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Date Published:
31/07/2022
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Nguyen, A. T. M., Tran, B.-T., & Nguyen, H. M. (2022). Earnings management around equity issuances in Vietnamese listed firms. Journal of International Economics and Management, 22(2), 56-70. https://doi.org/10.38203/jiem.022.2.0048
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Earnings management around equity issuances in Vietnamese listed firms
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Abstract
This study examines accrual earnings management in Vietnamese listed firms around equity issuances. Using a matching approach, we find that issuers tend to report higher earnings by aggressive recognition of discretionary current accruals before and during the years of equity offering. This results in significantly larger abnormal stock returns for the issuing firm-years, as the capital market overvalues firms with higher accrual earnings. However, regression results show that investors are subsequently disappointed by negative reversals in earnings, and suffer from significant negative abnormal returns in the third year after the issuance. These results provide additional empirical evidence in an emerging and transition market context, and caution investors against fixation on reported earnings in equity offerings.
Article Details
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
Keywords
Right offering, Private placement, Earnings management, Financial reporting
References
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Badertscher, B.A., Collins, D.W. and Lys, T.Z. (2012), “Discretionary accounting choices and the predictive ability of accruals with respect to future cash flows”, Journal of Accounting and Economics, Vol. 53 No. 1-2, pp. 330 - 352.
Bergstresser, D. and Philippon, T. (2006), “CEO incentives and earnings management”, Journal of Financial Economics, Vol. 80 No. 3, pp. 511 - 529.
Chahine, S., Mansi, S. and Mazboudi, M. (2015), “Media news and earnings management prior to equity offerings”, Journal of Corporate Finance, Vol. 35, pp. 177 - 195.
Chen, C., Kim, J.B. and Yao, L. (2017), “Earnings smoothing: does it exacerbate or constrain stock price crash risk?”, Journal of Corporate Finance, Vol. 42, pp. 36 - 54.
Cohen, D.A. and Zarowin, P. (2010), “Accrual-based and real earnings management activities around seasoned equity offerings”, Journal of Accounting and Economics, Vol. 50 No. 1, pp. 2 - 19.
Dechow, P.M. and Skinner, D.J. (2000), “Earnings management: reconciling the views of accounting academics, practitioners, and regulators”, Accounting Horizons, Vol. 14 No. 2, pp. 235 - 250.
Franz, D.R., HassabElnaby, H.R. and Lobo, G.J. (2014), “Impact of proximity to debt covenant violation on earnings management”, Review of Accounting Studies, Vol. 19 No. 1, pp. 473 - 505.
Guenther, D.A. (1994), “Earnings management in response to corporate tax rate changes: evidence from the 1986 tax reform act”, Accounting Review, Vol. 69 No. 1, pp. 230 - 243.
Healy, P.M. and Wahlen, J.M. (1999), “A review of the earnings management literature and its implications for standard setting”, Accounting Horizons, Vol. 13 No. 4, pp. 365 - 383.
Iqbal, A., Espenlaub, S. and Strong, N. (2009), “Earnings management around UK open offers”, European Journal of Finance, Vol. 15 No. 1, pp. 29 - 51.
Jones, J.J. (1991), “Earnings management during import relief investigations”, Journal of Accounting Research, Vol. 29 No. 2, pp. 193 - 228.
Kalyta, P. (2009), “Accounting discretion, horizon problem, and CEO retirement benefits”, Accounting Review, Vol. 84 No. 5, pp. 1553 - 1573.
Minh Khue. (2021), “Dong tien cua nha dau tu F0 van chay manh?”, VNBUSINESS, Available at https://vnbusiness.vn/giao-dich/dong-tien-cua-nha-dau-tu-f0-van-chay-manh-1078788.html (Accessed 20 October, 2021).
Morsfield, S.G. and Tan, C.E.L. (2006), “Do venture capitalists influence the decision to manage earnings in initial public offerings?”, Accounting Review, Vol. 81 No. 5, pp. 1119 - 1150.
Myers, S.C. and Majluf, N.S. (1984), “Corporate financing and investment decisions when firms have information that investors do not have”, Journal of Financial Economics, Vol. 13 No. 2, pp. 187 - 221.
