Articlediamond2019

The effect of financial leverage on real and accrual-based earnings management in Vietnamese firms

65 citations0/0 files storedEconomics & Sociology

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Auditing, Earnings Management, Governance Accounting and Organizational Management Corporate Governance and Financial Management

Abstract

Our research examines the effect of leverage on the form and extent of earnings management in Vietnamese listed firms.We use panel data of 241 companies on Vietnam stock markets in the period from 2010 to 2016 (1687 firm-years) and conduct GMM regression.Four models are employed to estimate the level of discretional accruals and real earnings management.Our research finds a positive relationship between leverage and earnings management, which is consistent to "debt hypothesis".Furthermore, a preference for real earnings management over accrualbased earnings management is observed among highly leverage firms.The findings notice the substitution between these two forms of earnings management and reinforce full attention to both accrual-based earnings management and real activities manipulations rather than to separated earnings management strategy.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1991Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations 1986Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers 1977Determinants of corporate borrowing 1996Agency costs of free cash flow, corporate finance, and takeovers 1981Biases in Dynamic Models with Fixed Effects 2005Performance matched discretionary accrual measures 1995Detecting Earnings Management.

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