Firm location and earnings management: Korean evidence

Using 7245 firm-year observations from Korean listed companies over 2000-2004, we find that firms located in Seoul (the capital city of Korea) or its surrounding metropolitan area (i.e. urban areas) are more likely to manage earnings than firms located in other areas (i.e. rural areas). Discretionar...

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Bibliographic Details
Published inAsia-Pacific journal of accounting & economics Vol. 19; no. 3; pp. 292 - 317
Main Authors Nam, Hye-Jeong, Choi, Jong-Hag, Comprix, Joseph, Kwon, Helen Hyejin
Format Journal Article
LanguageEnglish
Published Hong Kong Routledge 01.12.2012
City University of Hong Kong
Subjects
Accruals
audit quality
discretionary accruals
Earnings management
firm location
Location of industry
Sensitivity analysis
Studies
South Korea
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Summary:Using 7245 firm-year observations from Korean listed companies over 2000-2004, we find that firms located in Seoul (the capital city of Korea) or its surrounding metropolitan area (i.e. urban areas) are more likely to manage earnings than firms located in other areas (i.e. rural areas). Discretionary accruals are larger for urban firms than rural firms after controlling for variables that affect the level of accruals. Our findings suggest that due to greater attention from large numbers of investors and other market participants, urban firms face greater pressure to manipulate earnings to satisfy market expectations. However, we fail to find evidence of an association between firm location and increased earnings management for firms audited by Big 4 auditors or firms followed by analysts, which are likely to be more closely monitored by investors and other market participants. These findings are robust in various sensitivity analyses.
ISSN:1608-1625
2164-2257
DOI:10.1080/16081625.2012.667436