Nguyen, H.T., Alphonse, P. and Nguyen, H.M. (2022), “Financial distress and the accrual anomaly”, Journal of Contemporary Accounting and Economics, forthcoming.
Nguyen, H.T., Nguyen, A.T.M. and Nguyen, L.T.T. (2019), “Thao tung loi nhuan nham dat nguong loi nhuan: bang chung thuc nghiem tai Viet Nam”, Tap chi Kinh te doi ngoai, So 113, tr. 60 - 74.
Nguyen, H.T. and Nguyen, H.M. (2016), “Real earnings management: evidence from Vietnam”, External Economics Review, No. 89, pp. 22 - 34.
Nguyen, H.T., Tran, T.N.M., Pham, T.T.A. and Phan, T.H. (2018), “The impact of audit quality and state ownership on accrual-based earnings management: evidence from Vietnam”, External Economics Review, No. 108, pp. 3 - 19.
Pincus, M., Rajgopal, S. and Venkatachalam, M. (2007), “The accrual anomaly: international evidence”, Accounting Review, Vol. 82 No. 1, pp. 169 - 203.
Rangan, S. (1998), “Earnings management and the performance of seasoned equity offerings”, Journal of Financial Economics, Vol. 50 No. 1, pp. 101 - 122.
Richardson, S.A., Sloan, R.G., Soliman, M.T. and Tuna, I. (2006), “The implications of accounting distortions and growth for accruals and profitability”, Accounting Review, Vol. 81 No. 3, pp. 713 - 743.
Sankar, M.R. and Subramanyam, K.R. (2001), “Reporting discretion and private information communication through earnings”, Journal of Accounting Research, Vol. 39 No. 2, pp. 365 - 386.
Schipper, K. (1989), “Earnings management”, Accounting Horizons, Vol. 3 No. 4, pp. 91 - 102.
Teoh, S.H., Welch, I. and Wong, T.J. (1998), “Earnings management and the underperformance of seasoned equity offerings”, Journal of Financial Economics, Vol. 50 No. 1, pp. 63 - 99.
Tucker, J.W. and Zarowin, P.A. (2006), “Does income smoothing improve earnings informativeness?”, Accounting Review, Vol. 81 No. 1, pp. 251 - 270.
Vietnam Securities Depository. (2021), “Annual Report 2020”, Available at https://vsd.vn/en/bao-caothuong-nien (Accessed 20 November, 2021).
Zang, A.Y. (2011), “Evidence on the trade-off between real activities manipulation and accrual-based earnings management”, Accounting Review, Vol. 87 No. 2, pp. 675 - 703.
Badertscher, B.A., Collins, D.W. and Lys, T.Z. (2012), “Discretionary accounting choices and the predictive ability of accruals with respect to future cash flows”, Journal of Accounting and Economics, Vol. 53 No. 1-2, pp. 330 - 352.
Bergstresser, D. and Philippon, T. (2006), “CEO incentives and earnings management”, Journal of Financial Economics, Vol. 80 No. 3, pp. 511 - 529.
Chahine, S., Mansi, S. and Mazboudi, M. (2015), “Media news and earnings management prior to equity offerings”, Journal of Corporate Finance, Vol. 35, pp. 177 - 195.
Chen, C., Kim, J.B. and Yao, L. (2017), “Earnings smoothing: does it exacerbate or constrain stock price crash risk?”, Journal of Corporate Finance, Vol. 42, pp. 36 - 54.
Cohen, D.A. and Zarowin, P. (2010), “Accrual-based and real earnings management activities around seasoned equity offerings”, Journal of Accounting and Economics, Vol. 50 No. 1, pp. 2 - 19.
Dechow, P.M. and Skinner, D.J. (2000), “Earnings management: reconciling the views of accounting academics, practitioners, and regulators”, Accounting Horizons, Vol. 14 No. 2, pp. 235 - 250.
Franz, D.R., HassabElnaby, H.R. and Lobo, G.J. (2014), “Impact of proximity to debt covenant violation on earnings management”, Review of Accounting Studies, Vol. 19 No. 1, pp. 473 - 505.
