부채비율과 경영자의 이익조절 = Debt/Asset Ratio and Earnings Management

다국어 초록 (Multilingual Abstract)

This study develops and tests hypotheses concerning the proposition that earnings management is more prevalent in firms with higher debt/asset ratio. Earnings management is conceptualized by many as an opportunistic/discretionary accounting choice(e.g., Schipper 1989, Healy and Wahlen 1999). Prior research indicates that managers can exercise accounting discretions to either properly signal the outcomes of firms` production/investment/operating activities or obtain personal gains. The former increases the usefulness of accounting information and, therefore, is not earnings management; yet, the latter, namely the opportunistic/discretionary accounting choice is. As such, the critical part of obtaining evidence of earnings management is to show that managers` discretionary accounting choices are indeed opportunistic. To this day, this fact is largely ignored by empirical researches in earnings management, with the notable exception of Choi and Kim(2001). Managers` discretionary accounting choices can be measured by discretionary accruals. However, whether or not such choices are opportunistic cannot be measured directly. Therefore, one must either ask managers about the opportunistic nature of their behaviors, or make inferences from the market assessments of the managers` discretionary accounting choices. This paper adopts the latter approach and provides a framework from which to infer such market assessments. In this study, empirically testing the proposition that earnings management is more prevalent in firms with higher debt/asset ratio essentially boils down to testing the two related hypotheses: hypothesis 1 asserts that the absolute value of discretionary accruals increases as the debt/asset ratio increases; hypothesis 2 states that the market response to discretionary accruals decreases as the debt/asset ratio increases. Hypothesis 1 serves to ascertain the evidence of discretionary accounting choices while hypothesis 2 infers whether such managerial discretions are opportunistic and related to market assessments. The rationale of such an inference is provided by the framework mentioned above. The hypotheses are tested by using a sample of 560 manufacturing firms listed in the Korean Stock Exchanges from the year of 1993 to the year of 2002 inclusively. To increase the power of the test of hypothesis 1, the portion of discretionary accruals that arise naturally in the course of normal accounting treatments of firms` production/investment/operating outcomes and the portion of discretionary accruals that arise from accrual reversals will be eliminated from the discretionary accrual measure. Results consistent with the hypotheses are obtained.

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