Logo PTI Logo icrmat

Proceedings of the 2022 International Conference on Research in Management & Technovation

Annals of Computer Science and Information Systems, Volume 34

Do Board Friendliness and Economic Development Affect Firm Abnormal Earnings?

, , , ,

DOI: http://dx.doi.org/10.15439/2022M4337

Citation: Proceedings of the 2022 International Conference on Research in Management & Technovation, Viet Ha Hoang, Vijender Kumar Solanki, Nguyen Thi Hong Nga, Shivani Agarwal (eds). ACSIS, Vol. 34, pages 151164 ()

Full text

Abstract. This research examines the effect of board friendliness and economic development on the quality of earnings reports using the Vietstock database of all listed firms on the HOSE and HNX in Vietnam from 2011 to 2021. We discovered that higher-quality earnings reports result from firm executives who have previously worked for the same organization, whereas lower-quality financial reports can be the result of directors who acted opportunistically or the development of local GDP and firm growth or directors who graduated from the same university. There is also a negative/positive association between alumni directors/ex-coworking directors and firm's current and future operating cash flows. Finally, firms with misreported financial statements, particularly earnings, spread among well-connected firm executives who operate as channels for the knowledge transfer regarding the practice


  1. Achleitner, A. K., Günther, N., Kaserer, C., & Siciliano, G. (2014). Real Earnings Management and Accrual-based Earnings Management in Family Firms. European Accounting Review, 23(3), 431–461. https://doi.org/10.1080/09638180.2014.895620
  2. Alam, N., Ramachandran, J., & Nahomy, A. H. (2020). The impact of corporate governance and agency effect on earnings management – A test of the dual banking system. Research in International Business and Finance, 54, 101242. https://doi.org/10.1016/j.ribaf.2020.101242
  3. Alhadab, M., Clacher, I., & Keasey, K. (2014). Real and accrual earnings management and IPO failure risk. Accounting and Business Research, 45(1), 55–92. https://doi.org/10.1080/00014788.2014.969187
  4. Berkman, H., Koch, P., & Westerholm, P. J. (2020). Inside the director network: When directors trade or hold inside, interlock, and unconnected stocks. Journal of Banking & Finance, 118, 105892. https://doi.org/10.1016/j.jbankfin.2020.105892
  5. Bertomeu, J., Cheynel, E., Li, E. X., & Liang, Y. (2021). How Pervasive Is Earnings Management? Evidence from a Structural Model. Management Science, 67(8), 5145–5162. https://doi.org/10.1287/mnsc.2020.3717
  6. Cai, Y., Kim, Y., Li, S., & Pan, C. (2019). Tone at the top: CEOs’ religious beliefs and earnings management. Journal of Banking & Finance, 106, 195–213. https://doi.org/10.1016/j.jbankfin.2019.06.002
  7. Campa, D., & Hajbaba, A. (2016). Do targets grab the cash in takeovers: The role of earnings management. International Review of Financial Analysis, 44, 56–64. https://doi.org/10.1016/j.irfa.2016.01.008
  8. Carney, R. W., Child, T. B., & Li, X. (2020). Board connections and crisis performance: Family, state, and political networks. Journal of Corporate Finance, 64, 101630. https://doi.org/10.1016/j.jcorpfin.2020.101630
  9. Chang, C. H., & Wu, Q. (2021). Board Networks and Corporate Innovation. Management Science, 67(6), 3618–3654. https://doi.org/10.1287/mnsc.2020.3587
  10. Chen, C. C. S., Chou, Y. Y., & Wei, P. (2020). Country factors in earnings management of ADR firms. Finance Research Letters, 32, 101146. https://doi.org/10.1016/j.frl.2019.04.003
  11. Chen, R. C., & Hung, S. (2020). Exploring the impact of corporate social responsibility on real earning management and discretionary accruals. Corporate Social Responsibility and Environmental Management, 28(1), 333–351. https://doi.org/10.1002/csr.2052
  12. Chen, S., Cai, W., & Jebran, K. (2019). Does Social Trust Mitigate Earnings Management? Evidence from China. Emerging Markets Finance and Trade, 57(10), 2995–3016. https://doi.org/10.1080/1540496x.2019.1675046
  13. Chen, X., Cheng, Q., Hao, Y., & Liu, Q. (2020). GDP growth incentives and earnings management: evidence from China. Review of Accounting Studies, 25(3), 1002–1039. https://doi.org/10.1007/s11142-020-09547-8
  14. Ding, R., Liu, M., Wang, T., & Wu, Z. (2021). The impact of climate risk on earnings management: International evidence. Journal of Accounting and Public Policy, 40(2), 106818. https://doi.org/10.1016/j.jaccpubpol.2021.106818
