مقاله انگلیسی رایگان در مورد حاکمیت شرکتی و مدیریت سود – الزویر 2023

Abstract

Using the hand-collected data of 800 Vietnamese non-financial firms from 2008 to 2018, this study constructs a comprehensive corporate governance index in alignment with the corporate governance code of best practices in Vietnam. We provide strong evidence that corporate governance quality restrains earnings management, measured by both the absolute and signed discretionary accruals and the real earnings management. In particular, the negative association between corporate governance quality and earnings management is more profound in private firms (non-SOEs), firms with high foreign ownership and low concentrated ownership, and high growth firms compared to their peers. The observed results are robust to alternative measures of discretionary accruals, total accruals andreal earnings management. Furthermore, the results are corroborated using instrumental variables, firm fixed effects and propensity score matching methods to address potential reverse causality and sample selection bias.

Introduction

Earnings management has begun to attract public attention in the wake of recent corporate scandals in Vietnam. Vien Dong Pharmaceutical Joint Stock Company (DVD), one of the most lucrative-looking companies in the pharmaceutical industry, suddenly faced bankruptcy in 2011, even though the firm’s earnings growth rate was reported to be 325 percent in 2009, when DVD ranked the first in the industry. Inefficient corporate governance practices, such as the excessive concentration of power in the hands of top leaders, an inefficient board structure with conflicts of interest, and an ornamental supervisory board were blamed for assisting DVD management in defrauding its stakeholders. Similarly, other companies, such as Hoang Anh Gia Lai Group JSC (HAG) and Ho Chi Minh Infrastructure Investment JSC (CII), inflated their earnings to attract investors. On the other hand, other firms such as Quoc Cuong Gia Lai JSC (QCG) and Nafoods Group JSC (NAF), were revealed to have manipulated their earnings downward (Tap Chi Tai Chinh, 2020). These scandals motivate this study to explore the role of corporate governance quality as a significant driver of earnings management in Vietnam.

Globally, the infamous scandals involving Enron, Worldcom, Olympus, Parmalat, and Toshiba, to name but a few, have thrown up numerous questions about the efficiency of management accounting, auditing, and corporate governance practices. Di Miceli da Silveira (2013) reveals that Enron’s internal governance failures lead to managers’ taking advantage of accounting loopholes to manipulate its earnings and conceal its heavy losses. Chen et al. (2007) emphasise a pivotal role of corporate governance in stimulating transparency and efficiency, protecting minority shareholders’ wealth, ensuring the fair treatment of all shareholders, and facilitating the timely and accurate disclosure of all material matters. Deficient corporate governance mechanisms may result in severe agency costs and information asymmetry (Bhojraj & Sengupta, 2003) as well, which can be attributed to managerial misbehaviour. García-Meca and Sánchez-Ballesta (2009) propose that corporate governance helps to align the interest of managers with those of shareholders and to enhance the credibility of accounting information. It is notable that, Bao and Lewellyn (2017) and Lel (2019), in their recent multi-country studies, find that firms in emerging markets manipulate earnings to a much higher level, as their legal enforcement is less strict compared to developed markets.

Conclusion

The primary objective of this study is to examine, for non-financial listed firms in Vietnam from 2008 to 2018, the impact of corporate governance on earnings management, measured by the absolute value of discretionary accruals, signed discretionary accruals, and real earnings management. After controlling for firm-specific characteristics, we find that firms with higher corporate governance index are associated with lower earnings management. Results remain unchanged with the use of alternative measures of earnings management and alternative model specifications, which are used to allow for possible endogeneity biases. The findings from this study align with prior studies suggesting that corporate governance reduces agency and information costs. Considering the moral hazard, managers are more likely to act in their personal interests at the expense of stakeholders, in the absence of efficient corporate governance mechanisms. Reinforcement of corporate governance monitors managerial opportunism (Ali et al., 2018) and constrains earnings management activities (Liu & Lu, 2007; Shen & Chih, 2007). Our findings further suggest that the effectiveness of corporate governance’s monitoring role is subject to ownership structure and firms’ growth opportunities. The negative relationship is found to be significant only in non-SOEs, firms with high foreign ownership and low concentrated ownership, and high growth firms.