기업의 위치와 음의 이익예측오차 회피 성향 사이의 관계

This study investigates the association between firm location and the firm’s tendency to meet or beat analysts’ consensus earings forecasts. Recently, finance literature on the effect of a firm location has received greater attention. Related prior studies find the evidence that firm location affects managers’ as well as other market participants’ decision-makings. By linking managers’ tendencies to manage their earnings with firm location, we examine whether the firms located in urban areas are more or less likely to manage their earnings or the market’s level of expectation. We develop our hypotheses based on the competing theory. First, the firms located in urban areas are less likely to manage their earnings or market’s expectation than firms in rural areas because of close monitoring from market participants who live in nearby urban areas and have a lot of information about the firms. Close monitoring can mitigate or even nullify the earnings management by firms which in turn decrease the firm’s incentives to manage earnings. We call it monitoring perspective. In contrast, the market pressure perspective predicts that urban firms are more likely to manage their earnings or the market’s level of expectation than rural firms are because of high market pressure from the market participants who live in nearby urban areas. Studies report that firms receive more attention from media or investor community tend to manage earnings more to satisfy the expectation or demand of the market participants. This paper empirically explores these predictions with 1,792 firm-year observations from listed firms in Korean Stock Exchange for the period of year 2000 to 2004. We classify a firm’s location based on the address where a firm’s headquarter is located. That is, if a firm’s headquarter is located in Seoul or Kyunggi area, (the metropolitan area which surrounds the city of Seoul) then we code the firm as an urban firm and otherwise a rural firm. The use of Korean data for this research purpose is particularly important because there is a clear distinction between Seoul and surrounding metropolitan area and other rural areas. In contrast, it may be difficult to differentiate urban versus rural areas in other countries. In the empirical anslyses, we measure the tendency of avoiding a negative earnings surprise as proxy for the degree of earnings management or market's expectation management. Consistent with the monitoring perspective, we find that the firms located in Seoul or Kyunggi are less likely to meet or beat analysts’ consensus forecasts. In addition, they are also less likely to meet or just beat (i.e., beat the forecast by only a small margin) the forecasts, compared with rural firms. These imply that monitoring of the market plays an important role in reducing a firms’ incentives to meet the market’s expectation. As a result, firms are less likely to engage in earnings management or expectation management to meet the expectation. In the sense that this study identifies a new incentive, i.e. firm location, to manipulate earnings or market’s expectation, this study contributes to regulators, academics, as well as practitioners. In contrast to the findings of this study, Choi et al.(2006) document that firms located in Seoul are more likely to adopt greater magnitude of discretionary accruals (both incomeincreasing and income-decreasing accruals) than firms located in rural areas. The findings in this study suggest that even urban firms may engage in more discretionary accounting choices, they are less likely to try to meet the demand of investors. Further study should consider the effect of firm location choice on firm’s various behaviors not investigated in this study.