서강대학교

초록/요약

This paper aims to examine earnings management behavior and subsequent performance of seasoned equity offering (SEO) firms, focusing on the real activity based earnings management. It also identifies the characteristics of firms that are engaged in real activity based earnings management as a way to find manager’s incentives to use it. The findings include that managers attempt to inflate their reported earnings in the fiscal year prior to the SEO using real activities in addition to accruals and operating performance significantly declines after the SEO. Subsequent underperformance is recovered in the third year after the earnings management which is caused by accruals reversion but firms classified as being engaged in real activity based earnings management show underperformance for a longer time subsequent to the SEO. Those firms classified as being engaged in real activity based earnings management for the SEO are characterized as being more matured, smaller, less flexible, less profitable, and having lower ownerships. The results of earnings managements around the SEO and those consequences are consistent with Yoon and Lee (2001) and the timing is consistent when examining abnormal real activity as another proxy of earnings management. Firm characteristics and subsequent performances of real activity based earnings management are the first empirical evidence reported in Korea. In particular, firm characteristics identified in this paper are for the ones that are more actively engaged in real activity based earnings management before the SEO. This result is differentiated from those known to be the characteristics of firms involved in earnings management in prior studies that did not take into account diverse earnings management tools These empirical evidences can provide some insight into manager’s motivations in choosing specific earnings management tools and contribute to future research about real activity based earnings management. However, this study is subject to possible biases embedded in the models that try to capture proxies of earnings management. It should also be noted that firm characteristics identified in this paper are limited to the SEO firms only, and should not be generalized for all firms.