Korean Accounting Review

Print ISSN 1229-3288 | Online ISSN 2508-7193

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.

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Vol.49No.42024

Current Issue
The Effect of Earnings Comparability Adjusted R&D Expenditures on R&D Efficiency: Evidence from Research Quotient 연구개발지출을 조정한 이익의 비교가능성이 연구개발효율성에 미치는 영향: 연구계수(RQ)를 활용하여 권오섭 Ohseob Kwon , 박선영 Sun-young Park 49(4) 1-32, 2024 DOI:10.24056/KAR.2024.08.001 Title The Effect of Earnings Comparability Adjusted R&D Expenditures on R&D Efficiency: Evidence from Research Quotient 연구개발지출을 조정한 이익의 비교가능성이 연구개발효율성에 미치는 영향: 연구계수(RQ)를 활용하여 권오섭 Ohseob Kwon , 박선영 Sun-young Park DOI:10.24056/KAR.2024.08.001 KAR Vol.49(No.4) 1-32, 2024 Abstract This paper investigates the impact of earnings comparability, adjusted for R&D expenditures, on R&D efficiency as measured by the Research Quotient (RQ), focusing on profitability. Covering the period from 2012 to 2020, the study analyzes the comparability of firms listed on KOSPI and KOSDAQ using a measurement method adapted from De Franco et al. (2011). It evaluates R&D efficiency using the RQ, as defined by Cooper et al. (2022). The RQ, indicating the elasticity of revenue in response to changes in R&D expenditures, facilitates the direct assessment of the effectiveness of R&D investments. Empirical analysis reveals that greater comparability among firms negatively impacts the RQ, indicating that when firms exhibit higher earnings comparability, the returns on increased R&D expenditures diminish. Additionally, an interaction between industry competition intensity and earnings comparability positively impacts the RQ, illustrating that intensified competition and proactive R&D investments lead to technological advancements, reducing the scale of R&D inputs and enhancing profitability through market expansion. This study distinguishes itself by focusing on earnings comparability among firms from a competitive standpoint and analyzing the direct efficiency of R&D investments relative to outcomes. It also highlights the importance of exploring the positive spillover effects of industry competition on the relationship between earnings comparability and R&D efficiency. Key Words 비교가능성, 연구개발효율성, 연구계수, 파급효과, 산업경쟁, financial statement comparability, R&D efficiency, research quotient, spillover effect, industry competition
The Effect of CEO Characteristic on Unfaithful Disclosure: Focusing on CEO Overconfidence 경영자의 특성이 불성실공시에 미치는 영향: 경영자의 과신성향을 중심으로 성주명 Joo Myung Sung , 황진아 Jin Ah Hwang , 문두철 Doo Cheol Moon 49(4) 33-61, 2024 DOI:10.24056/KAR.2024.08.002 Title The Effect of CEO Characteristic on Unfaithful Disclosure: Focusing on CEO Overconfidence 경영자의 특성이 불성실공시에 미치는 영향: 경영자의 과신성향을 중심으로 성주명 Joo Myung Sung , 황진아 Jin Ah Hwang , 문두철 Doo Cheol Moon DOI:10.24056/KAR.2024.08.002 KAR Vol.49(No.4) 33-61, 2024 Abstract This paper examines the impact of CEO overconfidence on unfaithful disclosure, which serves as a proxy for disclosure quality. With increasing emphasis on investor protection, the demand for transparent disclosure is growing in Korea. However, the number of firms violating disclosure regulations and being designated as unfaithful disclosure firm continue to rise. Using 13,469 firm-year observations from 2013 to 2022 for firms listed on the KOSPI and KOSDAQ, we explore the influence of CEO overconfidence on unfaithful disclosure. We find that CEO overconfidence is positively associated with the possibility of unfaithful disclosure. This relationship is more pronounced when board independence is low and when firms hold treasury shares at the fiscal year-end. Specifically, our additional regressions show that the relation between CEO overconfidence and unfaithful disclosure is stronger for firms with insufficient resources, implying that CEO overconfidence increases the likelihodd of unfaithful disclosure. Additionally, we find that both types of unfaithful disclosure-changes and failures to disclosure-increase as CEO overconfidence strengthens. This is the first study that examine how CEO overconfidence affects unfaithful disclosure, providing significant implications for regulators and stakeholders. Key Words 경영자 특성, 경영자 과신성향, 불성실공시, 공시번복 및 변경, 공시불이행, CEO characteristic, CEO overconfidence, unfaithful disclosure, reversal of disclosure, modification of disclosure, failure of disclosure
Earnings Dynamics and CEO Compensation: Exploring the Effect of Sales Change Direction Iny Hwang , Sera Choi 49(4) 63-93, 2024 DOI:10.24056/KAR.2024.08.003 Title Earnings Dynamics and CEO Compensation: Exploring the Effect of Sales Change Direction Iny Hwang , Sera Choi DOI:10.24056/KAR.2024.08.003 KAR Vol.49(No.4) 63-93, 2024 Abstract This study examines the impact of sales change direction on earnings’ time-series characteristics and their role in executive incentive schemes. First, we analyze whether earnings persistence decreases during the periods of sales-decrease. This could be due to sticky cost behavior, as earnings are mechanically lowered when managers deliberately choose to retain unutilized resources during these periods. Secondly, we investigate the effect of sales change direction on the role of earnings in CEO incentive schemes. We expect that optimal CEO compensation schemes will assign a lower weight to earnings during periods of sales-decrease. This adjustment reflects the understanding that earnings may not accurately reflect the value of managerial efforts to overcome a sales decline during these periods. Using a sample of U.S. firms from 1993 to 2016, we find that earnings persistence decreases following sales declines. Additionally, our results show a significant decrease in the weight assigned to earnings in determining CEO compensation during sales decline periods. This finding remains consistent across all forms of compensation, including salary, bonuses, and equity-based compensation. Our findings highlight the economic importance of sales revenue information in understanding earnings quality and its impacts on CEO pay-for-performance sensitivity. Key Words earnings persistence, executive compensation, sticky cost behavior, pay-for-performance sensitivity
