The impact of audit quality and state ownership on accrual-based earnings management: evidence from Vietnam
Main Article Content
Abstract
This paper examines the impact of audit quality and state ownership on accrual-based earnings management in Vietnamese listed firms. We find that firms which are audited by one of Big Four auditing companies (Deloitte, PricewaterhouseCoopers, Ernst & Young and KPMG) are less likely to engage in earnings management than those audited by Non-Big Four companies. We also find that the higher the proportion of state ownership accounts in outstanding shares, the less earnings management is. Based on the results, we conjecture that a Big Four auditor tends to restrain the use of aggressive accounting, and to make the audited financial statements in compliance with the standards. Also, enterprises with higher proportion of state ownership may have protection from the government as well as less pressure to meet the market expectations than their counterparts, resulting in less earnings management.
Article Details
Keywords
audit quality, discretionary accruals, earnings management, state ownership
References
References
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2. ALZOUBI, E. S. S. 2016. Audit quality and earnings management: evidence from Jordan. Journal of Applied Accounting Research, 17, 170-189.
3. BECKER, C. L., DEFOND, M. L., JIAMBALVO, J. & SUBRAMANYAM, K.
1998. The effect of audit quality on earnings management. Contemporary accounting research, 15, 1-24.
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6. CHENG, Q. & WARFIELD, T. D. 2005. Equity incentives and earnings management. The accounting review, 80, 441-476.
7. CHING, K. M., FIRTH, M. & RUI, O. M. 2006. Earnings management, corporate governance and the market performance of seasoned equity offerings in Hong Kong. Journal of Contemporary Accounting & Economics, 2, 73-98.
8. CORNETT, M. M., MARCUS, A. J. & TEHRANIAN, H. 2008. Corporate governance and pay-for-performance: The impact of earnings management. Journal of financial economics, 87, 357-373.
9. DAVIDSON, R., GOODWIN-STEWART, J. & KENT, P. 2005. Internal governance structures and earnings management. Accounting & Finance, 45, 241-267.
10. DECHOW, P. M., SLOAN, R. G. & SWEENEY, A. P. 1995. Detecting earnings management. Accounting review, 193-225.
11. DING, Y., ZHANG, H. & ZHANG, J. 2007. Private vs state ownership and earnings management: evidence from Chinese listed companies. Corporate Governance: An International Review, 15, 223-238.
12. DONNELLY, R. & LYNCH, C. 2002. The ownership structure of UK firms and the informativeness of accounting earnings. Accounting and Business Research, 32, 245257.
13. EBRAHIM, A. 2007. Earnings management and board activity: an additional evidence. Review of Accounting and Finance, 6, 42-58.
14. FAN, J. P. & WONG, T. J. 2002. Corporate ownership structure and the informativeness of accounting earnings in East Asia. Journal of accounting and economics, 33, 401425.
15. FRANCIS, J. & SCHIPPER, K. 1999. Have financial statements lost their relevance? Journal of accounting Research, 37, 319-352.
16. FRANCIS, J. R. 2011. A framework for understanding and researching audit quality. Auditing: A journal of practice & theory, 30, 125-152.
17. GARCÍA-MECA, E. & SÁNCHEZ-BALLESTA, J. P. 2009. Corporate governance and earnings management: A meta-analysis. Corporate governance: an international review, 17, 594-610.
18. GHOSH, A., MARRA, A. & MOON, D. 2010. Corporate boards, audit committees, and earnings management: pre-and post-SOX evidence. Journal of Business Finance & Accounting, 37, 1145-1176.
19. GONZÁLEZ, J. S. & GARCÍA-MECA, E. 2014. Does corporate governance influence earnings management in Latin American markets? Journal of Business Ethics, 121, 419-440.
20. JENKINS, D. S. & VELURY, U. 2008. Does auditor tenure influence the reporting of conservative earnings? Journal of Accounting and public policy, 27, 115-132.
21. JENSEN, M. C. & MECKLING, W. H. 1976. Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of financial economics, 3, 305-360.
22. JONES, J. J. 1991. Earnings management during import relief investigations. Journal of accounting research, 193-228.
23. KINNEY JR, W. R. & MARTIN, R. D. 1994. Does auditing reduce bias in financial reporting? A review of audit-related adjustment studies. Auditing, 13, 149.
24. KITIWONG, W. 2014. Earnings Management and Audit Quality: Evidence from Southeast Asia. University of York.
25. KOTHARI, S. P., LEONE, A. J. & WASLEY, C. E. 2005. Performance matched discretionary accrual measures. Journal of accounting and economics, 39, 163-197.
26. LENARD, M. J. & YU, B. 2012. Do earnings management and audit quality influence over-investment by Chinese companies? International Journal of Economics and Finance, 4, 21.
