Abstract

This paper investigate whether the adoption of International Financial Reporting Standards (KIFRS)is significantly lower real earnings management and improve the quality of accountinginformation. We divided sample into two segments which are early voluntary adopters(firms thatadopted K－IFRS before the year of 2011) and mandatory adopters(firms adopted K－IFRS since2011) to compare the tendency of real managing earnings as one of the effect of IFRS onbehavior of managers. Also, we used Difference in Difference technique to remove biases insecond period(in the year 2011 and 2012) comparisons between early voluntary adopters andmandatory adopters that could be the result from permanent differences between those groups, aswell as biases from comparisons over time in the mandatory adopters that could be the result oftrends. By using 5,199 Korean firm－year observations from 2009 to 2012 we find that real earningsmanagement seems to be reduced at the adoption of K－IFRS based on the fact that all theproxies of abnormal operating cash flows, abnormal production cost, and abnormal discretionarycost are significantly decreased in its magnitude since 2011. We conclude that more broaderdisclosure practice under K－IFRS prohibits managers from doing real earnings management. Insum, our results suggest that adoption of K－IFRS significantly lower real earnings managementand increase accounting transparency as standard setters expected by changing informationenvironment.

Keywords

• K－IFRS
• Real Earnings Management
• Accounting Information Transparency

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