Abstract
This study investigates whether recognized accounts receivable (AR) factoring is more value relevant than disclosed AR factoring. After the adoption of the Korean International Financial Reporting Standards (K-IFRS), AR factoring is recognized as short-term debt, thus increasing firms’ leverage ratio. Using cross-sectional equity valuation regressions, we find that recognized AR factoring is value relevant, unlike disclosed AR factoring. Moreover, the market value of equity and AR factoring are more significantly correlated in highly leveraged firms than in less-leveraged ones. Accounting data are important from the perspective of big data. In the accounting industry as well, professionals started realizing the implications of big data. The COVID-19 pandemic has created a health crisis and wreaked havoc in an already-fragile global economy. Although there is no way to predict exactly what the economic damage from the COVID-19 pandemic will be, there must be widespread agreement that it will have severe financial impact on every company. Global financial markets have suffered dramatic falls due to the pandemic, and highly leveraged companies are in serious need of financing. While diving deeper, sound debt management and debt transparency are critical to ensure debt sustainability. Thus, companies would be willing to use AR factoring in order to overcome this financial status. This study also shows that highly leveraged firms decrease AR factoring after K-IFRS adoption.
Highlights
As credit sales and receivables increase significantly, companies frequently sell their receivables to financing companies and banks, referred to as factors, for cash
In accounts receivable (AR) factoring with recourse, it can be treated as a sale under the Korean Generally Accepted Accounting Principles (K-GAAP), whereas it must be treated as borrowing under the Korean International Financial Reporting Standards (K-IFRS)
Using a sample of Korean Stock Exchange (KSE)—and Korea Securities Dealers Automated Quotations (KOSDAQ)—listed firms for the period 2004–2012, we examine whether the value relevance of AR factoring differs before and after K-IFRS adoption
Summary
As credit sales and receivables increase significantly, companies frequently sell their receivables to financing companies and banks, referred to as factors, for cash. When a company sells accounts receivable (AR) to a factor, the transaction may be treated as: (i) a sale or (ii) borrowing money. In Korea, most companies sell their AR with recourse because factors generally require recourse factoring rather than non-recourse factoring [1]. In AR factoring with recourse, it can be treated as a sale under the Korean Generally Accepted Accounting Principles (K-GAAP), whereas it must be treated as borrowing under the Korean International Financial Reporting Standards (K-IFRS). If AR factoring is treated as a sale, AR is removed from the Statement of Financial Position (SFP) and is disclosed in footnotes. If AR factoring is treated as borrowing, AR is recognized as short-term debt. Disclosure practices of AR factoring before K-IFRS and its recognition after K-IFRS provide a unique setting for comparing the valuation implications of the two treatments
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