27. MARRAKCHI CHTOUROU, S., BEDARD, J. & COURTEAU, L. 2001. Corporate governance and earnings management.
28. MCNICHOLS, M. F. & STUBBEN, S. R. 2008. Does earnings management affect firms’ investment decisions? The Accounting Review, 83, 1571-1603.
29. MORCK, R., SHLEIFER, A. & VISHNY, R. W. 1988. Management ownership and market valuation: An empirical analysis. Journal of financial economics, 20, 293-315.
30. PARK, Y. W. & SHIN, H.-H. 2004. Board composition and earnings management in Canada. Journal of corporate Finance, 10, 431-457.
31. RICHARDSON, S. A., SLOAN, R. G., SOLIMAN, M. T. & TUNA, I. 2005. Accrual reliability, earnings persistence and stock prices. Journal of accounting and economics, 39, 437-485.
32. RUSMIN, R. 2010. Auditor quality and earnings management: Singaporean evidence. Managerial Auditing Journal, 25, 618-638.
33. SHLEIFER, A. & VISHNY, R. W. 1986. Large shareholders and corporate control. Journal of political economy, 94, 461-488.
34. SLOAN, R. G. 1996. Do Stock Prices Fully Reflect Information in Accruals and Cash Flows about Future Earnings? The Accounting Review, 71, 289-315.
35. TÍN, C. 2016. Chất lượng công bố thông tin: Doanh nghiệp niêm yết có vốn nhà nước càng cao càng minh bạch [Online]. Available: http://baodautu.vn/chat-luongcong-bo-thong-tin-doanh-nghiep-niem-yet-co-von-nha-nuoc-cang-cao-cang-minhbach-d54162.html [Accessed 03/02/2017.
36. VAN CANEGHEM*, T. 2004. The impact of audit quality on earnings rounding-up behaviour: some UK evidence. European Accounting Review, 13, 771-786.
37. VAN TENDELOO, B. & VANSTRAELEN, A. 2008. Earnings management and audit quality in Europe: Evidence from the private client segment market. European accounting review, 17, 447-469.
38. WANG, L. & YUNG, K. 2011. Do state enterprises manage earnings more than privately owned firms? The case of China. Journal of Business Finance & Accounting, 38, 794-812.
39. WARFIELD, T. D., WILD, J. J. & WILD, K. L. 1995. Managerial ownership, accounting choices, and informativeness of earnings. Journal of accounting and economics, 20, 61-91.
40. XIE, B., DAVIDSON, W. N. & DADALT, P. J. 2003. Earnings management and corporate governance: the role of the board and the audit committee. Journal of corporate finance, 9, 295-316.
1. ALPHONSE, P. & HANG, N. T. 2015. Financial Distress and Accrual Anomaly: Evidence from the Vietnamese Stock Market.
2. ALZOUBI, E. S. S. 2016. Audit quality and earnings management: evidence from Jordan. Journal of Applied Accounting Research, 17, 170-189.
3. BECKER, C. L., DEFOND, M. L., JIAMBALVO, J. & SUBRAMANYAM, K.
1998. The effect of audit quality on earnings management. Contemporary accounting research, 15, 1-24.
4. BOONE, J. P., KHURANA, I. K. & RAMAN, K. 2010. Do the Big 4 and the secondtier firms provide audits of similar quality? Journal of Accounting and Public Policy, 29, 330-352.
5. CHEN, H., CHEN, J. Z., LOBO, G. J. & WANG, Y. 2011. Effects of audit quality on earnings management and cost of equity capital: Evidence from China. Contemporary Accounting Research, 28, 892-925.
6. CHENG, Q. & WARFIELD, T. D. 2005. Equity incentives and earnings management. The accounting review, 80, 441-476.
7. CHING, K. M., FIRTH, M. & RUI, O. M. 2006. Earnings management, corporate governance and the market performance of seasoned equity offerings in Hong Kong. Journal of Contemporary Accounting & Economics, 2, 73-98.
8. CORNETT, M. M., MARCUS, A. J. & TEHRANIAN, H. 2008. Corporate governance and pay-for-performance: The impact of earnings management. Journal of financial economics, 87, 357-373.
9. DAVIDSON, R., GOODWIN-STEWART, J. & KENT, P. 2005. Internal governance structures and earnings management. Accounting & Finance, 45, 241-267.
10. DECHOW, P. M., SLOAN, R. G. & SWEENEY, A. P. 1995. Detecting earnings management. Accounting review, 193-225.
11. DING, Y., ZHANG, H. & ZHANG, J. 2007. Private vs state ownership and earnings management: evidence from Chinese listed companies. Corporate Governance: An International Review, 15, 223-238.
12. DONNELLY, R. & LYNCH, C. 2002. The ownership structure of UK firms and the informativeness of accounting earnings. Accounting and Business Research, 32, 245257.
