The impact of earnings management on market liquidity

Do Thi Van Trang,Dinh Hong Linh

doi:10.21511/imfi.17(2).2020.30

Do Thi Van Trang, Dinh Hong Linh

Open Access

https://doi.org/10.21511/imfi.17(2).2020.30

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Abstract

This article investigates the impact of earnings management on market liquidity measured by the depth of the market. Managers have desired to provide amazing performance of companies, manage their earnings through non-discretionary accruals. Consequently, investors have trouble evaluating the stock value and misunderstanding of the market liquidity because of manipulated information.To this aim, the fixed-effect model (FEM) is implemented to analyze the financial information of 170 listed firms on the Vietnam Stock Exchange over the period 2013–2016. The empirical results emphasized that market liquidity is influenced by earnings management that means the higher level of earnings management, the better equity liquidity. The findings provide additional insight into the determinants of stock liquidity such as earnings management, firm size, daily trading dollar volume of stock, average daily trading dollar volume of the firm, daily returns of stock, daily stock returns, average closing stock price of the firm.

Highlights

Studying the financial reporting quality is considered the accuracy of financial statements that represented the company’s operating performance and position in an accounting period
The empirical results emphasized that market liquidity is influenced by earnings management that means the higher level of earnings management, the better equity liquidity
The findings provide additional insight into the determinants of stock liquidity such as earnings management, firm size, daily trading dollar volume of stock, average daily trading dollar volume of the firm, daily returns of stock, daily stock returns, average closing stock price of the firm

Summary

INTRODUCTION

Studying the financial reporting quality is considered the accuracy of financial statements that represented the company’s operating performance and position in an accounting period. Firms conducting more discretion might be assessed as having poorer financial reporting quality, whereas accrual accounting basic mentions that revenue recognition when it earned and expense recognition occurred without consideration of cash movements. It enables discretion in the financial statements to permit better expression of enterprise performance. Riahi (2013) denotes the relationship between porting quality might generate a large proportion earnings management and market liquidity in the of informed traders exercising the trading volume.

METHODS

Findings

CONCLUSION