Real versus Accrual-Based Earnings Management and Implied Cost of Equity Capital

This article is a demonstrative research on the motivation and method for earnings management in the Korean defense industry and its connection with the cost of equity capital. The data for this article comes from the Korean DICS (Defense Integrated Cost System). The difference between the cost data submitted by defense corporations and those verified by DAPA (Defense Acquisition Program Administration) serves as an indicator of earnings management; such a direct measurement of earnings management distinguishes this research from previous studies focusing on indirect indicators of earnings management, such as discretionary accruals. This article purposefully names such a specific form of earnings management as ‘cost adjustment’ that takes advantage of the difference between the submitted cost and the verified cost. The result of the research shows that cost adjustment activities in the defense industry are proportional to the capital cost required by shareholders. It is also notable that the cost adjustment activities in the defense industry are mostly done by making use of direct costs, in contrast to other industries utilizing indirect costs, which are hardly traceable. As a result of cost adjustment to meet short-term target profit, the long-term sustainability of the company would get impaired from the inflated costs in direct cost adjustments.

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Equity-Based Compensation For Outside Directors And Cost Of Equity Capital

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v30i1.8277 ◽

2013 ◽

Vol 30 (1) ◽

pp. 15 ◽

Cited By ~ 1

Author(s):

Induck Hwang ◽

Hyungtae Kim ◽

Sangshin Pae

Keyword(s):

Lower Cost ◽

Negative Relationship ◽

Equity Capital ◽

Cost Of Equity Capital ◽

Cost Of Equity ◽

Outside Directors ◽

Total Compensation ◽

The Cost ◽

Implied Cost Of Equity

<p>This study provides evidence on the association between equity-based compensation for outside directors and the implied cost of equity capital. Based on the premise that equity-based compensation for outside directors better aligns the interests of the directors with those of shareholders, we investigate whether the more equity-based compensation is granted to outside directors, the lower cost of equity capital firms enjoy. We find a negative relationship between the proportion of equity-based compensation to total compensation for outside directors and the cost of equity capital. Our findings suggest that equity-based compensation for outside directors, by motivating the directors to play their monitoring role more faithfully, reduces agency risks resulting in the lower cost of equity capital.</p>

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PENGARUH ASIMETRI INFORMASI DAN MANAJEMEN LABATERHADAP BIAYA MODAL EKUITAS PADA PERUSAHAAN MANUFAKTUR YANG TERDAFTAR DI BURSA EFEK INDONESIA (BEI) TAHUN 2013-2015

EKOMBIS REVIEW: Jurnal Ilmiah Ekonomi dan Bisnis ◽

10.37676/ekombis.v6i1.431 ◽

2018 ◽

Vol 6 (1) ◽

Author(s):

Yudi Partama Putra

Keyword(s):

Earnings Management ◽

Information Asymmetry ◽

Stock Exchange ◽

Equity Capital ◽

Manufacturing Companies ◽

Cost Of Equity Capital ◽

Cost Of Equity ◽

Capital Costs ◽

The Cost ◽

Variable Information

Yudi Partama Putra; This study aims to (1) determine the effect of asymmetry of information on costs of equity at manufacturing companies listed in Indonesia Stock Exchange period 2013-2015, (2) know the effect of earnings management on equity capital costs at manufacturing companies listed on the Stock Exchange in 2013- 2015, (3) determine the effect of information asymmetry and earnings management simultaneously on the cost of equity capital in manufacturing companies listed on the Indonesian Stock Exchange 2013-2015. The population in this study is manufacturing company listed on the Indonesia Stock Exchange. While the sample selection is taken by using purposive sampling method. The classical assumption test used in this research is using normality test, multicollinearity test, heteroscedasticity test, and autocorrelation test. Analysis of data used to test the hypothesis is multiple linear regression analysis techniques. Based on the results of the research indicate that (1) information asymmetry has positive and significant effect to cost of equity (2) earnings management has no significant effect on Cost of equity. F test results show that the variable information asymmetry and earnings management simultaneously affect the cost of equity capital. The result of determination coefficient test with R square shows that variable information asymmetry and earnings management influence cost equity capital equal 10,7%, while the rest 89,3% influenced by other variables.Key Words: Information Asymetry, Earnings Management, and Cost Of Equity.

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