Journal Article

The Impact of Covid-19 on Earnings Management: Empirical Evidence from Vietnam

Dang, Anh Tuan, Khanh Dung, Nguyen Ngoc

2024

Overview

Earnings management (EM) is the practice of adjusting profits or earnings on financial statements at the discretion of the management. This study undertook a regression analysis of the earnings management model, with data from 300 non-financial listed companies on the Vietnamese stock exchange during the period 2016 to 2021 to determine whether the COVID-19 pandemic has had an impact on earnings management. To estimate earnings management, compared with the original model, we add the leverage variable (LV) was used as earnings management proxy in this research. The results show that the COVID-19 pandemic positively and significantly impact the earnings management of non-financial listed companies. Moreover, it was found that managers are more involved in real earnings management than accrual earnings management, implying that financially distressed firms need to reassure investors to raise more capital during the pandemic. However, there is no evidence of a trade-off between these two techniques during the pandemic compared to before the pandemic. Additionally, this study provides evidence that the model by Roychowdhury, following Cohen et al., and the performance-matched model by Jones, following Kothari et al. are more suitable for detecting EM behavior when factoring in the financial leverage (LV) variable for firms with a high debt ratio in developing countries. JEL Classification: H8, M42 Plain language summary Purpose. This study determines whether the COVID-19 pandemic has impacted earnings management (levels, trends, and techniques) using emerging markets datasets. Methods. The regression analysis of the earnings management (EM) model, with data from 300 non-financial listed companies on the Vietnamese stock exchange from 2016–2021. We use the model by performance-matched Jones, following Kothari et al. and the model by Roychowdhury, following Cohen et al. to measure the dependent variable is EM through the choice of method—optimal estimation between Pool OLS, FEM, and REM. The results of measuring EM with the above models are not statistically significant with our research data. Therefore, we have added leverage (LV) as an EM proxy. After adding the LV, the models estimate the EM dependent variable with statistical significance. Conclusions. The results show that the COVID-19 pandemic positively and significantly impact the EM. Moreover, it was found that managers are more involved in REM than AEM, implying that financially distressed firms need to reassure investors to raise more capital during the pandemic. However, there is no evidence of a trade-off between these two techniques during the pandemic compared to before the pandemic. Additionally, this study provides evidence that he original EM estimator model are more suitable for detecting EM behavior when factoring in the financial leverage (LV) variable for firms. Implications. In developing countries with large debt-bearing firms, leverage impacts earnings management. Limitations. The analysis of the income management behavior of enterprises by industry has yet to be conducted.

• Publisher: SAGE Publications,SAGE PUBLICATIONS, INC,SAGE Publishing
• Subject: Behavior / Business / Capital / Classification / Companies / COVID-19 / Data / Debt / Developing countries / Earnings / Earnings management / Emerging markets / Financial statements / Investors / LDCs / Leverage / Management / Pandemics / Profits / Regression analysis / Statistical analysis / Statistical significance / Stock exchanges