Effects Of Firm Uncertainty On Association R&D Expenditure And Firm Performance: Evidence From Korea

R&D expenditures not only improve competitiveness but also develop future growth engines. Previous studies have been conducted in relation to the relationships between R&D expenditures and individual corporate characteristics. We examine differences in the effects of firms’ R&D expenditures on firm performance (earnings persistence, earnings growth, firm value) among the firms’ uncertainty levels. In this study, 9,767 firm-year observations that settle their account end December listed on the Korea Stock Exchange (KSE) from 2002 to 2011 were empirically analyzed. The empirical findings of the study are as follows. First, R&D expenditures of firms with higher uncertainty levels had larger effects on earnings persistence than those of firms with lower uncertainty levels. Second, R&D expenditures of firms with higher uncertainty levels had larger effects on earnings growth than those of firms with lower uncertainty levels. Finally, the R&D expenditures of firms with higher uncertainty levels had larger effects on firm value than those of firms with lower uncertainty levels. Given these results. Both uncertainty and R&D expenditures can be regarded as being determined in the long term. We contribute to existing research in three main respects. First, reflecting firms’ uncertainty levels when analyzing the effects of R&D expenditures on firm performance (earnings persistence, earnings growth, firm value) is essential. Second, the characteristics of firms’ accounting and financial characteristics should be considered when determining R&D expenditures. Third, the fact that R&D expenditures affect firm performance according to firms’ uncertainty levels is helpful when managers make decisions on R&D expenditures

Effects Of Voluntary Disclosure Of The Schedule Of Manufacturing Cost On Analysts’ Earnings Forecasts: Evidence From Korea

We provide the effects of voluntary disclosure of the schedule of manufacturing cost on analysts’ earnings forecasts. We set up and analyze the disclosure of the schedule of manufacturing cost as a proxy for voluntary disclosure. Specifically, we examine the associations between voluntary disclosure of it and the accuracy of analysts’ earnings forecasts and bias in earnings forecasts. The results of our study are as follows. First, the relationship between voluntary disclosure of the schedule of manufacturing cost and the accuracy of analysts’ earnings forecasts is significant in the positive (+) direction. This means that the accuracy of analysts’ earnings forecasts is higher in the case of the firms that voluntarily disclosed the schedule of manufacturing cost, as compared to other firms. Second, the relationship between voluntary disclosure of the schedule of manufacturing cost and analysts’ bias in earnings forecasts is significant in the negative (-) direction. This means that analysts underestimate earnings in the case of the firms that voluntarily disclose the schedule of manufacturing cost, as compared to other firms. Since the schedule of manufacturing cost is still an interesting item and useful information in the capital market, the results of our study provide important implications not only to managers, but also to investors and supervisory authority. Limitations of our study include the fact that not all diverse variables that affect voluntary disclosure and analysts’ forecasts are considered.

Does The Market React Differently To Chaebol Firms?

Based on a sample of Korean firms listed on the KOSPI and KOSDAQ from 2001 to 2011, we examined whether the affiliation of a firm with a Chaebol group affects the sensitivity of stock prices to earnings surprises. We found that the market response to positive (negative) earnings surprises is more positive (negative) for Chaebol firms than for non-Chaebol firms. In addition, we investigated how intra-group transactions affect the ERCs of Chaebol firms by comparing with those of non-Chaebol firms. Our results show that the intra-group transactions of Chaebol firms are positively related to ERCs under both positive and negative earnings surprises. However, we did not find the same results from the analyses of non-Chaebol firms

Non-Audit Services And The Persistence And Market Pricing Of Earnings: Evidence From Korea

