2대주주의 소유지분과 이익조정

In a capital market which has a weak legal safeguard for external minority stockholders, it is highly likely that the bigger the largest stockholder’s equity holding is, the more probable its reported earnings are to be managed since the largest stockholder’s opportunistic behavior and incentives to infringe minor stockholder’s interests also increase in this situation of information asymmetry. On the other hand, for companies with more diversified ownership structures, the managers have incentives to manage reported earnings because they are under high pressure from the capital market. Yet, even though the largest stockholder’s equity holdings are huge, the manager’s incentive to engage in opportunistic behaviors will be limited when the second largest stockholders have a stronger monitoring role. In case the largest stockholder’s equity holdings are relatively small, manager’s opportunistic behavior is expected to be also limited if the second largest stockholders play an active monitoring role. In this regard, this study analyzes whether the largest stockholder’s equity holdings actually cause a firm to manage its earnings and whether this depends on a firm’s equity ownership structure. Especially, this study focuses on the second largest stockholder’s influence on the relation between the largest stockholder’s equity holdings and the managers’ incentive to adjust upward the earnings figures. First of all, it is hypothesized that: (1) the bigger the largest stockholder’s equity holdings become, the more likely a manager opportunistically increases the earnings; (2) earnings management is more prominent in manager-controlled companies than in owner-controlled companies; and (3) the bigger the second largest stockholder’s monitoring role is, the more limited the largest stockholder’s incentive is to engage in opportunistic behaviors. In this study, the sample is entirely composed of non-financial companies which are newly listed in the Korea Exchange from 1999 to 2004 and whose fiscal years-end is December (2,982 firms-years). This study comprehensively analyzes the influence of the largest stockholder’s equity holdings on managers’ earnings management. All the sample companies are divided into quintiles based on the largest stockholder’s equity holdings including the related parties’ equity. Further, the companies in the bottom quintile are classified as manager-controlled companies while those in the top quintile as owner- controlled companies. And, discretionary accruals are used as a means to determine whether earnings management has been made. Discretionary accruals are estimated using the modified-Jones model (1995). Also, we use performance-matched discretionary accruals that reflect additionally prior years’ return on assets. The influencing power of the second largest stockholder is measured by dividing the largest stockholder’s equity holdings by the sum of the largest stockholder’s equity holdings and the second largest stockholder’s equity holdings. Empirical findings are as follows. The bigger the largest stockholder’s equity holdings are, the more managed the earnings are. However, we also find that, by analyzing manager- controlled companies’ equity ownership structures, the smaller the largest shareholder’s equity holdings are, the more managed the earnings are also, out of the market pressure. Yet, in owner-controlled companies, the largest stockholder’s equity holdings have no effect on a firm’s earnings management behavior. In fact, the earnings are more managed in manager-controlled companies than in owner-controlled companies. In particular, the stronger the second largest stockholder’s monitoring role gets, the more limited effect the largest stockholder’s equity holdings have on the managers’ attempt to manage earnings. The result of this study contributes to defining information value of the largest stockholder’s equity holdings for a company’s main interested parties such as investors and creditors. Additionally, this study extends the literature on the relation between equity ownership structures and earnings management by showing that the effect of the largest stockholder’s equity holdings on earnings management may differ depending on firms’ equity ownership structures. Further, this study examines the effect of the second largest stockholders’ monitoring role, which has not been addressed in the previous studies. The relation between the largest stockholder’s equity holdings and earnings management may take different shapes depending on the degree of second largest stockholder’s influencing power.