산업 내 경쟁정도와 실제이익조정 -기업지배구조와의 상호작용을 중심으로- = Market Competition and Real Earnings Management -Focusing on Interaction with Corporate Governance-

다국어 초록 (Multilingual Abstract)

This study is to find out how market competition in the product market affects real earnings management(REM) in a company using the empirical analysis. The market is where the specific commodity and services are bought and sold. As there are the behaviors trying to buy and sell things, there occurs the relation between people for getting the best conditions or profits. As such, the motive for causing the demand and supply in the market is the pursuit for profit. The accounting information is the result of the strategic execution under the competition of product market. Therefore, behaviors related to the generation of a firm`s accounting information can be different according to the market competition where the company belongs to. Nonetheless, there is no sufficient research on companies` behavior regarding the accounting side depending on market competition. So, this study will focus on how market competition would affect real earnings management, which is deemed to be an option of accounting choice made by manager. Real earnings management is made in a way that the specific profit target is met by changing the period and size of production, sale of products, investment and financial activities. As it directly affects the actual allocation of resources for the company, it can be deemed as one of corporate strategy. Accordingly, it can be predicted that market competition in an industry, which is one of the external corporate governance structure significantly affects real earnings management of the company. Thus, the study was conducted on how market competition in an industry would affect the behavior of producing the accounting information or particularly real earnings management. The study was conducted on the listed companies having the fiscal year ending in December except banking companies. The study was made on 4,583 companies- year from 2002 to 2010. The results of analysis are as follows. First, the industry having higher level of monopoly (low competition) have more intention of raising profit through real earnings management. This result shows that in the Korean management environment, the more monopolistic an industry is (or lower competition in the industry), the companies in the industry are likely to use real earnings management as in that case the regulatory agencies are hard to catch real earnings management. In addition, this result can be explained based on the prior literature which shows that the more competitive the industry is, the stronger the external governance`s effect becomes, thus decreasing real earnings management. Second, the better the internal corporate governance of the company is, the weaker the relation between industrial concentration and real earnings management becomes. This can be said that the internal corporate governance and external corporate governance interact in a way that they decrease earnings management. The additional analysis showed that there are the complementary relation between real earnings management and accrual earningsmanagement(discretionary accruals). The complementary relation was found to be strong, particularly in the relation between real earnings management and the unexpected part of accrual earnings management. In addition, as the lower the market competition(the higher the industrial concentration) in the industry becomes, the more the company prefers real earnings management to accrual earnings management. This study is expected to provide a valuable implications to the stakeholders in capital market by analysing the effect of market competition in the industry on real earnings management. Based on the findings of this study, the financial analysts should pay close attention to the effects of market competition on real earnings management in the process of providing predictive information of companies. Also, investors would be careful in using such predictive information and direct accounting information in the investment decision-making process. Additionally, regulatory agencies may use the information on the level of market competition of each firm in deciding priorities in monitoring. This study shows the interesting results through the empirical analysis. But there are still measurement error regarding test variables and estimated variables. The subsequent study shall be done to make up for the limitations.

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