تاثیر ساختار مالکیت در کیفیت سود: پرونده کره جنوبی The impact of ownership structure on earnings quality: the case of South Korea

Introduction This paper investigates the impact of business group ownership structure on the quality of earnings reports using data from South Korea. Business groups are dominant players, not only in emerging markets but also in Europe and Japan.1 The same is also true in North Korea, where the assets of the 30 largest business groups were 26.1% larger than the Korean GDP and comprised 95.2% of the Korean GDP in 2011. One of the typical characteristics of group firms is that members within a firm mutually share the ties of both ownership and business operations, which gives rise to an agency conflict between controlling and minority shareholders (Yang et al. 2013; Claessens et al. 2006). Hence, the ownership structure of business groups could affect the quality of financial reports. Theoretical studies provide two competing predictions about the impact of the ownership structure on the quality of financial reporting. On the one hand, the entrenchment effect hypothesis predicts that ownership concentration creates incentives for controlling shareholders to expropriate private benefits from the firm at the cost of minority shareholders. As a result, controlling shareholders report lower earnigs quality reports because they have greater incentives to influence earnings for their private benefit (e.g., Wang 2006; Fama and Jensen 1983; Morck et al. 1988; Shleifer and Vishny 1997). Several empirical studies provide evidence supporting the entrenchment effect hypothesis (e.g., Li and Zaiats 2017; Gopalan and Jayaraman 2012; Fan and Wong 2002; Yang et al. 2013). Based on the entrenchment effect hypothesis, group-controlling owners (family, in most cases) allow managers in business groups report lower earnings quality than those in nongroups because the complex organizational structure and self-dealing internal market in group firms may create private benefit incentives for controlling owners to do so. Conversely, some studies predict that group-controlling owners will abstain from extracting private benefit from the firm at the cost of minority shareholders to build a longterm reputation, maximize firm value and impose fewer contractual constraints on the firm (Jensen and Meckling 1976). This suggests that group firms’ owners are expected to have a strong incentive to protect their investment and reputation by actively monitoring managers’ opportunistic attempts to influence earnings. Empirical studies by War- field et al. (1995), Wang (2006), and Jung and Kwon (2002) document evidence supporting this prediction. Overall, two competing theories of the impact of business group ownership structure on earnings quality reporting raise an empirical question. Using a large sample of firms listed in the South Korean stock exchange over a period from 1993 to 2007, we investigated the impact of the business group ownership structure on earnings quality reporting. We further investigated the impact of group firm characteristics (disparity in ownership between cash flow rights and control rights in group firms and family ownership in group firms) on earnings quality reporting.