Sun-ae Cho

This study investigates the relationship between the corporate governance report (CGR) compliance rate and a company’s accounting conservatism, utilizing the CGR compliance rate as a novel method to evaluate the effectiveness of corporate governance practices. Given the challenges of applying global indices to measure corporate governance in the Korean market, this study focuses on the CGR compliance rate as a key indicator. Utilizing the ordinary least squares (OLS) regression model, specifically the Ball and Shivakumar (2005) model widely employed in previous studies to assess accounting conservatism, this paper conducts empirical analyses based on 784 observations from Korean listed firms between 2018 and 2021. The main analysis reveals a positive association between the CGR compliance rates (coef = –2.416, p-value < 0.01) and accounting conservatism. A fixed-effect model and a propensity score matching (PSM) model also show a positive association between the CGR compliance rates, respectively (coef = –2.507, p-value < 0.01; coef = –3.118, p-value < 0.1) and accounting conservatism. This study proves that firms with high CGR compliance rates tend to promptly recognize financial losses in financial reporting, thereby safeguarding investors. This suggests that investors should consider the CGR compliance rates when evaluating potential investments. Overall, these findings contribute to validating the CGR compliance rates as a valuable proxy for assessing corporate governance practices in Korean firms.

This study examines the influence of the mandatory disclosure of corporate governance reports on stock retirement in Korea. Given the challenges of applying stock repurchasing to measure shareholder return policy in the Korean stock market, this study focuses on stock retirement as a key indicator to examine the effectiveness of introducing the corporate governance report on shareholder return policy. Employing the Difference-in-Differences approach followed, this paper conducts empirical analyses based on 5,932 observations from 2011 to 2020. The main findings indicate a significant increase in stock retirement by companies implementing mandatory disclosures of corporate governance reports (coef = 0.018, p-value <0.01) compared to companies that do not disclose them. The results of the alternative measures for stock retirement and propensity score matching (PSM) model also present a positive association between mandatory disclosure of corporate governance reports and stock retirement, respectively (coef = 0.400 and 1.421, p-value <0.01; coef = 0.019, p-value < 0.1). This study provides evidence to support the notion that introducing corporate governance reports enhances overall shareholder returns, leading to an increase in stock retirement. Moreover, these findings validate that stock retirement is an adequate proxy for analyzing the level of shareholder returns in Korean firms.

This study examines the relationship between CEO overconfidence and discretionary deferred tax assets (DTAs) using a method that separates DTAs into discretionary and non-discretionary components. Based on data from publicly listed companies in South Korea between 2017 and 2021, the study analyzes how overconfident CEOs influence the recognition of DTAs. Under K-IFRS 1012, DTAs should be recognized only when there is sufficient future taxable income with a high probability; however, the lack of explicit guidelines on what constitutes “high probability” leaves room for subjective interpretation by management. Overconfident CEOs, driven by excessive optimism and upward-biased forecasts of future cash flows, may over-recognize DTAs. The main analysis, incorporating industry and year-fixed effects, reveals a positive relationship between CEO overconfidence and discretionary DTAs (coef = 0.003, p-value < 0.05). This tendency is more pronounced in firms with higher marginal tax rates compared to those with lower rates (coef = 0.004, p-value < 0.005) and in firms with lower levels of outside directors (coef = 0.002, p-value < 0.1). Additionally, analyses using alternative variables for CEO overconfidence and discretionary DTAs, as well as propensity score matching (PSM) models, yield consistent results. Overall, this study underscores the critical role of managerial characteristics in shaping accounting judgments and decisions. By providing empirical evidence on the impact of cognitive biases such as overconfidence on financial reporting quality, the findings contribute to the broader discourse on corporate governance and offer practical implications for policymakers, investors, and regulators.