기업지배구조와 이익조정: 최대주주 지분율을 중심으로 = Corporate Governance and Earnings Management: View from the Largest Shareholder`s Holding

다국어 초록 (Multilingual Abstract)

This study examines the relationship between corporate governance and earnings management. The Korean ownership structure is characterized by the dominance of one largest shareholder who typically participates in the management of the firm, directly or indirectly, and influences most of the management decisions. This study examines two conflicting scenarios under such corporate governance: the convergence of interest hypothesis and the expropriation of minority shareholders hypothesis. Under the convergence of interest hypothesis, there is a reduction in agency costs as owner-manager`s holdings increase, and therefore a negative relationship is expected between discretionary accruals and the holdings of the owner-largest shareholder. On the other hand, if the expropriation of minority shareholders hypothesis holds, discretionary accruals will increase as the owner-largest shareholder`s holdings increase. For this study, earnings management measured by discretionary accruals is estimated using a cross-sectional version of the modified Jones model(Dechow et al., 1995). The sample consisted of 998 Korean Stock Exchange firms from 1999 to 2000. This study can be summarized as follows: First, the result of study provides empirical evidence that there exists a significant positive relation between the largest shareholder`s holdings and discretionary accruals. This evidence is consistent with the expropriation of minority shareholders hypothesis. Second, for the absolute value of discretionary accruals, the results suggest that there exists a significant negative relationship between the largest shareholder`s holdings and the absolute value of discretionary accruals. This evidence is consistent with the convergence of interest hypothesis. These findings are in contrast to the discretionary accruals and the absolute value of discretionary accruals results. One of the possible reasons for the finding is that there exists a severe violation of normality when one uses the absolute value of discretionary accruals. These results may be of interest to policy makers, standard setters, academic researchers, and investors.