We examine the effects of the concurrent provision of audit and non-audit services on auditor independence using earnings persistence, which is one of the qualitative properties of earnings, as well as related market responses. Empirical results are as follows. First, the accruals persistence of the group that is concurrently provided audit and non-audit services in many cases is shown to be lower than that of the group that is not concurrently provided audit and non-audit services. Second, the phenomenon of low accruals persistence of the group that is concurrently provided a lot of audit and non-audit services is shown to be overestimated in the market. This study contributes to existing research in three main respects. First, from the viewpoint of earnings persistence, it is verified that rather than whether non-audit services are provided or not, the level of non-audit services acts as an important factor in determining damage to auditor independence by the concurrent provision of audit and non-audit services. Second, in relation to market rationality, whether the market appropriately reflects changes in the persistence of earnings and accruals according to whether non-audit services are provided or not is analyzed. Third, through additional analysis, it is verified that differences in the persistence of earnings and accruals among groups that are concurrently provided audit and non-audit services vary with the audit environment

Effect Of Corporate Governance On The Association Between Book-Tax Differences And Audit Quality: Evidence From Korea

We investigate whether auditors input additional audit hours according to the sizes of book-tax differences (hereinafter BTD) and request additional audit fees for additional audit hours. In addition, the interaction effects of corporate governance on the relationships between BTD and audit hours/audit fees are examined using the total corporate governance (TCG) scores, data from the Korea Corporate Governance Service (KCGS). We predict that since auditors have the incentive and ability to consider BTD, audit hours and audit fees will increase when BTD are larger. Empirical results of our study are as follows. First, BTD and audit hours (LnAH) show a negative (-) association that is not statistically significant. Second, audit fees (LnAF) were shown to increase along with BTD. This can be interpreted as a result of requests for additional audit fees for increased audit risks due to individual firms' BTD. Third, the interaction effect of corporate governance on the relationship between BTD and audit hours (LnAH) showed a positive (+) association, but the association was not statistically significant. Fourth, the interaction effect of corporate governance on the relationship between BTD and audit fees (LnAF) showed a statistically significant positive (+) association. This be understood as meaning that firms with better governance make more efforts for financial reporting in order to maintain their reliability in the market. This study contributes to the literature in several important aspects. First, it empirically demonstrates whether auditors properly reflect BTD on audit risks. Next, our study is analyzes the effects of corporate governance on the relationship between BTD and audit hours/audit fees using the total corporate governance (TCG) scores presented by the Korea Corporate Governance Service (KCGS). Finally, our findings empirically showed social proof function of accounting audits as a strategy to reduce information risks.

Investment Efficiency Between Listed And Unlisted Firms, And Big 4 Audit Firms’ Effect: Evidence From Korea

We examine the difference in investment efficiency between listed and unlisted firms and the effects of auditing by Big 4 audit firms on the investment efficiency of firms. Generally, listed firms are large in size, have a high level of stakeholders’ demands on the firm information, and show large ripple effects of managers’ decision making. Listed firms have a demand hypothesis that they are motivated to provide high quality accounting information and an opportunistic behavior hypothesis that they are more motivated to make opportunistic financial reporting to meet the expectations of capital markets compared to unlisted firms. Consistent with previous study (Chen, Hope, Li & Wang, 2011), this study measures investment efficiency using the investment forecasting model as a growth opportunity function. The results of the study, in the analysis of full samples, the listed firms have significantly higher investment efficiency than the unlisted ones. In the over-investment samples, it is found that the listed firms have higher investment efficiency. On the contrary, in the under-investment samples, indicate it is found that the unlisted firms have higher investment efficiency. Finally, it is found that listed firms audited by Big 4 audit firms have the higher investment efficiency. This study contributes to the literature on investment efficiency of listed and unlisted firms. Finally, it is expected that it will provide useful information on investment efficiency by expanding the scope of research and making the measurement of variables more precise

Does Corporate Governance Affect Labor Investment Efficiency?

