• The Journal of Information Technology
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• v.7 no.3
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• pp.19-36
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• 2004

This study examines the relation between accruals components of earnings and stock return. Earnings are decomposed into four components: discretionary accruals, nondiscretionary accruals, nondiscretionary income and cash flow from operations. Because reported earnings in financial statement consist of cash flow from operations plus total accruals. We decompose total accruals into a discretionary accruals and a nondiscretionary accruals separately. This paper examines the incremental informational content of discretionary accruals and nondiscretionary accruals components of net income by regressing return on earnings' components in multivariate models. The empirical analysis is conducted on a sample of 1,580 firm-years comprising 158 firms during 1991-2003. discretionary accruals are obtained by decomposing total accruals into discretionary and nondiscretionary accruals conponents, using a pooled variation of the Jones model(1991). These findings suggest that the discretionary accruals(measured using a variation the Jones model) is priced by the stock market. Specifically, the discretionary accruals and cash flow from operations are positively associated with the stock return, and also nondiscretionary income, discretionary accruals are positively associated with the stock return. While this result is consistent with the market prices the discretionary accruals because it captures value-relevant information. Additional test report evidence consistent with nondiscretionary accruals conveying information about the stock return.

• The Journal of Information Technology
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• v.1 no.2
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• pp.209-227
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• 1998

This study examines the relation between accruals components of earnings and stock return. Earnings are decomposed into four components: discretionary accruals, nondiscretionary accruals, nondiscretionary income and cash flow from operations. Because reported earnings in financial statement consist of cash flow from operations plus total accruals. We decompose total accruals into a discretionary accruals and a nondiscretionary accruals separately, This paper examines the incremental informational content of discretionary accruals and nondiscretionary accruals components of net income by regressing return on earnings'components in multivariate models. The empirical analysis is conducted on a sample of 1,580 firm-years comprising 158 firms during 1984-1995. Discretionary accruals are obtained by decomposing total accruals into discretionary and nondiscretionary accruals components, using a pooled variation of the Jones model(1991). These findings suggest that the discretionary accruals(measured using a variation the Jones model) is priced by the stock market. Specifically, the discretionary accruals and cash flow from operations are positively associated with the stock return, and also nondiscretionary income, discretionary accruals are positively associated with the stock return. While this result is consistent with the market prices the discretionary accruals because it captures value-relevant information. Additional test report evidence consistent with nondiscretionary accruals conveying information about the stock return.

• Management & Information Systems Review
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• v.29 no.4
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• pp.23-44
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• 2010

This study examines the value-relevance of accruals and discretionary accruals. Also, by examining the effects of the corporate life-cycle on these relationship, this study is able to provide evidence of the value-relevance of accruals and discretionary accruals measures in the economic context of life-cycle theory. This study uses results based on life-cycle classification methods developed by Anthony and Ramesh(1992), adjust Jones model and Dechow Dechev(2002) model. We classify firms using individuals variables(sales growth, capital expenditure growth, employee growth) and then use a composite score obtained from all variables for classification. Our sample consists of 272 firms listed in the Korean Stock Exchange during 14 years(1996-2009). Our final sample for regression variables consists of 2,448 firm-year observations. This evidence implies that the value-relevance of accruals and discretionary accruals in the growth and mature stage can have positive impact on the price but in the decline the value-relevance of accruals and discretionary accruals can have negative impact on the price. The results mean that discretionary accruals communicate managements' private information in the growth stage, but. earnings management in the decline stage. The results of this study suggest that corporate life cycle stages influence the value-relevance of accruals and discretionary accruals measures.

• Management & Information Systems Review
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• v.36 no.1
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• pp.291-307
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• 2017

This study analyzes the effects of global diversification level on discretion accruals and firm value. In order to verify the hypothesis of this study, the sample of securities companies was selected from 2012 to 2015, and the final sample is 2,139 firm-year. The results of this paper are as follows : First, discretionary accruals increased as the diversification level increased. We conducted an additional analysis as to whether the increase in information asymmetry due to international diversification affects discretionary accruals. As a result, the increase of information asymmetry due to international diversification increased discretionary accruals. This analysis is consistent with EI Mehdi and Seboui(2001)'s study. Second, we analyze the impact of international diversification on corporate value. In previous studies, there was no consistent conclusion about the relationship between international diversification and firm value(Christophe and Pfeiffer, 2002; Denis and Vost, 2002; Bodnar and Wenintrop, 1997; Bodnar et al., 2003). Therefore, this study hypothesizes that the increase in discretionary accruals, which have been driven by international diversification, will have an impact on firm value. Aa a result of the analysis, we found that the increase in discretionary accruals due to diversification declines the firm value. This means that the increase in discretionary accruals due to diversification is utilized as and opportunistic means by taking individual gain of managers.

• The Journal of Information Technology
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• v.5 no.1
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• pp.79-98
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• 2002

This study examines the association between valuation and accrual information. According to accounting based valuation model, firm's value consists of net book value and abnormal earnings. Net book value and abnormal earnings are determined as the manager's accounting policy. Discretionary accruals may signal the manager's value expectation or be noisy factor of accounting variables. The results of this study are as follows; First discretionary accruals are associated to stock prices negatively but non-discretionary accruals are not to stock prices. This result suggests that discretionary accruals and non-discretionary accruals are the differential factors of the firm value. Second, the product term of discretionary accrual and net book value are associated to the stock price negatively but the product term of non-discretionary accrual and net book value are not associated to the stock price. the results indicate that discretionary accruals are noisy factors of net book value information. Third, the product term of discretionary accrual and net income are associated to the stock price negatively and the product tenn of non-discretionary accrual and net income are also associated to the stock price negatively, the results suggest that discretionary accruals are noisy factors of earnings.

