기업의 국제다각화가 실물적 이익조정에 미치는 영향

This paper examines the effect of corporate international diversification on real earnings management for Korean firms. More specifically, we examine the association between the level of corporate international diversification and the proxies for the magnitude of real earnings management, such as abnormal cash flow from operation, abnormal production cost, and abnormal discretionary expenses. Corporate international diversification is defined as a firm’s strategy by which a firm conducts its business in multiple countries at the same time (Cha et al. 2010). So the expansion into oversea markets enhance the firm’s growth opportunities by allowing firms to overcome the limitation of already exploited domestic market (Kim et al. 2012). Prior research has documented that there can be mixed result with positive (+) (agency conflict hypotheses) or negative (-) (earnings volatility hypotheses) association between corporate international diversification and accrual earnings management. However earnings management can be classified into two categories, accrual earnings management and real earnings management. Real earnings management (hereafter real EM) is defined as “management actions that deviate from normal business practices, undertaken with the primary objective of meeting certain earnings thresholds”(Roychowdhury 2006). Real EM is a sort of earnings management but manager use upward Real EM by boosted up credit sales or increase the production unit and cut discretionary expenses such as R&D expenses or advertising costs. Prior research on real EM suggests that managers actually use the method of real EM to manipulate earnings (e.g., Roychowdhury 2006; Kim et al. 2008) and that real EM has negative effects on firms’ long-term profitability or cost of equity capital (e.g., Kim et al. 2009; Kim and Sohn 2012). Prior research has also documented that after the Sarbanes Oxley (SOX) acts were enforced, managers began to substitute earnings management using discretional accruals by real EM. This is because regulator or auditor cannot scrutinize real EM since real EM is the results of manager’s autonomous decisions for firm’s operation. In particular, Cohen et al.(2008) suggest that managers have begun to substitute earnings management based on discretionary accruals by Real EM since accounting regulations were reinforced. Also there is no research examining the association between corporate international diversification and real EM in Korea, we examine such an association in this study. By using 8,730 Korean firm/year observations between 2003 and 2011, we find that the level of corporate international diversification, which is measured by the relative ratio of overseas assets to total assets, is positively associated with the proxy for the magnitude of real EM. Furthermore, we find that this positive association is maintained for income-increasing real EM. In order to enhance the robustness of the empirical results, we performed additional tests with longer sample period (between 1994 to 2011) and using overseas sales ratio over total sales as a proxy of corporate international diversification, and the empirical results supported our main results. So this paper supports the agency conflict hypotheses. This study contributes to the accounting and finance literature by providing the first empirical evidence regarding the effect of corporate international diversification on real EM for Korean firms. So investors or analysts who want to analyze the corporate international diversification firms, they should see more careful to recognize manager’s real EM which can lower long-term operating performance. Also regulators need to mandate “Geographic or Country Business Segment Report” with the current “Business Segment Report” disclosure practice. We expect that this disclosure practices may reduce manager’s opportunistic real EM. So our empirical evidence will be of interest to market participants as well as academia.