This study examined the effect of corporate governance on labor investment efficiency, using 5178 firm-year samples from companies listed on the Korean stock market over the period from 2011 to 2019. In addition, the relationship between corporate governance and labor investment efficiency according to whether the company belongs to a chaebol group was examined. Corporate governance was measured using KCGS’s corporate governance ratings. This study tried to verify whether labor investment inefficiency due to information asymmetry is improved by excellent corporate governance. The results show that in the case of the entire sample, the relationship between corporate governance and labor investment efficiency was significant in the positive (+) direction. That is, it is an empirical result indicating that a company with a sound governance structure is making effective labor investment. The samples were divided into overinvestment samples and underinvestment samples, and the relationship between corporate governance and labor investment efficiency was analyzed separately in the two samples. According to the results, the positive relationship between corporate governance and labor investment efficiency was significant only in the case of underinvestment samples. In addition, the positive relationship between corporate governance and labor investment efficiency was more statistically significant in the case of companies belonging to a chaebol group. This study provided implications for authorities, shareholders, and investors, etc., in that it suggests the role of corporate governance as a mechanism to alleviate the agency problem between managers and investors

Corporate Sustainable Management, Dividend Policy and Chaebol

This study empirically examines the relationship between corporate sustainable management (CSM) and dividend policy. Among the various motivations related to dividends, this study examines the relationship between CSM and dividend policy based on the agency and signaling theory. After examining the relationship between CSM and dividend policy, we investigate whether belonging to a large business group (chaebol group) has a significant effect on the relationship between CSM and dividend policy. The analysis period is from 2011 to 2018, and the ESG ratings of the Korea Corporate Governance Service are used as proxies for CSM. The empirical results show that CSM and dividends have a significant relationship in the positive direction. This means that firms with excellent CSM activities have higher dividend levels than those that do not. Furthermore, the association between CSM and dividends is more negative for firms belonging to a chaebol group. This indicates that the positive relationship between CSM and dividends in a firm that belongs to a chaebol group is weakened. This means that the relationship between CSM and dividends in the group belonging to the chaebol group is weakened. It belongs to the group of conglomerates, meaning that the relationship between the amount of dividends and CSM weakened. Our study focuses on CSM as a determinant of dividends, and examines the effects of belonging to a chaebol group in the relationship between CSM and dividends. Given that resolving the interest incompatibility between investors and managers is the focus of corporate governance, dividend policies can be used as a method for resolving the interest incompatibility between investors and managers

The Effect of Corporate Sustainable Management on the Relationship between Cost Stickiness and Earnings Transparency

This study empirically analyzes the relationship between cost stickiness and earnings transparency. Additionally, this study examines the effect of corporate sustainable management (CSM) on the relationship between cost stickiness and earnings transparency. The evaluation scores of Korea Corporate Governance Service (KCGS) are employed to measure CSM activities. The empirical results show that the relationship between cost stickiness and earnings transparency is significant in the negative direction. This means that the more sticky the costs of a firm, the lower the earnings transparency of the firm. In addition, the relationship between the interaction variables of CSM and cost stickiness and earnings transparency is significant in the positive direction. This indicates that CSM activities act as a mechanism to mitigate the negative relationship between cost stickiness and earnings transparency. The findings of this study, which presented the effects of cost stickiness on earnings transparency and the fact that CSM activities act as a device to suppress the opportunistic cost behavior of managers, are expected to provide important implications to investors, external auditors, and supervisors

The Effect of Corporate Sustainable Management on the Relationship between Cost Stickiness and Earnings Transparency

This study empirically analyzes the relationship between cost stickiness and earnings transparency. Additionally, this study examines the effect of corporate sustainable management (CSM) on the relationship between cost stickiness and earnings transparency. The evaluation scores of Korea Corporate Governance Service (KCGS) are employed to measure CSM activities. The empirical results show that the relationship between cost stickiness and earnings transparency is significant in the negative direction. This means that the more sticky the costs of a firm, the lower the earnings transparency of the firm. In addition, the relationship between the interaction variables of CSM and cost stickiness and earnings transparency is significant in the positive direction. This indicates that CSM activities act as a mechanism to mitigate the negative relationship between cost stickiness and earnings transparency. The findings of this study, which presented the effects of cost stickiness on earnings transparency and the fact that CSM activities act as a device to suppress the opportunistic cost behavior of managers, are expected to provide important implications to investors, external auditors, and supervisors