The association between upward and downward earnings management and equity liquidity: empirical evidence from non-financial firms listed in Vietnam

Figures & data

Table 1. Variables in the research model

No	Variable name	Symbol	Measure	References
I	Dependent variable (ILLIQUIDITY)
1	Quoted spread	QTSP	Difference between the ask and bid quotes relative to the mid-quote	Arya et al. (2003), Ascioglu et al. (2012), Bafghi et al. (2014)
2	Effective spread	EFSP	Twice the absolute value of the difference between the transaction price and the mid-quote divided by the mid-quote	Arya et al. (2003) Ascioglu et al. (2012), Bafghi et al. (2014)
II	Independent variables
3	Earnings management	EM	The absolute value discretionary accrual.	Jones (1991); Dechow et al. (1995), Kothari et al., (2005)
III	Control variable
4	Volatility	VOLAT	The annual average standard deviation of equity return	Eaton et al. (2007), Ajina et al. (2015)
5	Trading volume	VOLM	The annual average daily trading volume	Stoll (1978), Kim and Verrecchia (2001), Ajina et al. (2015)
6	Price	PRICE	The average daily closing price of each year	Ascioglu et al. (2012), Ajina et al. (2015)
7	Return	RETURN	The mean daily returns of stock of each year	Amihud et al. (1997), M. J. Brennan et al. (1998)
8	Firm size	SIZE	The natural logarithm of total assets	Lim et al., (2008)

Source: The authors proposed

Table

$T{A}_{\mathit{\text{it}}}$

=

${{\beta }_0}^{\prime }$

1

+

${{\beta }_1}^{\prime }$

$\mathrm{\Delta }\mathit{\text{RE}}{V}_{\mathit{\text{it}}}$

-

$\mathrm{\Delta }\mathit{\text{RE}}{C}_{\mathit{\text{it}}}$

${{\beta }_2}^{\prime }$

$\mathit{\text{PP}}{E}_{\mathit{\text{it}}}$

+

${\beta }_{3^{\prime }}\mathit{\text{RO}}{A}_{\mathit{\text{it}}}$

+

${\epsilon }_{\mathit{\text{it}}}$

$A_{\mathit{\text{it}}-1}$

$A_{\mathit{\text{it}}-1}$

$A_{\mathit{\text{it}}-1}$

$A_{\mathit{\text{it}}-1}$

Table

NDAit

=

${{\beta }_0}^{\prime }$

1

+

${{\beta }_1}^{\prime }$

$\mathrm{\Delta }\mathit{\text{RE}}{V}_{\mathit{\text{it}}}$

-

$\mathrm{\Delta }\mathit{\text{RE}}{C}_{\mathit{\text{it}}}$

${{\beta }_2}^{\prime }$

$\mathit{\text{PP}}{E}_{\mathit{\text{it}}}$

+

${\beta }_3\prime \mathit{\text{RO}}{A}_{\mathit{\text{it}}}$

$A_{\mathit{\text{it}}-1}$

$A_{\mathit{\text{it}}-1}$

$A_{\mathit{\text{it}}-1}$

Table 2. Analysis of the correlation matrix between the variables in the model state 1

	TAt/At-1	1/At-1	(DtREVt-DtRECt)/At-1	PPEt/At-1	ROAt-1
TAt/At-1	1
1/At-1	0.0351	1
(DtREVt-DtRECt)/At-1	0.1435	−0.0436	1
PPEt/At-1	−0.1392	−0.0286	0.073	1
ROAt-1	0.1524	0.0085	0.0338	0.0824	1

Table 3. Pooled OLS model regression results state 1

TAt/At-1	Coef.	Std. Err.	t	P>t	[95% Conf.	Interval]
1/At-1	3.270861	0.441848	7.4	0.000	1	0.987585
(DtREVt-DtRECt)/At-1	0.052606	0.005483	9.59	0.000	1.01	0.992143
PPEt/At-1	−0.03249	0.010083	−3.22	0.001	1.01	0.992291
ROAt-1	0.487706	0.030361	16.06	0.000	1.01	0.997301
				Mean VIF	1.01

Regression results show that the impact of all independent variables on the dependent variable is statistically significant. Finally, I get the model to estimate the non-discretionary accruals (NDA) as follows:

NDA = 3.270861*1/A_t-1 + 0.052606*(DtREV-DtREC)/A_t-1 -0.03249*PPEt/A_t-1 + 0.487706* ROA_t-1

