Impact of human resource characteristics of internal accounting system on post-earnings announcement drift: Evidence from Korea

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When companies invest in their internal accounting personnel, investors place greater trust in disclosed earnings information and highly regard a company’s information transparency. This results in prompt investment decisions regarding the company. Consequently, earnings information will be immediately reflected in stock prices, thereby reducing stock price drift. The purpose of this study is to examine the impact of investments in establishing and operating internal accounting systems on investors’ responses to the mitigation of stock price drift. The study focused on firms listed on the Korea Exchange from 2011 to 2018 and constructed a regression model using the cumulative abnormal return following earnings disclosure dates for 30, 60, and 120 days as the dependent variable, with the characteristics of internal accounting personnel as independent variables. The analysis reveals that companies with many internal accounting personnel and position experts, such as accountants, within their internal accounting control systems, experience a significantly lower stock price drift. The coefficients of the interaction terms between internal accounting personnel characteristics and standardized unexpected earnings are positive and significant at the 1% level for all cumulative abnormal return values. The findings of the study indicate that as efficiency is secured, stemming from the scale of personnel managing internal accounting control systems and their expertise, market investors’ understanding and trust of accounting information also increase. Investors, as information users, react promptly to the earnings information disclosed by the company, leading to a decrease in stock price drift.

Acknowledgments
This work was supported by the Ministry of Education of the Republic of Korea and the National Research Foundation of Korea (NRF-2021S1A5A8070518).

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    • Table 1. Descriptive statistics (N = 4,813)
    • Table 2. Pearson’s correlation (N = 4,813)
    • Table 3. Investment in internal accounting personnel and stock price drift (focusing on the size of internal accounting personnel)
    • Table 4. Investment in internal accounting personnel and stock price drift (focusing on whether or not experts are included in the system)
    • Table 5. Investment in internal accounting personnel and stock price drift (comparison of companies with high information asymmetry and companies with low information asymmetry)
    • Table A1. Variable definitions
    • Conceptualization
      Haeyoung Ryu, Soo-Joon Chae
    • Formal Analysis
      Haeyoung Ryu, Soo-Joon Chae
    • Funding acquisition
      Haeyoung Ryu
    • Methodology
      Haeyoung Ryu, Soo-Joon Chae
    • Project administration
      Haeyoung Ryu
    • Resources
      Haeyoung Ryu
    • Visualization
      Haeyoung Ryu
    • Writing – original draft
      Haeyoung Ryu, Soo-Joon Chae
    • Writing – review & editing
      Haeyoung Ryu, Soo-Joon Chae
    • Data curation
      Soo-Joon Chae
    • Investigation
      Soo-Joon Chae
    • Software
      Soo-Joon Chae
    • Supervision
      Soo-Joon Chae
    • Validation
      Soo-Joon Chae