The impact of ownership structure, financial distress on earnings management: The case of Vietnam

Abstract

The paper examines the effect of ownership structure on profit management in Vietnam. In this study, we explore how three components of ownership structure - the degree of ownership concentration of managers, foreign ownership ratio and state ownership ratio - affect earnings management. In addition, we also consider whether ownership structure affects profit management during financial constraints.<b> </b>We used REM, FEM, GLS, and GMM regression methods. The study results have shown that ownership structure with foreign ownership has a positive effect on earnings management, whereas one with a proportion of state ownership has a contradicting effect. While the degree of ownership concentration does not affect the profit management, in the context of financial restrictions, the ownership ratio has an impact on the management of earnings. Controllable variables in the model, such as firm size, financial leverage, growth rate, profitability and audit quality, all have an impact on earnings management. The results could, potentially, be the basis to help businesses in restricting earnings management behaviour.

The moderating role of board diversity on the relationship between ownership structure and real earnings management

“…However, firms also function in setting contractual conflicts of interest between the contractual partners due to their wide range of incentives (Jensen and Meckling, 1976). Managers within the firms often seek their own goals and direct their management to make profit adjustments in opposition to the owner's potential regarding maximizing their benefits in the company (Dang Ngoc and Tran Manh, 2020). This distinction between control and ownership leads to a possible divergence of interests between the owners and managers that increase agency costs in the firm (Jensen and Meckling, 1976).…”