ATJ Asian Tax Journal

Asian Tax Journal

Print ISSN 1738-3323 Online ISSN 2733-9270

The Matching Principle and Price Informativeness

  • KO YOUNG WOO Kyonggi University

Asian Tax Journal Vol. 16 No. 1 (2015), pp. 155-176

Abstract

This study examines the relationship between the matching principle and the FERC. Themismatch of revenues and expenses increases the volatility and decrease the persistence ofearnings. This will decrease information contents of accounting earnings in capital market, whichdecreases the FERC. But, there is no evidence for positive relation between the degree ofmatching principle and FERC. The samples are obtained from the Fn－Guide, listed on Korean Stock Exchange from 1992 to2008. The constraints of sample selection procedures yield a final sample of 4,241 firm－yearobservations. This study finds that the company with high degree of matching principle hasstatistically high FERC, even after controlling for the variables that are known to affect FERC. And, the firm which chooses conservative accounting will not have any advantage in theperspective of FERC. The finding of this study suggests that the degree of matching principle affects the price'sinformation contents. This paper contributes to the literature on the matching principle by showingthat it can affect the FERC of the company.

Keywords

  • matching principles
  • stock price informativeness
  • FERC

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