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Firm location and earnings management: Korean evidence

Author

Listed:
  • Hye-Jeong Nam
  • Jong-Hag Choi
  • Joseph Comprix
  • Helen Hyejin Kwon

Abstract

Using 7245 firm-year observations from Korean listed companies over 2000–2004, we find that firms located in Seoul (the capital city of Korea) or its surrounding metropolitan area (i.e. urban areas) are more likely to manage earnings than firms located in other areas (i.e. rural areas). Discretionary accruals are larger for urban firms than rural firms after controlling for variables that affect the level of accruals. Our findings suggest that due to greater attention from large numbers of investors and other market participants, urban firms face greater pressure to manipulate earnings to satisfy market expectations. However, we fail to find evidence of an association between firm location and increased earnings management for firms audited by Big 4 auditors or firms followed by analysts, which are likely to be more closely monitored by investors and other market participants. These findings are robust in various sensitivity analyses.

Suggested Citation

  • Hye-Jeong Nam & Jong-Hag Choi & Joseph Comprix & Helen Hyejin Kwon, 2012. "Firm location and earnings management: Korean evidence," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 19(3), pages 292-317.
    • Handle: RePEc:taf:raaexx:v:19:y:2012:i:3:p:292-317
    DOI: 10.1080/16081625.2012.667436
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