Table 4. Descriptive statistics of variables in the model

Variable	Observations	Mean	Standard deviation	Min	Max
Upward Earnings management	1783	0.0969856	0.1235923	0.0000203	1.633872
Downward Earnings management	1965	−0.0880027	0.0832148	−0.9448352	−0.0000452
Earnings management	3748	0.092276	0.104471	0.0000203	1.633872
Quoted Spread	3850	0.025559	0.013523	0	0.102223
Effective Spread	3850	0.377252	0.490351	0	1.976455
Return	3850	0.00053	0.002072	−0.04054	0.011047
Volatility	3850	0.029318	0.009319	0	0.080342
Price	3850	12950.89	15099.52	119.7943	183193.4
Trading Volume	3850	225196.1	828148.5	0.003968	16400000
Firm size	3859	27.46325	1.482934	23.46185	33.67722

Table 5. Correlation coefficient analysis

	Quoted spread	Effective spread	Earnings management	Return	Volatility	Price	Trading Volume	Firm size
Quoted spread	1
Effective spread	−0.0156	1
Earnings management	0.0664	−0.0061	1
Return	0.0543	−0.0583	0.015	1
Volatility	0.2582	0.0567	0.0969	0.1529	1
Price	−0.1054	−0.0902	−0.0243	0.0319	−0.194	1
Trading Volume	0.2096	−0.0858	0.0017	0.0298	−0.0561	−0.0198	1
Firm size	0.2984	0.0311	−0.0508	−0.0301	−0.3228	0.1894	0.4008	1

Table 6. Pooled OLS regression results for quoted spread

	Downward earnings management			Upward earnings management			VIF
Quoted Spread	Coef.	t	P>t	Coef.	t	P>t
Earnings management	0.000	−0.120	0.905	0.007	2.840	0.005	1.01
Return	−0.116	−0.770	0.440	0.293	2.200	0.028	1.03
Volatility	0.374	12.320	0.000	0.278	9.050	0.000	1.18
Price	0.000	−3.940	0.000	0.000	−3.370	0.001	1.07
Trading Volume	0.000	8.120	0.000	0.000	9.390	0.000	1.21
SIZE	0.001	14.810	0.000	0.001	16.730	0.000	1.37
Number of observations	1962			1777			1.15
R-squared	0.8122			0.8227

Table 7. Pooled OLS regression results for effective spread

	Downward earnings management			Upward earnings management			VIF
Effective Spread	Coef.	t	P>t	Coef.	t	P>t
Earnings management	−0.022	−0.160	0.871	−0.084	−0.910	0.363	1.01
Return	−12.104	−2.080	0.038	−16.430	−3.130	0.002	1.03
Volatility	1.969	1.680	0.094	3.142	2.590	0.010	1.18
Price	0.000	−3.060	0.002	0.000	−4.830	0.000	1.07
TradingVolume	0.000	−4.330	0.000	0.000	−4.320	0.000	1.21
SIZE	0.013	9.190	0.000	0.014	9.470	0.000	1.37
Number of observations	1962			1777			1.15
R-squared	0.3809			0.4056

Table 8. GLS regression results

	Quoted spread		Effective spread
	Downward Earnings management	Upward Earnings management	Downward Earnings management	Upward Earnings management
Earnings management	−0.00183*	−0.001	0.015	0.002
	[−1.72]	[−1.57]	[0.42]	[0.11]
Return	0.287***	0.364***	−3.105**	−2.886*
	[6.53]	[6.04]	[−2.05]	[−1.91]
Volatility	0.683***	0.650***	1.111**	0.776
	[47.96]	[31.13]	[2.35]	[1.56]
Price	0.000***	−0.000***	−0.000***	−0.000***
	[4.41]	[−5.99]	[−4.07]	[−4.91]
Trading Volume	0.000*	0.000***	0.000	0.000
	[1.79]	[2.73]	[0.32]	[0.77]
SIZE	0.000	0.00324***	−0.010	−0.0320***
	[0.99]	[17.98]	[−1.62]	[−4.92]
_cons	0.002	−0.0804***	0.444**	1.072***
	[0.24]	[−15.37]	[2.55]	[5.89]
N	1902	1717	1902	1717

Note: t statistics in brackets

* p<0.1, ** p<0.05, *** p<0.01

Table 9. Results of testing the research hypotheses

No	Research hypotheses	Results
H1	Upward earnings management has a positive effect on the quoted spread	Rejected
H2	Downward earnings management has a positive effect on the quoted spread	Rejected
H2	Upward earnings management has a positive effect on the effective spread	Rejected
H4	Downward earnings management has a positive effect on the effective spread	Rejected

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