The Stock Price Relevance of Accounting Information for the Companies Designated as “Issues for the Administration” according to the Causes of Designation

Abstract

The purpose of this research is to examine the stock price relevance of accounting information for the companies designated as “Issues for Administration” in the KOSPI market of South Korea. First, the value relevance of accounting information was compared between the designated companies and non－designated companies from five years prior to designation. Second, the value relevance of accounting information was compared according to the causes of designation－financial causes and non－financial causes. Third, as additional analyses, the value relevance of accounting information was compared for the sample in which designated companies were 1 to 1 matched with non－designated by propensity score matching method. The value relevance of accounting information was analyzed by the basic Ohlson model and the extended Ohlson model, which includes debts ratio and size as additional variables to the basic Ohlson model. The 174 designated non－financial firms are sampled out of the firms listed on the KOSPI between 2003 and 2015. The stock price relevance of designated companies which were disclosed as “Issue for Administration” in the Korea Investors’ Network for Disclosure System (http://kind.krx.co.kr) was compared with that of the non－designated companies(n＝7, 081). For the non－designated companies, the accounting information(EPS, Book Value, Size, and Debt ratio) has significant effect on the stock price during all the years, and the debt ratio affects the stock price in the reversed U－shape. However, for the designated companies, the basic model was insignificant in t－4 year, and only BPS and size had effects on the stock price. The value relevance of accounting information between the designated companies and the non－designated companies was different. The value relevance of accounting information was slightly different as the causes of designation－financial causes and non－financial causes. The EPS and debt ratio has no effect on the stock price in both groups while the size has significant effect in both groups. And the net book value showed difference between the financial and the non－financial cause group. When the designated companies were matched with non－designated companies by propensity score, the results were a little different from non－matched sample. In the nondesignated group, only BPS and Size were significant while EPS and Debt ratio had no effect on the stock price. The value relevance of accounting information was different between the designated companies and non－designated companies. Considering these results, the value relevance of accounting information is different in the designated companies and the non－designated companies, and the value relevance of accounting information also varies according to the causes of designation. It is needed for control group to have more elaborate sampling methods in order to avoid the sampling bias in further studies.