Corporate governance and earnings management: Evidence from Vietnamese listed firms

Using the hand-collected data of 800 Vietnamese non-financial firms from 2008 to 2018, this study constructs a comprehensive corporate governance index in alignment with the corporate governance code of best practices in Vietnam. We provide strong evidence that corporate governance quality restrains earnings management, measured by both the discretionary accruals and the real earnings management. In particular, the negative association between corporate governance quality and earnings management is more profound in private firms (non-SOEs), firms with high foreign ownership and low concentrated ownership, and high growth firms compared to its peers. The observed results are robust to alternative measures of signed discretionary accruals, total accruals and aggregated measures of real earnings management. Furthermore, the results are corroborated using instrumental variables, firm fixed effects and propensity score matching methods to address potential reverse causality and sample selection bias.