OWNERSHIP STRUCTURE, FINANCIAL REPORTING QUALITY AND THE ROLE OF AUDIT QUALITY: AN EMPIRICAL STUDY IN VIETNAM

Abstract

The issues of ownership structure, audit quality, earnings management, and financial reporting quality have garnered increased attention from the public, professionals, and other stakeholders, especially following numerous corporate scandals in Vietnam. Ownership structure is crucial in enhancing financial reporting quality (FRQ) by serving as an effective internal control mechanism. This study explores how different types of ownership affect FRQ and the role of audit quality. Previous literature has investigated the relationships between ownership types, audit quality, and FRQ. This study aims to integrate these variables into a comprehensive model that describes the impact of ownership structure within a company and audit quality on FRQ. The relationships tested include: ownership structure and FRQ, the mediating effect of audit quality on these relationships, and audit quality and FRQ. Analyzing panel data from 112 Vietnamese listed firms on the Ho Chi Minh City Stock Exchange from 2011-2021, the results revealed that directors' and family ownership positively affect FRQ by reducing earnings management, while institutional ownership negatively influences FRQ. Managerial ownership was found to have an insignificant impact on FRQ. Audit quality partially mediates these relationships and has a significantly positive impact on FRQ, suggesting that high audit quality deters earnings management. This study recommends enhancing the supervisory and monitoring role of institutional ownership in financial statement preparation.