Purpose: This study looks at the relevance between discretionary revenue and book-tax differences (hereafter BTDs). While the study of earnings management, which focused on discretionary accruals and real earnings management, has largely made, it has not yet been actively researched on discretionary revenues. Therefore, it was believed that discretionary revenue would expand the preceding study by looking at its relevance to BTD, known as financial reporting quality and measures of tax avoidance. In general, prior research suggested that earnings management make BTDs larger. Thus, the relationship between discretionary revenue and the amount of BTD is predicted positive. Research design, data and methodology: To this end, the method of discretionary revenues was used and BTDs measured in four ways. First, Earnings before income tax – estimated taxable income divided by total asset (BTD). Second is fractional rank variable of BTDs (FBTD). Third is Indicator variable equals 1 if the firm-year has a positive BTD, 0 otherwise (PBTD). Fourth is that Indicator variable equals 1 if the firm-year has a BTDs in top(bottom) quartile, 0 otherwise (LPBTD, LNBTD). 4,251 samples were analyzed in the Korean Security market (KOSPI) from 2003 to 2014. Results Empirical analysis shows that BTDs increases as discretionary revenue increases. These results were equally observed when BTDs was measured as a ranking variable or as a indicating variable. These results indicate that earnings management through the revenue of managers exacerbate the quality of financial reporting. Conclusions: In sum, discretionary revenues can be used as an indicator of making BTDs larger and meaningful as the first study of the Korean capital market where discretionary revenues affect accounting information quality. Investors need to increase interest in discretionary revenues because intervention in financial reporting through revenue accounts by managers can increase information asymmetry and agency costs. This means that studies on discretionary revenues that have been relatively small should be expanded. The results also provide important implications for the relevant authorities and investors. Despite these benefits, however, measurement error problems with estimates still appear as limited points, and prudent interpretations are required, and additional follow-up studies are needed in that variables that are not yet considered in this study may affect our findings.

The purpose of this study is to test the effect of business strategy on valuation error. Business strategy includes managerial decision making and managerial tendency. In previous research, there is a negative relationship between business strategy and accounting quality. In this study, we try to confirm whether strategy tendencies affected valuation errors. In order to confirm empirically between business strategy and overvaluation, we use 8,117 firms that between 2006 and 2017 and listed in KSE and KOSDAQ. We calculated business strategy which is introduced by Bentley, Omer, and Sharp (2013). We also used the overvaluation method introduced in Rhodes-Kropf, Robinson, and Viswanathan (2005). The results show that the more the leading business strategy is, the greater the value error becomes. In the case of dividing into leading and defensive companies, the lead firms showed a significant positive correlation with the valuation errors, while the defensive firms showed the negative relationship with overvaluation. This study examined the business strategy and the overvaluation. we confirmed whether the management strategy deepens the evaluation error caused by the firm characteristics. The results are meaningful that we extended the study on the quality of financial reporting of leading strategic firms.