Earnings Performance and Disclosure Frequency: A Comparison Between KSE and KOSDAQ Firms

This paper addresses disclosure practices in response to earnings performance. Specifically, this paper separately analyzes financial and promotional disclosures under Regulation Fair Disclosure using a sample of publicly traded firms on the KSE and KOSDAQ markets from 2003 to 2008. First, I find that financial disclosures are positively associated with earnings performance while promotional disclosures are negatively associated with earnings performance. Second, the positive (negative) association between financial (promotional) disclosures and earnings performance is stronger in KOSDSAQ firms than KSE firms. Lastly, the strong sensitivity of disclosure frequency to earnings performance in KOSDAQ firms is weakened with good corporate governance. The results suggest that good performance motivates management to provide more disclosures regarding financial information whereas poor performance drives management to hold back financial information and instead activate promotional disclosures to justify or boost stock prices. This discretionary disclosure is stronger in KOSDAQ firms than KSE firms. However, strong corporate governance plays a role in limiting opportunistic disclosures in KOSDAQ firms.