The Effect of Financial Reporting Quality on Firm Performance in Preemptive Corporate Restructuring Deals in Korea

Abstract

Purpose - The purpose of this study is to examine the effect of financial reporting quality on firm performance in preemptive corporate restructuring deals in Korea. Design/methodology/approach - The 347 corporate restructuring deals examined in this study was extracted from the S&P Capital IQ database. Multiple regression analysis was performed. Findings - High-quality financial reporting of preemptive corporate restructuring firms is associated with more profitable corporate restructuring, as measured by announced returns. High quality accounting information transparently reflects the past and present financial position and performance, thereby these enhance the estimation of future cash flows of the corporate restructuring firms, and thus this reduces uncertainty about the firms. Therefore, the agreed-upon price about the assets to be sold between the corporate restructuring firm and acquirer is higher and this leads to positive corporate restructuring performance. In addition, the importance of financial reporting quality increases when corporate restructuring firms have high debt ratios. Research Implications or Originality - The quality of accounting information is an important success factor in corporate restructuring.