rollover failure risk, and disclosure and monitoring penalties. The analysis shows that the buyer’s decision is characterized by an interior optimum determined by the balance between these competing forces, rather than by extreme reliance or indefinite extension of payment terms.