  15. el Diri, M., Lambrinoudakis, C., & Alhadab, M. (2020). Corporate governance and earnings management in concentrated markets. Journal of Business Research, 108, 291–306. https://doi.org/10.1016/j.jbusres.2019.11.013
  16. Eugster, F., & Wagner, A. F. (2020a). Earning investor trust: The role of past earnings management. Journal of Business Finance & Accounting, 48(1–2), 269–307. https://doi.org/10.1111/jbfa.12477
  17. Eugster, F., & Wagner, A. F. (2020b). Earning investor trust: The role of past earnings management. Journal of Business Finance & Accounting, 48(1–2), 269–307. https://doi.org/10.1111/jbfa.12477
  18. Fan, Y., Jiang, Y., Zhang, X., & Zhou, Y. (2019). Women on boards and bank earnings management: From zero to hero. Journal of Banking & Finance, 107, 105607. https://doi.org/10.1016/j.jbankfin.2019.105607
  19. Fang, M., Francis, B., Hasan, I., & Wu, Q. (2021). External social networks and earnings management. The British Accounting Review, 101044. https://doi.org/10.1016/j.bar.2021.101044
  20. García Lara, J. M., García Osma, B., & Penalva, F. (2020). Conditional conservatism and the limits to earnings management. Journal of Accounting and Public Policy, 39(4), 106738. https://doi.org/10.1016/j.jaccpubpol.2020.106738
  21. Garel, A., Martin-Flores, J. M., Petit-Romec, A., & Scott, A. (2021). Institutional investor distraction and earnings management. Journal of Corporate Finance, 66, 101801. https://doi.org/10.1016/j.jcorpfin.2020.101801
  22. Godigbe, B. G., Chui, C. M., & Liu, C. L. (2018). Directors network centrality and earnings quality. Applied Economics, 50(50), 5381–5400. https://doi.org/10.1080/00036846.2018.1486992
  23. Griffin, P. A., Hong, H. A., Liu, Y., & Ryou, J. W. (2021). The dark side of CEO social capital: Evidence from real earnings management and future operating performance. Journal of Corporate Finance, 68, 101920. https://doi.org/10.1016/j.jcorpfin.2021.101920
  24. Gupta, A., Owusu, A., & Zou, L. (2021). Identifying board of director network influence for firm characteristics. Physica A: Statistical Mechanics and Its Applications, 581, 126212. https://doi.org/10.1016/j.physa.2021.126212
  25. Hickman, L. E., Iyer, S. R., & Jadiyappa, N. (2021). The effect of voluntary and mandatory corporate social responsibility on earnings management: Evidence from India and the 2% rule. Emerging Markets Review, 46, 100750. https://doi.org/10.1016/j.ememar.2020.100750
  26. Hooghiemstra, R., Hermes, N., Oxelheim, L., & Randøy, T. (2019). Strangers on the board: The impact of board internationalization on earnings management of Nordic firms. International Business Review, 28(1), 119–134. https://doi.org/10.1016/j.ibusrev.2018.08.007
  27. Huang, W., Goodell, J. W., & Zhang, H. (2019). Pre-merger management in developing markets: The role of earnings glamor. International Review of Financial Analysis, 65, 101375. https://doi.org/10.1016/j.irfa.2019.101375
  28. Kang, J. K., Liu, W. L., Low, A., & Zhang, L. (2018). Friendly boards and innovation. Journal of Empirical Finance, 45, 1–25. https://doi.org/10.1016/j.jempfin.2017.09.007
  29. Kapoor, N., & Goel, S. (2016). Board Characteristics, Firm Profitability and Earnings Management: Evidence from India. Australian Accounting Review, 27(2), 180–194. https://doi.org/10.1111/auar.12144
  30. Kim, Y. S., Kim, Y., & Yi, H. C. (2021). Vice or virtue? The impact of earnings management on bank loan agreements. International Review of Economics & Finance, 73, 303–324. https://doi.org/10.1016/j.iref.2020.12.028
  31. Kothari, S. P., Mizik, N., & Roychowdhury, S. (2015). Managing for the Moment: The Role of Earnings Management via Real Activities versus Accruals in SEO Valuation. The Accounting Review, 91(2), 559–586. https://doi.org/10.2308/accr-51153
  32. Krishnan, G. V., Raman, K. K., Yang, K., & Yu, W. (2011). CFO/CEO-Board Social Ties, Sarbanes-Oxley, and Earnings Management. Accounting Horizons, 25(3), 537–557. https://doi.org/10.2308/acch-50028
  33. Kung, F. H., Chang, Y. S., & Zhou, M. (2019). The effect of gender composition in joint audits on earnings management. Managerial Auditing Journal, 34(5), 549–574. https://doi.org/10.1108/maj-05-2018-1885
  34. Lee, M., & Hwang, I. T. (2019). The Effect of the Compensation System on Earnings Management and Sustainability: Evidence from Korea Banks. Sustainability, 11(11), 3165. https://doi.org/10.3390/su11113165
  35. Li, C., Lou, C., Luo, D., & Xing, K. (2021). Chinese corporate distress prediction using LASSO: The role of earnings management. International Review of Financial Analysis, 76, 101776. https://doi.org/10.1016/j.irfa.2021.101776
