Split Ratings and Asymmetric Cost Behavior: Empirical Evidence from Korea

• 발행기관: 한국유통과학회
• 저자명: Yujin KIM Jungin AN
• 간행물 정보: 『The Journal of Asian Finance, Economics and Business(JAFEB)』Vol. 9 No.7, 185~196쪽, 전체 12쪽
• 주제분류: 경제경영 > 경제학
• 파일형태: PDF
• 발행일자: 2022.07.31

영문 초록

The purpose of this study is to examine the effects of split ratings on earnings management through cost adjustments based on asymmetric cost behaviors. Using a sample of 2,027 Korean firm-year observations over the 2002–2019 period, we analyze whether a firm deliberately reduces discretionary costs, such as selling, general, and administrative (SG&A) expenses, to improve profits when it receives multiple ratings from credit rating agencies (CRAs). While examining earnings management incentives in the presence of split ratings, we also investigate the moderating effects of Chaebols, Korea’s unique corporate governance structure. We find that split-rating firms show less stickiness in SG&A costs compared to non-split-rating firms when sales decrease. This result implies the deliberate reduction of discretionary costs to improve earnings in the presence of split ratings, which are more likely to change in future credit assessments. We also find that the incentives for earnings management of split-rating firms are limited in Chaebol firms, which have high levels of socio-economic surveillance and support affiliated firms through the internal market of corporate groups. This study contributes to existing research by identifying new determinants of cost behavior by using the framework of asymmetric cost behavior in relation to earnings management incentives.

목차

1. Introduction

2. Literature Review and Hypothesis Development

3. Research Methodology

4. Results

5. Conclusion

References

키워드

Split Ratings Asymmetric Cost Behavior Earnings Management Chaebol