Audit committee and earnings management: Empirical evidence in Vietnam
Main Article Content
Abstract
The study used data samples of 174 listed companies from 2015 to 2019 to eaxmine the impact of audit committee on earnings management in Vietnam. The study uses Dechow et al (1995) to measure the abnormal accual representing earning management. The mutivariate regresssion results show that there are three variables having an impact on earnings management. The audit committee size has opposite effects with earnings management. Meanwhile, audit committee independent and meeting have a possitive relationship with earnings management. At the same time, research results have not found any evidence to prove a correlation between the expertise of audit committee and earnings management. In additon, this study also admitted that company size has a positive correlation with earnings management, but the debt ratio and net cash flow from operating have an inverse correlation with earnings management.
Article Details
Keywords
Audit committee, Accrual anomaly, Earnings management
References
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Abbott, L. J., Parker, S., & Peters, G. F. (2004). Audit committee characteristics and restatements. Auditing: A journal of practice & theory, 23(1), 69-87.
Anderson, D., Francis, J.R., & Stokes, D.J. (1993). Auditing, directorships, and the demand for monitoring. Journal of Accounting and Public Policy 12 (4), 353-375
Be´dard, J., Chtourou, S. M., & Courteau, L. (2004). The effect of audit committee expertise, independence, and activity on aggressive earnings management. Auditing: A journal of practice & theory, 23(2), 13-35..
Beneish, M. D. (1998). Discussion of “Are accruals during initial public offerings opportunistic?”. Review of accounting studies, 3(1), 209-221.
Bowen, R. M., Rajgopal, S., & Venkatachalam, M. (2008). Accounting discretion, corporate governance, and firm performance. Contemporary accounting research, 25(2), 351-405.
Davidson, R., Goodwin – Stewart, J., & Kent, P. (2005). Internal governance structures and earnings management. Accounting & Finance, 45(2), 241 – 267.
Dechow, P. M., Sloan, R. G., & Sweeney, A. P. (1995). Detecting Earnings Management. The Accounting Review, 70(2), 193-225.
DeZoort, F. T, Hermanson, D.R., Archambeault,D.S & Reed,A.S. (2002). Audit committee effectiveness: a synthesis of the empirical audit committee literature. Jounal of Accounting Literature, 21, 38-75.
Dhaliwal, D. A. N., Naiker, V. I. C., & Navissi, F. (2010). The association between accruals quality and the characteristics of accounting experts and mix of expertise on audit committees. Contemporary Accounting Research, 27(3), 787-827.
Duong, B. V., & Diep, N. H. (2017). Board characteristics and earnings management in listed companies of Vietnam's stock market. Ho Chi Minh City Open University Journal of Science - Economics and Business Administration, 12(2), 113-126.
Ebrahim, A. (2007). Earnings management and board activity: an additional evidence. Review of Accounting and Finance, 6(1), 42-58.
Fama, E.F. & Jensen, M.C. (1983). Separation of ownership and control, Journal of Law and Economics, 26(2), 301-325.
Hoang, T. C., Abeysekera, I., & Ma, S. (2017). The effect of board diversity on earnings quality: An empirical study of listed firms in Vietnam. Australian Accounting Review, 27(2), 146-163.
Healy, P.M. (1985). The effect of bonus schemes on accounting decisions. Journal of accounting and economics, 7(1), 85 - 107
Jensen, M. C. (2005). Agency costs of overvalued equity. Financial management, 34(1), 5-19.
Jones, J. J. (1991). Earnings management during import relief investigations. Journal of accounting research, 29(2), 193-228.
Karamanou, I., & Vafeas, N. (2005). The association between corporate boards, audit committees, and management earnings forecasts: An empirical analysis. Journal of Accounting research, 43(3), 453-486.
Klein, A. (2002). Audit committee, board of director characteristics, and earnings management. Journal of accounting and economics, 33(3), 375-400.
Kothari, S. P., Leone, A. J., & Wasley, C. E. (2005). Performance matched discretionary accrual measures. Journal of accounting and economics, 39(1), 163-197.
Laing, D. & Weir, C. (1999) Governance structures, size and corporate performance in UK firms, Management Decision, 37(5), 457 -464.
Leuz, C., Nada, D. & Wysocki P.D. (2003). Earnings management and investor protection: An international comparison, Journal of Financial Economics, 69(3), 505-527.
Li,J., Mangena, M. & Pike, R. (2012). The effect of audit committee Characteristics on intellectual Capital Disclosure, The British Accounting Review, 44(2), 98 -110.
