Revenue recognition timing has caused conflicts between the reliability and usefulness of accounting information and become an important issue. Unbilled receivables are inevitable in long-term construction projects,but they can also result frompremature revenue recognition for earnings management. This study evaluated the correlation between unbilled receivables and earnings management,between unbilled receivables and firm value, and between unbilled receivables with loss allowances andfirm value from 2010 to 2016. The analysis results confirmed that companies engaged inearnings management viaunbilled receivables. Unbilled receivables had a significantly negative correlation with firm value. The result implied that unbilled receivables were interpreted as a signal of poor management,and the market responded negatively. However, for companies that had established loss allowances for unbilled receivables, the correlation results were not significant or less significantthan they were for companies without loss allowances. The results revealed that the market responded less negatively when loss allowanceswere established appropriately.
The management performance of a bank is highly affected by bad debt the bank has written off related to loan receivables. When this happens, discretionary action regarding the setting of the allowance for loan losses is enabled, through which the big bath phenomenon often occurs. The present study investigates this big bath phenomenon. In particular, it attempts to determine whether it occurs when the allowance for loan losses is set during a specific period of time – namely the period in which large shareholders change and the new shareholder brings a capital influx. An examination was carried out through a case analysis for a savings bank. Z Savings Bank was selected, and for comparison and analysis, similar savings banks were studied. From 2002 to 2014, large shareholders at Z Savings Bank changed four times. The analysis revealed that when individual-to-individual shareholder changes took place, the big bath phenomenon did not occur. However, in two cases, one in 2011 and the other in 2014, individual-to-company shareholder changes took place. In these two cases, management performance showed high variations, and it was confirmed that the typical big bath phenomenon occurred. According to the analysis, this was due to an environmental factor that caused distressed debts to be reflected at their maximum value. This was done via an inspection process that was triggered when the capital held by the large companies – both Korean and foreign – was brought in. Specifically, the bad debt being written off and the allowances for loan losses were intentionally exposed in the accounting in order to provide transparency when the shareholder changes took place. This phenomenon occurred because the Financial Supervisory Commission reinforced the obligatory allowance-setting rate to ensure the soundness of assets.
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