<p class="s0">This study examines the investment efficiency of private and public firms in Korea. Prior studies suggest that the investment efficiency of firms can change according to the companies' agency problem caused by the existence of information asymmetry. Moreover, they argue that there is less information asymmetry in private firms than in public firms, because the major investors of private firms have access to the internal information of the companies. We extend these studies by comparing the investment efficiency of private and public firms using an extended audited financial dataset of Korean firms. Our results show that the investment efficiency of private firms is higher than that of public firms, because the agency problem of the former is lower than that of the latter. Additionally, private firms invest more efficiently in R&amp;D and capital expenditures than public firms. Further, when we use alternative exogenous firm-specific proxies to measure the likelihood of over or under-investment, the results are substantially consistent with the main results. Finally, we re-test our hypotheses by including financial reporting quality proxies as control variables in the main regression model. These investigations further support our main results. Our study contributes to emerging literature on the difference between private and public firms by showing that the investment efficiency of the former is different from that of the latter. In addition, this study provides additional evidence on the agency problem that affects firms' investment decisions.</p>

This study examines the effect of the abnormal pay dispersion on earnings management. Prior studies find that pay dispersion among top executives affect firm performance and executive turnover. We expect that abnormal pay dispersion among top executives affects financial reporting practice as well as firm performance and turnover and provide evidence of positive association between abnormal pay dispersion and earnings management. This result suggests that executives are more likely to be engaged in earnings management to increase their compensation when they feel unfairness from the relative level of compensation. This finding helps financial statement users interpret firm performance and anticipate future outcomes by implying that additional managerial incentives for financial reporting are derived from internal pay dispersion. Our finding that abnormal pay dispersion leads to higher agency costs should also be of interest to shareholders.

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