Guenther, D.A. (1994), “Earnings management in response to corporate tax rate changes: evidence from the 1986 tax reform act”, Accounting Review, Vol. 69 No. 1, pp. 230 - 243.
Healy, P.M. and Wahlen, J.M. (1999), “A review of the earnings management literature and its implications for standard setting”, Accounting Horizons, Vol. 13 No. 4, pp. 365 - 383.
Iqbal, A., Espenlaub, S. and Strong, N. (2009), “Earnings management around UK open offers”, European Journal of Finance, Vol. 15 No. 1, pp. 29 - 51.
Jones, J.J. (1991), “Earnings management during import relief investigations”, Journal of Accounting Research, Vol. 29 No. 2, pp. 193 - 228.
Kalyta, P. (2009), “Accounting discretion, horizon problem, and CEO retirement benefits”, Accounting Review, Vol. 84 No. 5, pp. 1553 - 1573.
Minh Khue. (2021), “Dong tien cua nha dau tu F0 van chay manh?”, VNBUSINESS, Available at https://vnbusiness.vn/giao-dich/dong-tien-cua-nha-dau-tu-f0-van-chay-manh-1078788.html (Accessed 20 October, 2021).
Morsfield, S.G. and Tan, C.E.L. (2006), “Do venture capitalists influence the decision to manage earnings in initial public offerings?”, Accounting Review, Vol. 81 No. 5, pp. 1119 - 1150.
Myers, S.C. and Majluf, N.S. (1984), “Corporate financing and investment decisions when firms have information that investors do not have”, Journal of Financial Economics, Vol. 13 No. 2, pp. 187 - 221.
Nguyen, H.T., Alphonse, P. and Nguyen, H.M. (2022), “Financial distress and the accrual anomaly”, Journal of Contemporary Accounting and Economics, forthcoming.
Nguyen, H.T., Nguyen, A.T.M. and Nguyen, L.T.T. (2019), “Thao tung loi nhuan nham dat nguong loi nhuan: bang chung thuc nghiem tai Viet Nam”, Tap chi Kinh te doi ngoai, So 113, tr. 60 - 74.
Nguyen, H.T. and Nguyen, H.M. (2016), “Real earnings management: evidence from Vietnam”, External Economics Review, No. 89, pp. 22 - 34.
Nguyen, H.T., Tran, T.N.M., Pham, T.T.A. and Phan, T.H. (2018), “The impact of audit quality and state ownership on accrual-based earnings management: evidence from Vietnam”, External Economics Review, No. 108, pp. 3 - 19.
Pincus, M., Rajgopal, S. and Venkatachalam, M. (2007), “The accrual anomaly: international evidence”, Accounting Review, Vol. 82 No. 1, pp. 169 - 203.
Rangan, S. (1998), “Earnings management and the performance of seasoned equity offerings”, Journal of Financial Economics, Vol. 50 No. 1, pp. 101 - 122.
Richardson, S.A., Sloan, R.G., Soliman, M.T. and Tuna, I. (2006), “The implications of accounting distortions and growth for accruals and profitability”, Accounting Review, Vol. 81 No. 3, pp. 713 - 743.
Sankar, M.R. and Subramanyam, K.R. (2001), “Reporting discretion and private information communication through earnings”, Journal of Accounting Research, Vol. 39 No. 2, pp. 365 - 386.
Schipper, K. (1989), “Earnings management”, Accounting Horizons, Vol. 3 No. 4, pp. 91 - 102.
Teoh, S.H., Welch, I. and Wong, T.J. (1998), “Earnings management and the underperformance of seasoned equity offerings”, Journal of Financial Economics, Vol. 50 No. 1, pp. 63 - 99.
Tucker, J.W. and Zarowin, P.A. (2006), “Does income smoothing improve earnings informativeness?”, Accounting Review, Vol. 81 No. 1, pp. 251 - 270.
Vietnam Securities Depository. (2021), “Annual Report 2020”, Available at https://vsd.vn/en/bao-caothuong-nien (Accessed 20 November, 2021).
Zang, A.Y. (2011), “Evidence on the trade-off between real activities manipulation and accrual-based earnings management”, Accounting Review, Vol. 87 No. 2, pp. 675 - 703.