4분기와 1~3분기 중간이익의 차별적 특성: 재량적 발생과 이익예측성 = The Differential Properties of Fourth-Quarter Versus Earlier-Quarters Earnings: Discretionary Accruals and Earnings Predictability

다국어 초록 (Multilingual Abstract)

This study investigates the differential properties of fourth-quarter vs. earlier-quarters earnings since two periods have differences in the level of external audit, the deadline for financial statements, and the preparement of separate quarterly financial statements. Our empirical analyses use 7,120 firmquarter observations in the 2003-2006 period. We examine the quarterly trend of main accounting items such as sales, income from operations, net income, cash flows from operations, and total accruals and compare the signs and the sizes of discretionary accruals across quarters in order to reveal the direction and the magnitude of earnings management. Also, we explore analysts` quarterly earnings forecasts and their forecast errors to find if their forecasts reflect the differential properties of quarterly earnings. The cash flows from operations are lowest in the first quarter and highest in the fourth quarter, while the trend of main earnings accounts shows that quarterly earnings are highest in the first or the second quarter and lowest in the fourth quarter. This implies that companies increase accounting accruals in the beginning of a fiscal year and decrease accruals in the final quarter, thereby smoothing quarterly earnings during the year. Further analyses reveal that the decreasing trend of quarterly accruals in a year derives from current accruals rather than non-current accruals. The comparison of quarterly discretionary accruals indicates that the mean and the median of discretionary accruals are positive and highest in the first or the second quarter and are negative and lowest in the fourth quarter. Additional regression results show that the fourth-quarter discretionary accruals are negatively associated with the first-quarter ones. This suggests that listed companies increase quarterly earnings through positive accruals in the first half of a fiscal year and decrease earnings through negative accruals in the fourth quarter prior to external audit in order to reverse the optimistic accruals recognized in the earlier quarters or to recognize negative accruals deferred from the earlier quarters. Net earnings above the upper 5th percentile is relatively evenly distributed across quarters, whereas 46.63 percent of the net earnings below the lower 5th percentile is centered in the fourth quarter. This distribution is similar to that of discretionary accruals above the upper or below the lower 5th percentile. Consequently, listed companies seem to report big baths most frequently in the fourth quarter through big negative discretionary accruals. Also, the analysis of analyst forecasts reveals that analysts are in general aware of the trend of quarterly reported earnings and that earnings forecast errors are greatest in the fourth quarter in which big baths and the adjustments of previously recognized positive accruals or deferred negative accruals from earlier quarters often occur.

참고문헌 (Reference)

1 Kim W. H, "The significance and main issues of interim financial reporting" Printed in Korean 46 : 92-109, 2002September

2 Collins W, "The predictability of interim earnings over alternative quarters Journal of Acounting Research 22" 467-479, 1984

3 Han B. H, "The meaning of the dispersion in analysts’ forecasts on forecast bias and future stock prices" Printed in Korean 21 (21): 1-20, 1996

4 Becker C, "The effect of audit quality on earnings management" 15 (15): 1-24, 1998

5 Sohn, "The association between revisions of financial analysts’ earnings forecasts and security-price changes Journal of Accounting & Economics 13" 341-363, 1990

6 Korea Accounting Standards Board, "Statement of Korean Accounting Standard" (2) : 2001

7 Kothari S. P, "Performance matched discretionary accrual measures" 39 : 163-197, 2005

8 Song I. M, "Intermediate Accounting" Seoul: Shinyoungsa. [Printed in Korean] 2007

9 Sohn S. K, "Information content study on the review opinions of semi-annual financial statements" Printed in Korean 30 (30): 1-33, 2005

10 Hribar P, "Errors in estimating accruals: implications for empirical research" 40 (40): 105-134, 2002

11 Song I. M, "Earnings management of loss avoidance in interim financial reporting" Printed in Korean 2007

12 Jones J, "Earnings management during import relief investigation Journal of Accounting Research 29" 1991193-228

13 Dechow P, "Detecting earnings management" 193-225, 1995April

14 Kross W, "An investigation of seasonality in stock price response to quarterly earnings announcements Journal of Business" 649-675, 1990

15 Sohn S. K, "A study on the efficiency of analysts’ earnings forecasts" Printed in Korean 21 (21): 1-19, 1996