Lin, J. W., & Hwang, M. I. (2010). Audit quality, corporate governance, and earnings management: A meta‐analysis. International journal of auditing, 14(1), 57-77.
Lin, J. W., Li, J. F., & Yang, J. S. (2006). The effect of audit committee performance on earnings quality. Managerial Auditing Journal, 21(9), 921-933.
Marrakchi, C. S., Bedard, J., & Courteau, L. (2001). Corporate governance and earnings management. Available at SSRN: https://ssrn.com/abstract=275053 or http://dx.doi.org/10.2139/ssrn.275053.
Menon, K., & Williams, J.D. (1994). The use of audit committees for monitoring, Journal of Accounting and Public Policy, 13(2), 121-139.
Moradi, M., Salehi, M., Bighi, S. J. H., & Najari, M. (2012). A Study of relationship between board characteristics and earning management: Iranian scenario. Universal Journal of Management and Social Sciences, 2(3),12-29.
Peasnell, K. V., Pope, P. F., & Young, S. (2005). Board monitoring and earnings management: do outside directors influence abnormal accruals?. Journal of Business Finance & Accounting, 32(7‐8), 1311-1346.
Persons, O. S. (2009). Audit committee characteristics and earlier voluntary ethics disclosure among fraud and no-fraud firms. International journal of disclosure and governance, 6(4), 284-297.
Roychowdhury, S. (2006). Earning Management through Real Activities Manipulation. Journal of Accounting and Economics, 42(3), 335-370.
Siregar, S.V., and Utama, S. (2008). Type of earnings management and the effect of ownership structure, firm size and corporate governance practices: Evidence from Indonesia. The international Journal of Accounting, 43(1), 1-27.
Soliman, M. M., & Ragab, A. A. (2014). Audit committee effectiveness, audit quality and earnings management: an empirical study of the listed companies in Egypt. Research journal of finance and accounting, 5(2), 155-166.
Waweru, N. M., & Riro, G. K. (2013). Corporate governance, firm characteristics and earnings management in an emerging economy. Journal of Applied Management Accounting Research, 11(1), 43.
Xie, B., Davidson III, W. N., & DaDalt, P. J. (2003). Earnings management and corporate governance: the role of the board and the audit committee. Journal of corporate finance, 9(3), 295-316.
Vafeas, N. (2005). Audit committees, boards, and the quality of reported earnings. Contemporary accounting research, 22(4), 1093-1122.
Yang, J. S., & Krishnan, J. (2005). Audit committees and quarterly earnings management. International journal of auditing, 9(3), 201-219.
Abbott, L. J., Parker, S., & Peters, G. F. (2004). Audit committee characteristics and restatements. Auditing: A journal of practice & theory, 23(1), 69-87.
Anderson, D., Francis, J.R., & Stokes, D.J. (1993). Auditing, directorships, and the demand for monitoring. Journal of Accounting and Public Policy 12 (4), 353-375
Be´dard, J., Chtourou, S. M., & Courteau, L. (2004). The effect of audit committee expertise, independence, and activity on aggressive earnings management. Auditing: A journal of practice & theory, 23(2), 13-35..
Beneish, M. D. (1998). Discussion of “Are accruals during initial public offerings opportunistic?”. Review of accounting studies, 3(1), 209-221.
Bowen, R. M., Rajgopal, S., & Venkatachalam, M. (2008). Accounting discretion, corporate governance, and firm performance. Contemporary accounting research, 25(2), 351-405.
Davidson, R., Goodwin – Stewart, J., & Kent, P. (2005). Internal governance structures and earnings management. Accounting & Finance, 45(2), 241 – 267.
Dechow, P. M., Sloan, R. G., & Sweeney, A. P. (1995). Detecting Earnings Management. The Accounting Review, 70(2), 193-225.
DeZoort, F. T, Hermanson, D.R., Archambeault,D.S & Reed,A.S. (2002). Audit committee effectiveness: a synthesis of the empirical audit committee literature. Jounal of Accounting Literature, 21, 38-75.
Dhaliwal, D. A. N., Naiker, V. I. C., & Navissi, F. (2010). The association between accruals quality and the characteristics of accounting experts and mix of expertise on audit committees. Contemporary Accounting Research, 27(3), 787-827.
Duong, B. V., & Diep, N. H. (2017). Board characteristics and earnings management in listed companies of Vietnam's stock market. Ho Chi Minh City Open University Journal of Science - Economics and Business Administration, 12(2), 113-126.
