지배권과 소유권의 차이로 측정한 기업지배구조와 기업의 보수주의 사이의 관계

This study investigates the relation between the wedge of the difference between voting rights and cash flow rights of the controlling shareholders of a firm and the degree of conservatism in the financial reporting. The Korean corporate governance mechanism has two peculiar characteristics - pyramidal structure and circular shareholdings. More specifically, many Korean large conglomerates are widely criticized for having only a few cash flow rights, but exert far greater voting rights through the pyramidal structure and circular shareholdings. As a result, the controlling shareholders typically have more voting rights than cash flow rights, which enables controlling shareholders exert greater control than they deserves over the firm. Thus, controlling shareholders have incentives to transfer the firms' wealth for the personal gains by sacrificing the interests of the minority shareholders. This possibility for the expropriation of the minority shareholders' interest is a great concern in prior research on corporate governance in finance. However, these phenomena are not frequently investigated in accounting research area. This study is intended to fill this gap and expected to provide various valuable insights into the behavior of controlling shareholders when there exists the wedge. If this possibility is true, the degree of financial reporting conservatism could decrease as the wedge increases. It is because the controlling shareholders would like to choose less conservative accounting methods in order to expropriate the wealth of minority shareholders. We examine this prediction by using Korean data collected over 2003-2005 period. The degree of financial reporting conservatism is measured by the speed that the stock return reflects economic losses versus economic gains. The measure is first developed by Basu (1997) and further extended by Ball and Shivakumar (2006). The conservative accounting method choice by firms could increase the efficiency of contracting and decrease the riskiness for individual investors. This conservatism measure is different from discretionary accruals widely used in many accounting studies and reflect broader level of financial reporting system quality. The empirical results strongly support the predictions. First, the wedge is negatively associated with the degree of conservatism. The results suggest that the impaired corporate governance mechanism deteriorates the quality of financial reporting, by allowing more aggressive financial reporting. Second, these results are consistent in various sensitivity analyses, suggesting that the robustness of our findings. Third, we perform regression analyses after replacing the wedge variable with only cash flow right (voting right) variable. We find that voting right is negatively associated with the degree of conservatism, whereas the cash flow right is positively associated with the degree of conservatism. These findings confirms the findings in the main analyses. In summary, these findings are interesting and contribute the regulators, academics, practitioners as well as current and potential future investors in various ways.