Earnings Management Vehicles for Korean Firms

25 Pages Posted: 25 May 2006

See all articles by Soon Suk Yoon

Soon Suk Yoon

Chonnam National University - Department of Economics

Gary Miller

California State University, Bakersfield

Pornsit Jiraporn

Pennsylvania State University - School of Graduate Professional Studies (SGPS)

Abstract

We investigated the vehicles that Korean firms use when the firms manage earnings. We partitioned our sample into low, mid and high accrual sub-samples based on discretionary accruals. Low accrual firms are defined as income-decreasing firms whereas the high accrual firms are considered income increasing firms in this study. We decomposed accounting earnings into cash from operations and various components of accruals in a systematic way. Next we examined the types of accruals individual firms use when the respective firms increase reported earnings. The empirical results of the study indicate that there are clear discrepancies in the earnings management vehicles firm use when the firms manage earnings depending on the directions of earnings management. More specifically, income-increasing firms frequently employ non-cash revenues including asset-disposal gains. Income-decreasing firms employ non-cash expenses including bad-debt expenses and asset-disposal losses. Firms also tend to use current accruals but to a limited extent as current accruals entail cash flow implications in the following years.

Suggested Citation

Yoon, Soon Suk and Miller, Gary and Jiraporn, Pornsit, Earnings Management Vehicles for Korean Firms. Journal of International Financial Management & Accounting, Vol. 17, No. 2, pp. 85-109, Summer 2006. Available at SSRN: https://ssrn.com/abstract=904069 or http://dx.doi.org/10.1111/j.1467-646X.2006.00122.x

Soon Suk Yoon (Contact Author)

Chonnam National University - Department of Economics ( email )

77 Yongbongro, Buk-gu, Gwangju
Seoul, 500-757
Korea, Republic of (South Korea)

Gary Miller

California State University, Bakersfield ( email )

9001 Stockdale Highway
Bakersfield, CA 93311-1099
United States

Pornsit Jiraporn

Pennsylvania State University - School of Graduate Professional Studies (SGPS) ( email )

30 E. Swedesford Road
Malvern, PA 19355
United States
(484) 753-3655 (Phone)

HOME PAGE: http://www.personal.psu.edu/pxj11/index1.html

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