Ebrahim, A. (2007). Earnings management and board activity: an additional evidence. Review of Accounting and Finance, 6(1), 42-58.
Fama, E.F. & Jensen, M.C. (1983). Separation of ownership and control, Journal of Law and Economics, 26(2), 301-325.
Hoang, T. C., Abeysekera, I., & Ma, S. (2017). The effect of board diversity on earnings quality: An empirical study of listed firms in Vietnam. Australian Accounting Review, 27(2), 146-163.
Healy, P.M. (1985). The effect of bonus schemes on accounting decisions. Journal of accounting and economics, 7(1), 85 - 107
Jensen, M. C. (2005). Agency costs of overvalued equity. Financial management, 34(1), 5-19.
Jones, J. J. (1991). Earnings management during import relief investigations. Journal of accounting research, 29(2), 193-228.
Karamanou, I., & Vafeas, N. (2005). The association between corporate boards, audit committees, and management earnings forecasts: An empirical analysis. Journal of Accounting research, 43(3), 453-486.
Klein, A. (2002). Audit committee, board of director characteristics, and earnings management. Journal of accounting and economics, 33(3), 375-400.
Kothari, S. P., Leone, A. J., & Wasley, C. E. (2005). Performance matched discretionary accrual measures. Journal of accounting and economics, 39(1), 163-197.
Laing, D. & Weir, C. (1999) Governance structures, size and corporate performance in UK firms, Management Decision, 37(5), 457 -464.
Leuz, C., Nada, D. & Wysocki P.D. (2003). Earnings management and investor protection: An international comparison, Journal of Financial Economics, 69(3), 505-527.
Li,J., Mangena, M. & Pike, R. (2012). The effect of audit committee Characteristics on intellectual Capital Disclosure, The British Accounting Review, 44(2), 98 -110.
Lin, J. W., & Hwang, M. I. (2010). Audit quality, corporate governance, and earnings management: A meta‐analysis. International journal of auditing, 14(1), 57-77.
Lin, J. W., Li, J. F., & Yang, J. S. (2006). The effect of audit committee performance on earnings quality. Managerial Auditing Journal, 21(9), 921-933.
Marrakchi, C. S., Bedard, J., & Courteau, L. (2001). Corporate governance and earnings management. Available at SSRN: https://ssrn.com/abstract=275053 or http://dx.doi.org/10.2139/ssrn.275053.
Menon, K., & Williams, J.D. (1994). The use of audit committees for monitoring, Journal of Accounting and Public Policy, 13(2), 121-139.
Moradi, M., Salehi, M., Bighi, S. J. H., & Najari, M. (2012). A Study of relationship between board characteristics and earning management: Iranian scenario. Universal Journal of Management and Social Sciences, 2(3),12-29.
Peasnell, K. V., Pope, P. F., & Young, S. (2005). Board monitoring and earnings management: do outside directors influence abnormal accruals?. Journal of Business Finance & Accounting, 32(7‐8), 1311-1346.
Persons, O. S. (2009). Audit committee characteristics and earlier voluntary ethics disclosure among fraud and no-fraud firms. International journal of disclosure and governance, 6(4), 284-297.
Roychowdhury, S. (2006). Earning Management through Real Activities Manipulation. Journal of Accounting and Economics, 42(3), 335-370.
Siregar, S.V., and Utama, S. (2008). Type of earnings management and the effect of ownership structure, firm size and corporate governance practices: Evidence from Indonesia. The international Journal of Accounting, 43(1), 1-27.
Soliman, M. M., & Ragab, A. A. (2014). Audit committee effectiveness, audit quality and earnings management: an empirical study of the listed companies in Egypt. Research journal of finance and accounting, 5(2), 155-166.
Waweru, N. M., & Riro, G. K. (2013). Corporate governance, firm characteristics and earnings management in an emerging economy. Journal of Applied Management Accounting Research, 11(1), 43.
Xie, B., Davidson III, W. N., & DaDalt, P. J. (2003). Earnings management and corporate governance: the role of the board and the audit committee. Journal of corporate finance, 9(3), 295-316.
Vafeas, N. (2005). Audit committees, boards, and the quality of reported earnings. Contemporary accounting research, 22(4), 1093-1122.
Yang, J. S., & Krishnan, J. (2005). Audit committees and quarterly earnings management. International journal of auditing, 9(3), 201-219.