The Effects of Long-term Orientation on Financial Performance and Earnings Quality: Evidence from Korea

This paper aims to identify the effects of corporate long-term orientation on financial performance and earnings quality. Long-term orientation is proxied by R&D intensity, capital expenditures intensity, variability in workforce, and an indicator for owner-managed large firms. Using the samples of 11,281 firm-year observations from the Korea Stock Exchange between 2005 and 2014, we find evidence that long-term orientation is positively associated with medium-term financial performance, which is measured by three-year average return on assets (ROA). Also, we find that long-term orientation is negatively related to discretionary accruals and financial opacity (three-year sum of absolute discretionary accruals). The findings of this paper contribute to long-term orientation literature, which is a relatively unexplored topic in South Korea.