ScholarWorks@숙명여자대학교

초록

This study examines the association between a firm’s cost structure—particularly a rigid cost structure characterized by a high proportion of fixed costs in selling and administrative expenses—and earnings management behavior. Firms with a higher fixed cost ratio tend to exhibit greater operating leverage, meaning that even small changes in sales can lead to amplified fluctuations in operating income. Such earnings volatility may be perceived as a negative signal by capital market participants, creating strong managerial incentives to maintain stable reported earnings. Furthermore, since fixed cost components often include items such as R&D expenditures and depreciation, which allow for substantial accounting discretion, firms with rigid cost structures are more likely to operate in environments conducive to earnings management. Based on this perspective, the study hypothesizes and finds that firms with more rigid cost structures are more likely to engage in accrual-based earnings management. Additional analysis partitioning the sample based on the sign of discretionary accruals further suggests that managers in high fixed-cost firms are likely to employ both income-increasing and income-decreasing management, depending on their reporting incentives.

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