• Journal of Korea Society of Digital Industry and Information Management
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• v.9 no.4
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• pp.267-279
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• 2013

To many, recent allegations of earnings management at Enron, coupled with similar ones at many other corporations, are a strong indication of a serious decay in business ethics. Nevertheless, the field of Corporate Social Responsibility(CSR) has grown exponentially in the last decade. This study investigates the effects of CSR on earnings management. Different to precedent works which focus on Financial Performance, this study attempts to provide empirical evidence for relevance of CSR and Discretionary Accruals(DA). The study used variables in the sustainability report, and DA for its earning management too progress empirical analysis because it is believed that the measurement of accounting transparency is highly related to the CEO's opportunistic selection of the accounting. In terms of Sustainable management activities, Employee training time(ETT) is significantly and negatively associated with Discretionary accruals(DA). And also Industrial Accidents Ratio(IAR) is significantly and negatively associated with Discretionary accruals. Consequently, empirical results suggest that Discretionary accruals associated with the company's CSR activities, such as ETT, and IAR. In this study, there are limitation of generalizations and omitted variable problem.

• Journal of Distribution Science
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• v.17 no.4
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• pp.5-16
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• 2019

Purpose - This study examines whether price cartel firms perform downward earnings management to avoid or minimize penalty surcharges levied by the Korea Fair Trade Commission and analyzes such earnings management in distribution industry. Research design, data, and methodology - We use 247 firms from 64 price cartel cases in the period of 2011-2016, and collect data from 3 years before to 3 years after the start of price cartel. Earnings management is measured by discretionary accruals. Three discretionary accrual estimation models are employed; modified Jones model, ROA adjusted modified Jones model and CFO-adjusted modified Jones model. For pre- and post-cartel periods, one year, two year, and three year windows are used. Additional empirical analyses are performed for distribution industry sub-sample of 25 cartel firms. Result - The regression results show that cartel firms' discretionary accruals are significantly lower in the period after the start of price cartel than before. And discretionary accruals are lower in cartel firms than in non-cartel firms during the cartel period. Cartel firms in distribution industry also show the earnings management similar to those in other industries. Conclusions - These two findings lead to the conjecture that managers of cartel firms manage their earnings downward. This behavior is indistinguishable between firms in distribution industry and other industries.

• Asia-Pacific Journal of Business
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• v.10 no.4
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• pp.31-47
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• 2019

The recently revised Act on External Audit has taken effect as of November 2018, where standard audit hour rule is included to enhance the audit quality requiring appropriate audit hour input. It has two issues, one is how much the standard audit hours should be and the other is how to control the auditor proficiency between positions when deciding standard audit hours. This paper focuses on the latter issue and studies if auditor proficiency measured with the KICPA position proficiency weight is economically meaningful and has audit quality implication. The KICPA proficiency weights of partner and junior CPA are 1.2, and 0.4 with senior CPA being 1. The results are as follows. First, we find that the audit proficiency decreases discretionary accruals, the proxy of audit quality. Second, the degree to which the audit proficiency decreases discretionary accruals is pronounced with non-big4 firm. The results imply that the KICPA position proficiency weight reflects auditor experiences which help to improve audit quality.

• Journal of the Korea Academia-Industrial cooperation Society
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• v.20 no.6
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• pp.483-488
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• 2019

This study first examines whether the high matching principle reduces the cost of equity, and then examines the effect on discretionary accruals and capital cost. According to previous studies, the higher the response to revenue cost, the higher the earnings quality. The higher the quality of earnings, the lower the information risk, and the lower the information risk, the lower the capital cost of enterprise. Discretionary accruals can play two roles in opposing each other. One is that managers use the discretionary accruals to provide private information about the future of the corporation to the market, thus enhancing the usefulness of the earnings. The other is that managers can use the discretionary accruals opportunistically to distort earnings and provide misinformed information to investors, thus reducing the usefulness of earnings. The results of this study represents that the higher the responding to the revenue cost, the less the cost of equity. In the case of firms with high revenue response, we examine whether discretionary accruals reduce the cost of equity capital. As a result of the study, the higher the responding to the revenue cost, the lower the cost of equity capital. Companies with higher matching principle have been shown to reduce their capital costs by using discretionary accruals.

• The Journal of Asian Finance, Economics and Business
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• v.7 no.9
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• pp.315-328
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• 2020

In this study, we examined various aspects of discretionary accruals. We compared the power of Jones Model (JM), Modified Jones Model (MJM) and Performance Matched Model (PMM). Furthermore, we tested whether accruals derived from cash flow approach or balance sheet approach provide better results and we investigated the significance of country and industry control variables in models. In order to perform these tests, we constructed thirty equations. The data consists of 319 non-financial companies over five years in the GCC region. We used panel data regression models, and testing suggests us to use random effect model as the most suitable one. The results show that PMM has the highest explanatory power among models and it is followed by JM and MJM, consecutively. Secondly, results reveal that accruals derived from cash flow approach provide more accurate results. Moreover, country dummies are significant in models with cash flow approach and they lose significance in balance sheet approach. We differentiated industries due to two different classifications: the first group with higher number of industries is more precise compared to the second group with a narrower scope and lower number of industries. The model including both industrial and country-wise dummies scores highest in significance.