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Korean Journal of Financial Studies 2011;40(4):579-607.
Published online September 30, 2011.
Do Insiders have Long Term Perspective in Choosing Earnings Management Method?
Sung Kyu Sohn, Jai Min Goh, Ki Wi Chung
내부자거래의 장단기 유형에 따른 이익조정 수단의 차별적 선택
손성규, 고재민, 정기위
Abstract
Prior researches as to the association between insider trading and earnings management show that insiders inflate (deflate) accounting accruals before they sell (purchase) stocks. In this study, we examine whether insiders engage in real earnings management and these two types of earnings management are different according to the time horizon when they hold stocks. We find that insiders manipulate earnings upwards using both of accounting accruals and real activity before they sell shares. This means that insiders not only manage accruals but also change a firm`s operations to benefit themselves from insider trading. However, we also figure out that insiders do not implement real earnings management in the current period when they purchase shares in the subsequent period. This is because insiders perceive the negative effect of real earnings management on firm value and it helps insiders to weaken myopic decisions. Furthermore, future firm value is lower for real earnings management than accruals- based earnings management. It represents that the abnormal business decisions have more negative effect on firm`s intrinsic value than accounting manipulation. This confirms the reason why insiders who plan to purchase shares do not prefer real earnings management. Our results contribute to the literature by providing evidence that the impact of two types of earnings management is different and insiders are aware of this difference. Therefore, this study suggests that insiders have long-term perspective to maximize their profits when choosing earnings management method in stock trading.
Key Words: 기업가치,내부자거래,발생액 이익조정,실제 영업활동을 통한 이익조정,장기적인 관점,Accrual-Based Earnings Management,Firm Value,Insider Trading,Long Term Perspective,Real Earnings Management
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