ATJ Asian Tax Journal

Asian Tax Journal

Print ISSN 1738-3323 Online ISSN 2733-9270

Exploratory Study on Factors and Differences of Industry Earnings Management

  • Lee, Jang-Hyung Department of Accounting, Daegu University

Asian Tax Journal Vol. 17 No. 5 (2016), pp. 97-120

Abstract

This study inspected industries that frequently perform earnings management and those that do it less frequently and also inspected explanatory variables of the differences generated by different methods measuring earnings management. Earnings management is the use of accounting techniques to produce financial reports that present an overly positive view of a company’s business activities and financial position. Many accounting rules and principles require company management to make judgments. Earnings management takes advantage of how accounting rules are applied and creates financial statements that inflate earnings, revenue or total assets. The sample was extracted from the public companies of Korea Stock Exchange in KIS Value database and categorized by 17 industries based on Korean Stock Exchange Market from 2007 to 2014. The number of the sample was 3,127 firms/year. In order to measure earnings management of each industry, each two measurement methods by income smoothing and by discretionary authority are used. The total earnings management ranked by four methods measuring earnings management was used as research models. They were analyzed by the nonparametric statistics techniques of the SPSS program and the R program. The analysis revealed that earnings management had statistically significant differences by industries. The results also showed that overall, medical precision and pharmaceutical industries conduct earnings management less frequently while transportation equipment and electricity/gas industries conduct earnings management most frequently. Comparison of data showed that the construction industry used to conduct earnings management more frequently before the adoption of IFRS but after its adoption conducts it less frequently. Influences of factors such as SPR, SCR, BIG, lnA, KCR, and FPR were found to be statistically significant following the method measuring earnings management, and the industry’s SPR is influential with statistical significance to the overall model. As seen in previous studies, major shareholders’ share that shapes the corporate governance structure has an influence on the industrial earnings management.

Keywords

  • earning management
  • industry
  • income smoothing
  • discretionary authority
  • non－parametric regression analysis

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