This study aims to test whether financial constraints moderate the relationship between financial distress and earning manipulations in Vietnam.
Our sample is an unbalanced panel with 3,985 annual observations from 508 non-financial firms listed on the Ho Chi Minh Stock Exchange and the Ha Noi Stock Exchange in Vietnam between 2006 and 2020. We perform the dynamic system Generalized Method of Moments to address unobserved endogeneity, heteroscedasticity and autocorrelation issues.
Our sample is an unbalanced panel with 3,985 annual observations from 508 non-financial firms listed on the Ho Chi Minh Stock Exchange and the Ha Noi Stock Exchange in Vietnam between 2006 and 2020. We perform the dynamic system Generalized Method of Moments to address unobserved endogeneity, heteroscedasticity and autocorrelation issues. The findings indicate that higher distress risks and financial constraints motivate corporate earnings manipulation practices. Moreover, financial constraints moderate the association between financial distress risk and earnings manipulation. The effects of financial constraints and financial distress on real earning manipulation are robust across Small and Medium Enterprises and large firms. However, we found that a moderating role of financial constraints in the relationship between distress risk and earnings manipulation is robust in large enterprises.
Although our research extends the growing literature on corporate earnings manipulation in emerging markets, it has the following drawbacks. The findings are based solely on Vietnamese data, which may not fully represent emerging or developed economies. Future cross-country studies are recommended to provide deeper insights into this topic.
This study contributes implications for managers and policymakers for preventing corporate earnings manipulation in emerging markets by facilitating an understanding of how earnings are manipulated and having more conservative views in accessing financial statements. Managers should explore government programs and build strong relationships with local banks to secure funding and mitigate financial constraints for SMEs. Moreover, managers can employ several strategic measures to reduce the risk of financial distress and prevent real earnings manipulation, especially in Small and Medium Enterprises.
Our research is the first to analyze whether financial constraints moderate the relationship between financial distress and earning manipulations in Vietnam. It extends prior literature in earning manipulations by employing the dynamic system Generalized Method of Moments to address endogeneity issues.
