Product market competition on the effectiveness of internal control

Kim, Seon Mi; Kim, Yura

doi:10.1080/16081625.2015.1090323

Cited by 14 publications

(5 citation statements)

References 37 publications

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“…(2014) find that product market competition is positively associated with accounting conservatism, suggesting that product market competition complements the demand for accounting conservatism. Further, Kim and Kim (2017) find that product market competition reduces the effectiveness of internal controls over financial reporting and hampers the quality of a firm's information environment.…”

Section: Background and Hypothesis Developmentmentioning

confidence: 99%

Product differentiation and financial statement comparability

Cheng

2021

J Corp Accounting Finance

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This study empirically examines whether and how product differentiation affects the comparability of financial statements. Product differentiation captures the dissimilarities in business environments and operations between a firm and its peers, which naturally affects the firm's accounting comparability. Product differentiation also represents an important dimension of product market competition, which may lead to either higher or lower financial statement comparability. Using a sample of 5351 non‐financial US firms over the period of 2000–2019, my results provide consistent evidence that product differentiation decreases financial statement comparability. The results on other dimensions of product market competition also consistently show that accounting comparability decreases as product market competition weakens.

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Section: Background and Hypothesis Developmentmentioning

confidence: 99%

Product differentiation and financial statement comparability

Cheng

2021

J Corp Accounting Finance

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“…the risk of losing market share and profitability) was the key driver of this behavior. Kim and Kim (2017) also argued that competition destroys the information environment by impeding the effectiveness of internal control.…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

How does competition shape managerial decisions? Product market competition and financial statement comparability

Majeed

Yan

Tauni

2018

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Purpose The purpose of this paper is to explore the effects of competitive pressure on financial statements’ comparability (comparability) by analyzing various dimensions of competition. Design/methodology/approach The authors study the effect of competition on comparability using the comparability measure of De Franco et al. (2011) and various proxies for competition, competition from existing/potential rivals and non-price competition (NPC). Findings This study documents that competition is positively associated with comparability, and this effect is more (less) pronounced for industry followers (leaders). The authors also document that competition from existing rivals enhances comparability, but competition from potential entrants does not. Moreover, NPC is also a significant determinant of comparability. Furthermore, the competition from existing/potential rivals plays no significant role in the production of comparable financial statements in state-owned enterprises. The results are robust to alternative measures of comparability and methodological approaches. Originality/value This study is the first empirical study that documents a new channel (comparability) through which competition affects financial statements. The findings support the argument that competitive pressure acts as a governance mechanism, disciplines management and increases comparability leading to lower information asymmetry (governance view). However, the findings contest the argument that higher competition motivates managers to withhold information (proprietary cost hypothesis). By examining the effect of state ownership, this study might also help to characterize the effects of changes in corporate objectives on managerial decisions related to financial reporting.

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“…Li (2010) also shows that market competition improves disclosure quality. On the other hand, firms doing business in the competitive market seem to have significant internal control weakness, indicating that competitive market decreases internal control effectiveness (Kim & Kim, 2015). However, little is known to date about the association between a firm's product strategy and RAEM.…”

Section: Differentiation Strategy and Raemmentioning

confidence: 99%

Differentiation Strategy, CSR, And Real Activities Earnings Management: Evidence From Korea

Chun

Cho²

2017

JABR

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We empirically investigate whether a differentiation strategy constrains real activities earnings management (RAEM). Further, considering corporate social responsibility (CSR) activities are a popular tool of differentiation strategy, we examine whether interactive synergy between CSR activities and the differentiation strategy strengthens the negative relationship between differentiation strategy and RAEM. Using a sample of 659 firm-year observations of Korean manufacturing listed firms during 2005-2010, we find that differentiation strategy is negatively associated with RAEM, suggesting that firms pursuing a differentiation strategy are likely to refrain from managing earnings using RAEM that goes against their strategy. We also observe that interactive synergy between differentiation and CSR strengthens the negative relationship between differentiation strategy and RAEM, implying that synergy effect between CSR and differentiation strategy even more constrains RAEM that is in conflict with both CSR and differentiation strategy. These findings are robust after we perform sensitivity tests. This study contributes to the literature by providing the first evidence on the relationship between differentiation strategy and RAEM and the moderating role of CSR activities on the relationship.

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Product market competition on the effectiveness of internal control

Cited by 14 publications

References 37 publications

Product differentiation and financial statement comparability

Product differentiation and financial statement comparability

How does competition shape managerial decisions? Product market competition and financial statement comparability

Differentiation Strategy, CSR, And Real Activities Earnings Management: Evidence From Korea

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