The Effect of Audit and Disclosure Requirements on Cross-jurisdictional Income Shifting by Foreign-controlled Firms: Evidence from Limited Companies in Korea 외부감사 및 재무공시가 외국인 투자기업의 국가 간 소득이전에 미친 영향: 한국 유한회사 사례 정희선 Heesun Chung , 최선화 Sunhwa Choi 49(4) 95-124, 2024 DOI:10.24056/KAR.2024.08.004 Title The Effect of Audit and Disclosure Requirements on Cross-jurisdictional Income Shifting by Foreign-controlled Firms: Evidence from Limited Companies in Korea 외부감사 및 재무공시가 외국인 투자기업의 국가 간 소득이전에 미친 영향: 한국 유한회사 사례 정희선 Heesun Chung , 최선화 Sunhwa Choi DOI:10.24056/KAR.2024.08.004 KAR Vol.49(No.4) 95-124, 2024 Abstract With the amendment of the Act on External Audit of Stock Companies, it became mandatory for limited companies (LCs) to receive external audits and disclose their financial statements for the business year starting from November 1, 2019. This study examines whether this regulatory change influences the tax-motivated cross-jurisdictional income shifting behavior of foreign-controlled firms with LC forms. Foreign-controlled firms have incentives to minimize corporate income taxes on their worldwide income, and the differential corporate tax rates across countries provide multinational corporations with the opportunity to reduce their total taxes by shifting income from high- to low-tax jurisdictions. However, there is a risk that tax-motivated shifting activities can be challenged by tax authorities, which may distort financial statements and increase audit risk. Thus, we predict that the new auditors of LCs play a monitoring role in restricting income shifting, and LCs are also likely reluctant to disclose information on abnormal profit margins and reduce income shifting to avoid public attention. Using foreign-controlled firms comprising stock companies and LCs in Korea, we find that while stock companies do not change their tax-motivated cross-jurisdictional income shifting behavior after the year 2020, LCs significantly reduce it following the regulatory change. This is more pronounced for LCs audited by Big 4 auditors, those with larger size, those with greater advertising expenses and those with greater opportunities for income shifting. This study suggests that the audit and disclosure requirements for financial reporting quality also have a positive impact on the tax compliance of foreign-controlled firms. Key Words 국가 간 소득이전, 외부감사, 유한회사, 재무공시, 조세회피, cross-jurisdictional income shifting, external audit, financial disclosure, limited company, tax avoidance
Relationship between MD&A Abnormal Description and Future Corporate Performance MD&A 비정상적 기술과 미래 기업 성과와의 관련성에 관한 연구 이다혜 Dahye Lee , 변상혁 Sanghyuk Byun 49(4) 125-160, 2024 DOI:10.24056/KAR.2024.08.005 Title Relationship between MD&A Abnormal Description and Future Corporate Performance MD&A 비정상적 기술과 미래 기업 성과와의 관련성에 관한 연구 이다혜 Dahye Lee , 변상혁 Sanghyuk Byun DOI:10.24056/KAR.2024.08.005 KAR Vol.49(No.4) 125-160, 2024 Abstract This study examines whether managers control the textual descriptiveness of non-financial disclosures by studying the relationship between the degree of textual descriptiveness and future firm performance. We classify MD&A(Management Discussion and Analysis) text modifications into normal and abnormal descriptions, investigating their impact on future performance in light of the firm’s disclosure environment. According to the obfuscation hypothesis, managers may choose opaque disclosure to avoid the risks associated with full disclosure, or strategically disclose information they wish to conceal to hinder investor decision-making. The abnormal description represents a deviation from the normal description level of the same industry, aiming to grasp both the incentive for managers to conceal information(under-description) and factors aiming to increase information processing costs(over-description). We observe a negative association between abnormal textual description in MD&A and future firm performance. Notably, this was more prominent in small-sized firms, firms listed on KOSDAQ, firms with a low foreign ownership ratio, and firms without an audit committee. Firms with low visibility have less pressure for clarity, and those with weaker monitoring face fewer checks against manager opportunism. Further analysis confirms that these abnormal descriptions affect long-term investor decisions, potentially as a means to delay market reactions by pre-empting negative news. This study indirectly indicates that managers may manipulate non-financial MD&A disclosures strategically. Key Words MD&A, 비정상적 기술, 텍스트 분석, 공시 환경, 미래 성과, 전략적 공시 행동, abnormal description, text analysis, disclosure environment, future performance, strategic disclosure behavior