Inkyung Yoon

The purpose of this study is to investigate the relationship between pay disparity and a company’s investment inefficiency, and to explore the moderating influence of investment in internal control personnel on this relationship. The global concern over pay disparity has intensified as executive compensation soars to unparalleled heights, while employee wages remain static. Utilizing a fixed-effect regression model and analyzing 5,407 observations from Korean listed companies between 2018 and 2020, the study shows a positive association between pay disparity (coef = 0.034, p-value < 0.01) and investment inefficiency, with pay disparity increasing the level of investment inefficiency by fostering overinvestment. Furthermore, the study shows that the interaction term between pay disparity and quantitative (coef = –0.246, p-value < 0.01) and qualitative (coef = –2.104, p-value < 0.01) investments in internal control personnel is negative and significant, indicating that the positive link between pay disparity and investment inefficiency is lessened when there is a higher quantitative and qualitative investment in internal control personnel. By offering a more comprehensive understanding of the conflicting evidence about the impact of pay disparity and the role of investment in internal control personnel in moderating the negative effect of pay disparity on investment efficiency, this study contributes to the existing literature. The findings of the study suggest that companies aiming to minimize investment inefficiency should consider not only addressing pay disparity but also investing in internal control personnel.

Although internal control systems in firms aim to provide reasonable assurance regarding objectives related to operations, reporting, and compliance, research focusing on operational efficiency is limited. This study investigates the impact of both quantitative and qualitative investments in internal control personnel on a firm’s operational efficiency. Utilizing a fixed-effect regression model, the Heckman (1979) two-stage model, and a two-stage least squares procedure, this study analyzes 4,471 firm-year observations from Korean listed firms from 2018 to 2020. The findings indicate a positive association between investment in internal control personnel and operational efficiency. This relationship remains robust even under sensitivity tests and concerns of potential endogeneity, as confirmed by the Heckman and two-stage least squares models. Specifically, the Heckman model shows that the ratio of the number of employees (coef = 0.023, t-value = 5.20) and certified public accountants (coef = 0.256, t-value = 5.43) responsible for internal control is positively associated with operational efficiency. Average work experience (coef = 0.002, t-value = 1.84) of internal control personnel is also positively related to operational efficiency. This study provides empirical evidence for the significance of investing in internal control personnel to boost operational efficiency and suggests that firms should consider both quantitative and qualitative aspects of internal control.

The study aims to investigate the effect of research and development (R&D) capitalization on revenue-expense matching in the pharmaceutical and biotechnology industries, with particular attention to the moderating role of corporate governance and the influence of regulatory intervention. While capitalizing R&D expenditures enhances the relevance of financial information and positively impacts firm value, it also increases the risk of earnings management, potentially disrupting revenue-expense matching. Using a fixed-effects regression model, this study analyzes 1,350 firm-year observations from Korean listed firms in the bio-pharmaceutical sector from 2012 to 2022. The sample includes firms with financial statements, auditor data, and detailed disclosures on R&D expenditures, encompassing capitalized R&D costs, R&D expenses recognized in income statements, and those classified as manufacturing costs. The results indicate that R&D capitalization generally weakens revenue-expense matching in these industries. However, the adverse effects are mitigated by the effective implementation of corporate governance mechanisms. Additionally, the Financial Supervisory Service’s thematic supervision of R&D accounting practices has significantly improved revenue-expense matching. Prior to the supervision period (2012–2017), firms exhibited significant discretionary capitalization practices, undermining revenue-expense matching. Following the supervision (2018–2022), improved adherence to accounting standards has enhanced matching quality, underscoring the regulatory intervention’s effectiveness. These findings contribute to the literature by demonstrating that while discretionary R&D capitalization can impair revenue-expense alignment, strong corporate governance and adherence to accounting standards can offset these negative effects. The study provides valuable implications for future research and industry practices, particularly in navigating the trade-offs associated with R&D capitalization.

Acknowledgment
This study was supported by Chungnam National University.