매도가능증권의 선별적 처분을 통한 이익조정

Firms’ stock price as well as their credit ratings could be seriously deteriorated if firms’ reported earnings could not meet market expectations. This is because interest parties are paying great attention to firms’ reported earnings for their decision making. Thus, there exist strong incentives for firms to manage their reported earnings if their earnings do not reach specific targets. To date, a great deal of researches have been performed to examine accounting accruals, accounting changes, or intra-trading with affiliated companies as a means to manage firms’ reported earnings. However, earnings management through accounting accruals could be detected during the course of external audits. Accounting changes have critical limitations because their details and subsequent effects should be publicly disclosed in audit reports. Furthermore, intra-trading with affiliated companies is also accompanied by considerable transaction costs. On the other hand, earnings management through the disposal of available-for-sale securities may not be challenged easily by external auditors and incur much less transaction costs. This study examines whether firms use disposal gains/losses of available-for-sale securities to manage their reported earnings. In accordance with Korean Accounting Standards No.8 (Securities), firms can classify financial assets into trading, available-for-sale, or held-to-maturity categories based on their holding intention as well as holding ability. Moreover, if financial assets are classified as available- for-sale, their valuation gains/losses are not reflected on net income, but treated as comprehensive income, which will be directly included in the equity part of balance sheet. Therefore, this selective classification of financial assets can provide considerable rooms for firms to manage their reported earnings. This will create incentive for firms to classify their financial assets into available-for-sale category as many as possible. And then, when unmanaged earnings are less than targets, firms could dispose selectively some part of those available-for-sale securities. We used samples consisting non-banking firms (1,000 firm-years) listed on the Korean Stock Exchange, which report quarterly financial statements over the year 2004 to 2005. This is because the Korean related accounting standard (No.8) has been enacted from year 2003. The empirical results of this study are as follows. First of all, both disposal gains/losses and valuation gains/losses of available-for-sale securities have significant value relevance. However, the pricing multiple of disposal gains/losses is significantly greater than that of valuation gains/losses. This may be because there exist realization risks in the valuation gains/losses of available-for-sale securities, and also because firms possibly use those valuation gains/losses in managing their reported earnings. Second, firms dispose available-for-sale securities selectively to manage their reported earnings. Also, firms tend to use the disposal gains/losses of available-for-sale securities to beat earnings target more than the disposal gains/losses of tangible, intangible, and lease assets. These results suggest that like the assets recorded at historical costs, the assets adjusted based on fair market values could also be utilized in managing firms' reported earnings by timing the disposition of those assets. This is because current accounting standards allow valuation gains/losses to be reported directly in the equity category of the balance sheet. Therefore, if unmanaged earnings are less than target earnings, firms could realize gains/losses of available-for-sale securities by disposing selectively a specific part of those securities. For accounting policy makers, our results suggest that current accounting standards reporting valuation gains/losses of available-for-sale securities as capital adjustment item should be re-evaluated. Specifically, due to the financial crisis in late 2008, many accounting standard bodies including IASB allow firms to reclassify their financial assets from trading category to available-for-sale category. We have to pay great attention to this movement since it will provide considerable rooms for firms to manage their reported earnings, and will eventually deteriorate the usefulness, especially the reliability of accounting information. Further subsequent studies could be performed by extending the examination periods and including financial institutions in samples. Also, some researches may try to examine the usefulness of each components of other comprehensive income, which are reported directly in the equity part of balance sheet.