Firm life cycle and earnings management: The moderating role of state ownership

Abstract

The study examined the relationship between firm life cycle (FLC) and earnings management (EM) in the Vietnamese context with the moderating role of state ownership (SOE). We used the sample of 622 Vietnamese listed companies over the period 2010–2019. To eliminate autocorrelation and heteroscedasticity violations, we utilized FE Robust on all models. The data show that accrual earnings management (AEM) behavior varies between FLC phases. The results revealed a U-shaped pattern, with discretionary accruals (DAs) being more remarkable in the introduction and decline stages and lower in the remaining stages. The findings on the connection between FLC and real earnings management (REM) varied depending on the REM technique used. The results support the involvement of SOE as a moderator in both the FLC—REM and the FLC—EM relationship. This study significantly contributed to the existing literature about FLC and EM behavior.

Keywords:

• Accrual earnings management
• life cycle
• moderation effect
• eeal earnings management
• state ownership

JEL Classification:

• G20
• G30
• M40
• M41

PUBLIC INTEREST STATEMENT

Vietnam is a country with an incomplete legal framework for protecting investors and inefficiency in the corporate governance mechanism. With the rapid development of the financial market, the firm life cycle term attracts much attention from scholars and other related parties to select the most appropriate strategy for firms in each state. Although the FLC was ascertained for its impact on the organization’s development in existing literature, the relationship between FLC and characteristics of earnings management is rarely explored by prior studies. Therefore, this is the first study to explore the relationship between firm life cycle and earnings management behaviors along with the moderating effect of state-ownership in the Vietnamese context. Depending on each stage and the method of earnings management, the relationship between earnings management and the firm life cycle is different. This study significantly contributed to the existing literature about FLC and EM behavior.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

This research is funded by Vietnam National University Ho Chi Minh City (VNU-HCM) under Grant number C2021-34-04.

Notes on contributors

Nguyen Vinh Khuong

Nguyen Vinh Khuong is a PhD from the University of Economics Ho Chi Minh City, Vietnam and a Lecturer in the Faculty of Accounting and Auditing at University of Economics and Law, Vietnam National University, Ho Chi Minh City, Vietnam. Dr Khuong works and does research in the fields of CSR, corporate governance, audit quality, earnings management, and behavioural accounting.

Le Huu Tuan Anh

Le Huu Tuan Anh is a Bachelor’s student in Auditing at the University of Economics and Law, Vietnam. He works and does research in the fields of auditing, corporate finance, and behavioural accounting.

Nguyen Thi Hong Van

Nguyen Thi Hong Van is an associate researcher at the University of Economics and Law, Vietnam National University, Ho Chi Minh City, Vietnam. Collectively, the authors have published several papers in quality journals, including Corporate Social Responsibility and Environmental Management, Sustainability, Business Strategy & Development, Journal of Sustainable Finance and Investment, Asia-Pacific Journal of Business Administration, Journal of Financial Reporting and Accounting, International Journal of Accounting & Information Management, Cogent Business and Management, and Social Responsibility Journal.