Loss Avoiding Earnings Management and The Matching Principle : Korean evidence
Authors:   Asia-Europe Perspective Association, Nan Hua-Ying , Park Jong-kook , Han Jung-Hee 
Published: June 2018

This study examines the relation between Loss avoiding earnings management and The matching principle between revenues and expenses. The traditional role and importance of the matching principle has diminished mainly because firms in many industries experience structural changes(ex: such as increasing overhead costs and intangible expenditures and managerial discretion).
Private interests of manager for opportunistic earnings management that is used as a means of lowering the quality of earnings, these earnings gains in terms of improving the neutrality of the matching principle of cost to improve the quality of earnings to negative (-) affect is assumed.
However, earnings management of managers to the matching principle necessarily enervate revenue costs can not affirm that. This one the Corporate managers do look at the behavior of earnings management is unknown. Net income the subject of the earnings management in the revenue is the amount after deducting the cost. Therefore, to avoid the loss of corporate earnings in the losses to increase earnings management is likely to run. In order to increase Net income and revenue and reducing costs to increase earnings management should be. However, manager's want to increase Net income, the difference between methods earnings management are likely to exist. Thus, depending on how the earnings management impact of the relevance of the matching principle can also vary.
This study, as suggested by Leading research to increase Net income loss avoidance firm are suspected sample of and otherwise firm revenue costs between the two groups the difference is the relevance of the matching principle were investigated. This the matching principle to earnings management rather than revenue costs can strengthen empirical evidence is presented.
To measure the degree of The matching principle between revenues and expenses, I rely on Dichev and Tang’s (2008) model where current-period revenue is regressed on past-period, current-period, and next-period expenses. In particular, I modify Dichev and Tang’s (2008) model by focusing on and next-period expenses. In particular, I modify Dichev and Tang’s (2008) model by focusing on the contemporaneous association (adjusted R2) between revenues and expenses.
Empirical analysis is performed for the sample consisting of 4,742 non-financial firm-years with December fiscal year that are traded over Korea Exchange for 2001-2010.
Empirical findings generally support my expectation that Loss Avoiding earnings management suspect firm for more the matching principle than otherwise. Specifically, compared to non-loss Avoiding earnings management firms, more-loss Avoiding earnings management firms show higher the matching principle between revenues and expenses.
To the extent that the objective of financial reporting is to provide information users with useful information for their economic decisions, the results in this study provide policy implication of whether such objective will be achieved effectively.