Abstract
Earnings management around corporate events has been widely discussed in literature review which has shown mixed results. Furthermore, prior studies have extensively focused on earnings management around initial public offerings (IPOs) and seasoned equity offerings (SEOs), while less attention has been given to the listing event. Another motivation comes from the context of the undeveloped market. While earnings management has been widely discussed in developed countries, it is still limited in emerging countries in general and in Vietnam in particular, due to the lack of research on this phenomenon and the unique institutional feature and pre-listing profit requirement in Vietnam’s stock market. This research is conducted to investigate the earnings management behaviour around listing event in Vietnam. The sample of this study consists of financial data from 189 newly listed companies on the Ho Chi Minh City Stock Exchange (HOSE) for the period of 2009–2017. Four cross-sectional models were used to estimate earnings management, including two total accruals-based models and two current accruals-based models. This research makes important contributions to the body of literature on Vietnam’s stock market. First, this study provides empirical evidence suggesting a greater positive earnings management practice of newly listed firms in current accrual models than those in total accrual models. Second, the results from both parametric and non-parametric test statistics show that HOSE-listed firms present higher levels of earnings management in the year prior to the listing than those in post-listing year and two subsequent years after listing. Finally, new listing requirements in 2012 require the company’s return on equity (ROE) in the most recent year to be at least 5%. However, the paper finds no evidence to suggest that relative to all newly listed firms after the new profit requirement exhibit greater positive earnings management than that of firms listed before the change in pre-listing year.
Highlights
Accounting principles allow managers to exercise considerable discretion over accruals, which creates flexibility in terms of exercising certain amount of judgement in preparing financial statements through choices of accounting and reporting methods, especially in new issuance events, which is known as a rich information asymmetry context
The study provides descriptive statistics of the sample firms’ discretionary accruals [DA; DA(CFO)] and discretionary current accruals [DCA; DCA(CFO)] surrounding listing events based on four models in preceding year, listing year, and two years after listing
This study uses both two-tailed t-tests and Wilcoxon signedrank test to determine whether the means and medians of DA and DCA in the preceding year, listing year, and subsequent years are statistically different from zero
Summary
Accounting principles allow managers to exercise considerable discretion over accruals, which creates flexibility in terms of exercising certain amount of judgement in preparing financial statements through choices of accounting and reporting methods, especially in new issuance events, which is known as a rich information asymmetry context. This behaviour is consistent with the earnings management definition suggested by Healy and Wahlen Some studies have determined three events in which firms have incentives and possibilities to manipulate earnings before issuing shares via initial public offerings (IPOs), seasoned equity offerings (SEOs), or new listings. Firms must meet all the listing requirements set out by the governing bodies to be listed on the stock
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
