The impact of corporate governance on earnings management in Korea / Hyo Jin Kim and Soon Suk Yoon

The purpose of this study is to analyze whether an improvement in corporate governance can mitigate earnings management. Our study further investigates corporate governance factors that mitigate the earnings management practices. of 2004 and 2005. The degree of earnings management is measured by
discretionary accruals and total accruals. We use mean difference tests and
regression analyses to investigate the impact of corporate governance on
earnings management. The main variables of interest in our study are the
activities of outside directors in board meetings, the establishment of an audit
committee, concentrated ownership and foreign ownership.
We find that the independence of the board of directors, ownership
concentration, foreign ownership, leverage ratio and firm size significantly
affect discretionary accruals and total accruals. In sum, our results partially
support the hypothesis that corporate governance and earnings management
are significantly related. However, we find that the adoption of an audit
committee does not significantly affect the degree of accruals.