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Largest Shareholder Ownership and Downward Real‐activity Earnings Management in Korean Seasoned Equity Offerings Firms
Author(s) -
Kim SuIn,
Byun JinHo,
Shin HyeJeong
Publication year - 2018
Publication title -
asia‐pacific journal of financial studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.375
H-Index - 15
eISSN - 2041-6156
pISSN - 2041-9945
DOI - 10.1111/ajfs.12224
Subject(s) - shareholder , business , equity (law) , earnings , stock (firearms) , earnings management , monetary economics , accounting , finance , economics , corporate governance , mechanical engineering , political science , law , engineering
We investigate whether firms’ real‐activity earnings management ( REM ) around seasoned equity offerings ( SEO s) and stock return performance after SEO s are different for the largest shareholders’ participation in SEO s. Using Korean firms, we find that an increase in the largest shareholders’ ownership is negatively related to REM in the quarters preceding an SEO. Additionally, positive market responses to SEO with the largest shareholders’ ownership increases are mitigated by the level of REM . We conclude that firms manage earnings in favor of the largest shareholders rather than other existing shareholders.