The impact of leverage on earnings management: A case study of listed manufacturing companies in Viet Nam in the period of 2017-2019

Abstract

The research examines the impact of leverage on earnings management: a case study of listed manufacturing companies in Viet Nam in the period of 2017-2019. Leverage is measured by the ratio of long-term debt to the total book value of equity. Earnings management is measured by using accrual-based measures (AEM) and real earnings management measures (REM). Data comprises 45 manufacturing companies on Vietnam stock markets (HNX and HOSE) that have increasing or high leverage in the period 2017-2019, forming 135 observations. Multiple regression analysis with panel data is used to estimate the impact of leverage on earnings management. Results research show that firm leverage has a positive effect on earnings management using accrual-based measures (AEM) and has a negative effect on earnings management using real earnings management (REM) measures but with no statistical significance. Results research suggest that leverage changes and leverage levels may have differing impacts on earnings management based on AEM and REM. Additionally, the research finds that firm performance (ROA) is associated with positive earnings management, and firm size (SIZE) is associated with negative earnings management.