The effects of size‐dependent policy on the sales distortion reporting: Focusing on the discretionary sales management of Korean SMEs

A‐Reum Jung and Do‐Jin Jung

Managerial and Decision Economics, 2022, vol. 43, issue 2, 301-320

Abstract: This study analyzes whether firms manipulate size reports in order to seem as if they have not grown due to size‐dependent policies. The small‐and‐medium enterprises (SMEs) support policies of Korean provide various benefits such as tax reduction to companies with a sales lower than a certain standard. SMEs thus have an inventive to discretionally manage sales figures to hold on to such benefits. This study empirically tests on firms listed in the Korean Stock Exchange from 2006 to 2016 with models by Stubben (2010, 10.2308/accr.2010.85.2.695) and Giedt (2017, doi.org/10.1111/abac.12119) as a proxy for discretionary revenue. Results from analysis show that SMEs tend to reduce their sales discretionally. SMEs with large sales lower these numbers more drastically than SMEs with small sales, since they are at higher risk of being newly classified as a large firm. Such results suggest that SMEs discretionally lowered sales figure to hide their growth, unlike what is known as Peter Pan Syndrome.

Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:wly:mgtdec:v:43:y:2022:i:2:p:301-320

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