기업신용등급이 이익조정에 미치는 영향 : 비상장기업을 중심으로

This paper investigates whether non-listed firms with high default risk are more likely to manage earnings in the subsequent period. The purpose of our study is to show that non-listed firms which are more sensitive to default risk, measured using credit ratings, manage earnings using discretionary accruals. Earnings management can be defined as a “purposeful intervention in the external financial reporting process, with the intent of obtaining some private gain” (Schipper 1989). Earnings management affects the wealth of firm stakeholders and may transfer wealth from one stakeholder to another (Dechow et al. 1996; Beneish 1999; Healy and Wahlen 1999). Therefore, earnings management is an important issue of interest in the accounting literature. Previous studies find that managers perform earnings management to (i) maximize their own compensation or reduce political costs (Watts and Zimmerman 1986; Jones 1991), (ii) avoid violating debt covenants (Watts and Zimmerman 1986; DeFond and Jiambalvo 1994; Sweeney 1994) or prevent financial distress, (iii) reduce or smooth corporate taxes, (iv) meet market expectation levels or increase firm value by signaling stability with smooth earnings, or beat earnings targets. This paper focuses on the motivation to increase earnings to avoid financial distress. Previous studies examine prior financial ratios and earnings management behavior of firms in court receivership. Financial distress can be measured using a bankruptcy prediction model or using credit ratings. Bankruptcy prediction models use firm’s financial ratios to estimate probability of bankruptcy and test the predictive power (e.g., Beaver 1966; Altman 1968; Deakin 1972; Altman et al. 1977; Ohlson 1980; Altman 1982). These models rely on historical financial information. Credit ratings are determined through quantitative and qualitative assessment by credit analysts. These ratings are important information for investors in evaluating firms and making investment decisions. In other words, credit rating agencies serve as information intermediaries in the capital market. Previous studies show that credit ratings incorporate non-financial information and earnings quality, whereas bankruptcy prediction models only use financial information. In addition, prediction models are sensitive to the researcher’s selection of variables and do not directly affect manager’s behavior because it is not public information. In contrast, credit ratings are publicly available and thus directly affect manager’s behavior. Based on higher reliability of measuring financial distress and greater relevance to earnings management, we use credit ratings as a measure for firm default risk. Unlike previous studies that examine earnings management motivations of financially distressed or bankrupt firms, this study focuses on how default risk affects subsequent period earnings management. HassabElnaby et al. (2005) and Ting et al. (2009) are examples of overseas studies on the relationship between default risk and earnings management. While how default risk affects earnings management behavior is an important issue for market participants, relevant studies are scarce. Studies that examine the timing of financial distress and identify the signals of bankruptcy contribute by providing information to debt and equity investors. In line with previous literature, this study examines whether low credit ratings (high default risk) increases earnings management. We provide empirical evidence of manager’s motivation to increase reported earnings when the firm is in higher risk of default. We examine 54,497 firm-years from 2004 to 2009 of non-listed firms in Korea. Corporate credit ratings are from NICE Credit Information Service. Earnings management is measured using ROA performance-adjusted discretionary accruals following Kothari et al. (2005) to mitigate measurement errors. We find that firms with lower credit ratings (higher default risk) show significantly greater ROA performance-adjusted discretionary accruals in the subsequent period. Therefore, we conclude that managers in firms with higher default risk have greater motivation to increase reported earnings. The test results are robust to using continuous and ranked discretionary accrual measures, using ordered and binary credit rating measures, and estimating heteroskedasticity-adjusted standard errors corrected for cross-sectional and serial correlation (Newey and West 1987). This study contributes to the literature by providing evidence of earnings management behavior of non-listed firms with lower credit ratings (higher default risk) where there is scant evidence, domestic or international, on the motivation of non-listed firm managers to manipulate earnings. We provide additional contribution to related research by focusing on non-listed firms, in which financial distress may be the greatest motivation to manage earnings. In addition, our findings have implications, not limited to academics but, for debt holders regarding the decision to loan to non-listed firms and for regulators concerning disclosure policies on non-listed firms. Specifically, Academics can also apply the discussion in this paper for earnings management related researches.