Earnings management by controlling shareholders who plan for stock gifts: Korean evidence

We examine whether controlling shareholders who plan for stock gifts would manage earnings in an attempt to depress stock prices prior to gifting stocks to related parties. Gift taxes are levied based on the average market value of the stock transferred for a certain period known as the valuation pe...

Full description

Saved in:
Bibliographic Details
Published in:Asia-Pacific journal of accounting & economics 2018-05, Vol.25 (3-4), p.313-329
Main Authors: Lee, Su Jeong, Park, Sung Ook, Jung, Woon-Oh
Format: Article
Language:English
Subjects:
Donations
Earnings management
Gift taxes
Related parties
Securities prices
Stockholders
Studies
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:We examine whether controlling shareholders who plan for stock gifts would manage earnings in an attempt to depress stock prices prior to gifting stocks to related parties. Gift taxes are levied based on the average market value of the stock transferred for a certain period known as the valuation period. This process enables controlling shareholders to be incentivized to depress stock prices during this period and thereby alleviate tax burden. We discover that the firms that have stock gift transactions in the sample significantly decrease their discretionary accruals in the quarters that precede and/or overlap with the valuation period. Earnings management that decreases income is statistically significant when stock gifts are made for individuals who are the related parties and family members of controlling shareholders. By contrast, we do not observe a similar earnings-management behavior in cases where stock gifts are donated to institutional donees who are not subject to gift taxes.
ISSN:1608-1625
2164-2257
DOI:10.1080/16081625.2017.1322909