외국인투자자의 특성과 실제이익조정- 외국인대주주의 역할을 중심으로

This study investigates whether and how a firm's earnings management through real activities is influenced by the characteristics of foreign investors' ownership structure, using a large sample of firms over the 6-year period, 2003-2009. There have been several studies which investigated the association between foreign investors' ownership and accrual-based earnings management. To our knowledge, however, none of previous research has documented the monitoring role of foreign investors on real earnings management. Managers have a greater willingness to manipulate earnings using real activities rather than accruals because real activities manipulation that typically requires a manager's depth of insight and understanding of underlying aspects of business are less likely to draw auditors' and/or regulators' scrutiny than accrual-based earnings management. However, Roychowdhury(2006) argues that the presence of sophisticated investors restricts the extent of real activities manipulation, because they know that even though these activities enable managers to meet short-run earnings targets, they are unlikely to increase long-run firm value. We focus on foreign investors as typical institutional investors who have increasingly become significant investors in Korean Securities market since the market liberalization in 1992. Foreign investors are known as sophisticated institutional investors who have a greater ability to see through the long-run implications of current managerial actions. Therefore, monitoring activities of foreign investors reduce the benefits from private information that would adversely affects the managerial actions. This would act as a disincentive for managers to engage in real activities manipulation, particularly if such manipulation reduces firm's economic value. Consistent with our prediction, the regression results show that the aggregated ownership of foreign investors is negatively related to the income-increasing earnings management through real activities. Another important finding of our study is that the existence of blockholders among foreign investors plays an important role in constraining managers' opportunistic behavior. Most existing studies have concentrated on just aggregated ownership of foreign investors. However, foreign blockholders, who are defined to have more than 5% of ownership, are important to managers because they have sufficient voting power to put pressure on management if they find managers' self-serving behavior to sacrifice the firm's value. Consistent with this hypothesis, we find that control- ownership of foreign blockholders makes managers less engage in opportunistic earnings management through real operating decisions. Since the foreign blockholders variable shows larger and more significant coefficients in regression analyses, we confirm that most of decline in real-based management by foreign investors is derived from the blockholder owners' control power. On the other hand, our analysis shows that when firms have foreign shareholders as the largest shareholders, they tend to engage more aggressively in real earnings management. This is consistent with the argument that even foreign investors use their control power to maximize their own private benefit by reporting overstated accounting numbers when they hold the largest equity shares of a company. All empirical results of our study are robust to supplemental analysis, such as the inclusion of discretionary accruals measured by Modified Jones model to consider the relationship between two means of managing earnings, or two-stage least squares method to control for simultaneous equation bias. Our study contributes to the literature on the role of foreign investors in corporate governance by showing somewhat different results on the role of foreign investors who have often been regarded as just transient investors who only focus on short- term profits and therefore cannot afford to take a long-term view in investment decisions. They are sophisticated investors possessing the power to acquire and process information and interested in long-term prospects of companies. Therefore, they can reduce the managers' incentives for real earnings management, thereby mitigate agency problems caused by information asymmetry between inside managers and outside investors, and increase the firm's value. Moreover, we do not only show that on average earnings are less likely to be managed via real actions when the level of foreign shareholdings are high, but also show that the sub-category of foreign investors (specifically those with more than 5% share holdings, and those with the largest equity positions) may exert pressure on manages regarding operational activities in different ways. These findings suggest a new approach to investigating the relation between earnings management and foreign investors' ownership, and give new insight in drawing inferences on the impact of foreign investors on earnings management using accruals as well as real activities.