13. EBRAHIM, A. 2007. Earnings management and board activity: an additional evidence. Review of Accounting and Finance, 6, 42-58.
14. FAN, J. P. & WONG, T. J. 2002. Corporate ownership structure and the informativeness of accounting earnings in East Asia. Journal of accounting and economics, 33, 401425.
15. FRANCIS, J. & SCHIPPER, K. 1999. Have financial statements lost their relevance? Journal of accounting Research, 37, 319-352.
16. FRANCIS, J. R. 2011. A framework for understanding and researching audit quality. Auditing: A journal of practice & theory, 30, 125-152.
17. GARCÍA-MECA, E. & SÁNCHEZ-BALLESTA, J. P. 2009. Corporate governance and earnings management: A meta-analysis. Corporate governance: an international review, 17, 594-610.
18. GHOSH, A., MARRA, A. & MOON, D. 2010. Corporate boards, audit committees, and earnings management: pre-and post-SOX evidence. Journal of Business Finance & Accounting, 37, 1145-1176.
19. GONZÁLEZ, J. S. & GARCÍA-MECA, E. 2014. Does corporate governance influence earnings management in Latin American markets? Journal of Business Ethics, 121, 419-440.
20. JENKINS, D. S. & VELURY, U. 2008. Does auditor tenure influence the reporting of conservative earnings? Journal of Accounting and public policy, 27, 115-132.
21. JENSEN, M. C. & MECKLING, W. H. 1976. Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of financial economics, 3, 305-360.
22. JONES, J. J. 1991. Earnings management during import relief investigations. Journal of accounting research, 193-228.
23. KINNEY JR, W. R. & MARTIN, R. D. 1994. Does auditing reduce bias in financial reporting? A review of audit-related adjustment studies. Auditing, 13, 149.
24. KITIWONG, W. 2014. Earnings Management and Audit Quality: Evidence from Southeast Asia. University of York.
25. KOTHARI, S. P., LEONE, A. J. & WASLEY, C. E. 2005. Performance matched discretionary accrual measures. Journal of accounting and economics, 39, 163-197.
26. LENARD, M. J. & YU, B. 2012. Do earnings management and audit quality influence over-investment by Chinese companies? International Journal of Economics and Finance, 4, 21.
27. MARRAKCHI CHTOUROU, S., BEDARD, J. & COURTEAU, L. 2001. Corporate governance and earnings management.
28. MCNICHOLS, M. F. & STUBBEN, S. R. 2008. Does earnings management affect firms’ investment decisions? The Accounting Review, 83, 1571-1603.
29. MORCK, R., SHLEIFER, A. & VISHNY, R. W. 1988. Management ownership and market valuation: An empirical analysis. Journal of financial economics, 20, 293-315.
30. PARK, Y. W. & SHIN, H.-H. 2004. Board composition and earnings management in Canada. Journal of corporate Finance, 10, 431-457.
31. RICHARDSON, S. A., SLOAN, R. G., SOLIMAN, M. T. & TUNA, I. 2005. Accrual reliability, earnings persistence and stock prices. Journal of accounting and economics, 39, 437-485.
32. RUSMIN, R. 2010. Auditor quality and earnings management: Singaporean evidence. Managerial Auditing Journal, 25, 618-638.
33. SHLEIFER, A. & VISHNY, R. W. 1986. Large shareholders and corporate control. Journal of political economy, 94, 461-488.
34. SLOAN, R. G. 1996. Do Stock Prices Fully Reflect Information in Accruals and Cash Flows about Future Earnings? The Accounting Review, 71, 289-315.
35. TÍN, C. 2016. Chất lượng công bố thông tin: Doanh nghiệp niêm yết có vốn nhà nước càng cao càng minh bạch [Online]. Available: http://baodautu.vn/chat-luongcong-bo-thong-tin-doanh-nghiep-niem-yet-co-von-nha-nuoc-cang-cao-cang-minhbach-d54162.html [Accessed 03/02/2017.
36. VAN CANEGHEM*, T. 2004. The impact of audit quality on earnings rounding-up behaviour: some UK evidence. European Accounting Review, 13, 771-786.
37. VAN TENDELOO, B. & VANSTRAELEN, A. 2008. Earnings management and audit quality in Europe: Evidence from the private client segment market. European accounting review, 17, 447-469.
38. WANG, L. & YUNG, K. 2011. Do state enterprises manage earnings more than privately owned firms? The case of China. Journal of Business Finance & Accounting, 38, 794-812.
39. WARFIELD, T. D., WILD, J. J. & WILD, K. L. 1995. Managerial ownership, accounting choices, and informativeness of earnings. Journal of accounting and economics, 20, 61-91.
40. XIE, B., DAVIDSON, W. N. & DADALT, P. J. 2003. Earnings management and corporate governance: the role of the board and the audit committee. Journal of corporate finance, 9, 295-316.