  36. Li, L., & Kuo, C. S. (2017). CEO equity compensation and earnings management: The role of growth opportunities. Finance Research Letters, 20, 289–295. https://doi.org/10.1016/j.frl.2016.10.013
  37. Li, Y., Li, X., Xiang, E., & Geri Djajadikerta, H. (2020). Financial distress, internal control, and earnings management: Evidence from China. Journal of Contemporary Accounting & Economics, 16(3), 100210. https://doi.org/10.1016/j.jcae.2020.100210
  38. Maglio, R., Rey, A., Agliata, F., & Lombardi, R. (2019). Connecting earnings management and corporate social responsibility: A renewed perspective. Corporate Social Responsibility and Environmental Management, 27(2), 1108–1116. https://doi.org/10.1002/csr.1868
  39. Neifar, S., & Utz, S. (2019). The effect of earnings management and tax aggressiveness on shareholder wealth and stock price crash risk of German companies. Journal of Applied Accounting Research, 20(1), 94–119. https://doi.org/10.1108/jaar-11-2016-0106
  40. Orazalin, N., & Akhmetzhanov, R. (2019). Earnings management, audit quality, and cost of debt: evidence from a Central Asian economy. Managerial Auditing Journal, 34(6), 696–721. https://doi.org/10.1108/maj-12-2017-1730
  41. Oskouei, Z. H., & Sureshjani, Z. H. (2020). Studying the relationship between managerial ability and real earnings management in economic and financial crisis conditions. International Journal of Finance & Economics, 26(3), 4574–4589. https://doi.org/10.1002/ijfe.2031
  42. Palacios-Manzano, M., Gras-Gil, E., & Santos-Jaen, J. M. (2019). Corporate social responsibility and its effect on earnings management: an empirical research on Spanish firms. Total Quality Management & Business Excellence, 32(7–8), 921–937. https://doi.org/10.1080/14783363.2019.1652586
  43. Schmidt, B. (2015). Costs and benefits of friendly boards during mergers and acquisitions. Journal of Financial Economics, 117(2), 424–447. https://doi.org/10.1016/j.jfineco.2015.02.007
  44. Shu, P. G., Yeh, Y. H., Chiu, S. B., & Yang, Y. W. (2015). Board external connectedness and earnings management. Asia Pacific Management Review, 20(4), 265–274. https://doi.org/10.1016/j.apmrv.2015.03.003
  45. Souther, M. E. (2018). The effects of internal board networks: Evidence from closed-end funds. Journal of Accounting and Economics, 66(1), 266–290. https://doi.org/10.1016/j.jacceco.2018.06.001
  46. Tao, Q., Li, H., Wu, Q., Zhang, T., & Zhu, Y. (2019). The dark side of board network centrality: Evidence from merger performance. Journal of Business Research, 104, 215–232. https://doi.org/10.1016/j.jbusres.2019.07.019
  47. Thanh, S. D., Canh, N. P., & Ha, N. T. T. (2020). Debt structure and earnings management: A non-linear analysis from an emerging economy. Finance Research Letters, 35, 101283. https://doi.org/10.1016/j.frl.2019.08.031
  48. Wintoki, M. B., & Xi, Y. (2019). Friendly directors and the cost of regulatory compliance. Journal of Corporate Finance, 58, 112–141. https://doi.org/10.1016/j.jcorpfin.2019.04.011
  49. Wu, Y., Zhang, Y., & Chen, Y. (2020). The influence of board interlocking network centrality on foundation performance: evidence from China. Journal of Chinese Governance, 6(1), 43–57. https://doi.org/10.1080/23812346.2020.1841483
  50. Yung, K., & Root, A. (2019). Policy uncertainty and earnings management: International evidence. Journal of Business Research, 100, 255–267. https://doi.org/10.1016/j.jbusres.2019.03.058
  51. Zhang, Y., Uchida, K., & Dong, L. (2020). External financing and earnings management: Evidence from international data. Research in International Business and Finance, 54, 101275. https://doi.org/10.1016/j.ribaf.2020.101275
  52. Zhao, T. (2021). Board network, investment efficiency, and the mediating role of CSR: Evidence from China. International Review of Economics & Finance, 76, 897–919. https://doi.org/10.1016/j.iref.2021.08.005
  53. Dang, N. H. (2017). Factors Affecting Earnings Management: The Case of Listed Firms in Vietnam. International Journal of Economic Research.
  54. Khanh, M. T. (2019). The effect of financial leverage on real and accrual-based earnings management in vietnamese firms. Economics and Sociology, 285-298.
  55. Khanh. H, K. N. (2018). Audit Quality, Firm Characteristics and Real Earnings Management: The Case of Listed Vietnamese Firms. International Journal of Economics and Financial Issues, 243-249.
  56. N. Khuong, N. M. (2020). Earnings management and cash holdings: Evidence from energy firms in Vietnam. ournal of International Studies, 247-261.
  57. Quy, V. T. (2017). Detecting Earning Management of Companies Listing on HOSE. Asian Journal of Social Sciences and Management Studies, 82-87.