Factors Affecting the Earnings Management: The Case of Listed Firms in Vietnam

Abstract

Research purpose:This study identifies factors affecting earnings management in the case of listed firms in Vietnam.Six factors, which include the number of management board members, the duality relationship chairman-director, auditor size, financial performance, firm size and financial leverage, are examined. Research motivation:Earnings management greatly affects the interests of shareholders in specific and the company in general.It erodes investor confidence in the stock market.Moreover, the goal set by the Government and the Ministry of Finance to "protect investors" is also not achieved.Among the published earnings management literature, there are few recent studies that examine the possible effects of earnings management technique on the developing market, determining whether earnings management occurs and whether there is an incentive to manipulate earnings.The research is motivated by the question of which factors affecting earnings management specifically in Vietnam.Research design, approach and method: Data of 147 manufacturing firms listed on Ho Chi Minh Stock Exchange from 2017 to 2019 is extracted from Finnpro platform, resulting in 441 firm-year observations.Panel data is processed using model of Jones (1991) and the hypothesis is tested using regression model with Eviews program. Main findings:The results show that two factors which are the duality relationship chairman-director and financial leverage have positive effects on earnings management.In contrast, two factors including the number of members in board of management and auditor size are negatively related to earnings management, while financial performance and firm size are not determinants of earnings managements. Practical/managerial implications:This study provides more evidence regarding earnings management and proposes some recommendations and implications to stakeholders about the transparency and quality of financial reporting.For example, companies should strengthen better corporate governance mechanisms; investors need to equip themselves with knowledge of accounting, financial analysis, and earnings management; and State agency should develop a roadmap for the "Investor Protection Law" to reduce the earnings manipulation behaviors.

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