Accrual-based earnings management and rea activities manipulation to avoid losses: evidence from unlisted public companies in Vietnam

Abstract

The main aim of this study is to examine whether managers are willing to engage in earnings management to avoid reporting annual losses. We concentrate on firm-years that have net income scaled by total assets just above zero in the period 2012-2017. Consistent with previous articles, we find evidence suggesting income increase by accrual-based earnings management, price discounts to boost sales temporarily and reduction of discretionary expenditures to improve reported margins in these companies. This is the first evidence of earnings management to avoid losses in unlisted public companies in Vietnam. Besides, the results also show that managers may have reduced production costs to deal with a difficult business situation, which is not considered manipulation in real activities.