1∼3분기 대비 4분기 부채규모의 일시적 축소 관행이 기업의 부채비율과 이익조정의 관계에 미치는 영향

The study investigates the companies which have a practice to temporarily lower their fourth-quarter debt levels in comparison with earlier-quarters debt levels before reporting the annual reports to the public. And the study examines how the practice which is one of companies’ the differential properties could effect on the relation between debt/equity ratio and earning management. Following previous studies, because quarterly reports have only been reviewed by auditor at the end of each quarter, their reliability is less than annual reports which have been audited at the end of each year. So most of investors generally use annual reports for their decision-making. For this reason, we focus on the companies which have the practice to temporarily lower their fourth-quarter debt levels before reporting the annual reports to the public. The sample consists of manufacturing companies(3,958 firm-years) with December fiscal years traded over Korean Stock Exchange during 2003-2010. We use discretionary accruals as the proxy for earning management. We apply new rules of SEC and employ proxy for the practice to temporarily lower their fourth-quarter debt levels in comparison with earlier-quarters debt levels before reporting the annual reports to the public. The empirical findings of this paper are as follows. When we reexamine the debt covenant hypothesis first, the discretionary accruals decrease as the debt/equity ratio increases. This result fails to find evidences supporting the existing debt covenant hypothesis on Korean companies. It is not a common to use the debt covenants based on accounting figures at the domestic capital markets. Therefore this result suggests that when examining the relation between debt/equity ratio and discretionary accruals, we should consider companies’ the differential properties like this practice. Empirical findings generally support our hypothesis. When companies have the practice to temporarily lower their fourth-quarter debt levels, the discretionary accruals increase as the debt/equity ratio increases. Because when leverage of companies which have the practice to temporarily lower their fourth-quarter debt levels increases, the manager of that companies has more incentives to earning management for the annual reports. It is imperative to obtain favorable financing terms and maintain investor confidence. The practice to temporarily lower their fourth-quarter debt levels before reporting the annual reports to the public is not illegal, but most of investors have difficulty making a decision about companies which have that practice. Specifically, the findings in this study show that the manager’s incentives to earning management are affected by increase in debt/equity ratio of that companies. Therefore this result provides useful information to investors, regulators for their decision making.