Purpose This study aims to examine the effects of audit quality on earnings management and cost of equity capital (COE) considering the impact of two owner types: government ownership and foreign ownership. Design/methodology/approach The study uses a panel data set of 236 Vietnamese firms covering the period 2007 to 2017. Because the two main dependent variables of the COE capital and the absolute value of discretionary accruals receive fractional values between zero and one, the paper uses the generalised linear model (GLM) with a logit link and the binomial family in regression analyses. The paper uses numerous audit quality measures, including hiring Big 4 auditors or the industry-leading Big 4 auditor, changing from non-Big 4 auditors to Big 4 auditors or the industry-leading Big 4 auditor, and the length of Big 4 auditor tenure. Big 4 companies include KPMG, Deloitte, EY and PwC, whereas the non-big 4 are the other audit companies. Findings The study finds a negative relationship between audit quality and both the COE capital and income-increasing discretionary accruals. The effects of audit quality on discretionary accruals and the COE capital depend on the ownership levels of two important shareholders: the government and foreign investors. Foreign ownership is negatively associated with discretionary accruals; however, the effect is more pronounced in the sub-sample of state-owned enterprises (SOEs), the firms where the government owns 50% or more equity, than in the sub-sample of Non-SOEs. Originality/value To the best of the knowledge, no prior similar study exists that used the GLM with a logit link and the binomial family regression. Global investors may be interested in understanding how unique institutional settings and capital markets of each country impact the financial reporting quality and cost of capital. Further, policymakers of developing markets may have incentives to improve the quality of financial reporting and reduce the cost of capital which should result in attracting more foreign investments.

Purpose The purpose of this paper is to examine the joint effects of state ownership and tax rate cuts on accounting conservatism, considering the different levels of foreign ownership in the context of Vietnam. Design/methodology/approach The paper uses ordinary least squares regressions and a data set of 405 firms covering the period 2007 to 2019. The manuscript uses three measures of accounting conservatism: Basu’s 1997 timeliness of earnings, Basu’s 1997 earnings persistence and the book-to-market ratio. Findings State-owned enterprises (SOEs) adopt less accounting conservatism than non-SOEs; however, the result is only robust in firms with foreign ownership being lower than the foreign ownership median. Firms increase accounting conservatism in the year immediately prior to the year that the tax rate cuts become effective. An SOE possesses an unusual conflict both as a taxpayer and in having its controlling interest held by the government, which is both a tax creator and a tax collector. Interestingly, the increase in accounting conservatism prior to the year of the tax rate cuts is more pronounced for non-SOEs than SOEs. Practical implications This research is beneficial to investors and policymakers where the government is both the taxpayer and tax collector and in emerging markets where foreign investment is local firms’ important financing. Originality/value To the best knowledge, this study is the first in examining the joint effects of state control and tax rate cuts on accounting conservatism.

Purpose This study aims to examine the effects of market liquidity on earnings management (EM) of seasoned equity offering (SEO) firms considering external capital access. Design/methodology/approach This study uses a panel data set of 158 Vietnamese SEO firms from 2007 to 2019. Both real and accrual EM measures are analysed. The study uses two proxies for market liquidity: stock turnover (the ratio of total shares traded over the year divided by total shares outstanding for the year) and high–low spread (estimated following Corwin and Schultz [2012]) and fixed-effects panel and two-stage least squares regression in the analysis. Findings Firms with high (low) market liquidity report low (high) EM, and the result is robust after controlling for endogeneity. The results hold for both real and accrual-based EM for both market liquidity proxies. However, the results are robust only for firms with low external capital access and non-state-owned companies. The authors find a negative market reaction to earnings manipulation. Practical implications This study’s findings help policymakers, investors and managers make better decisions regarding SEO firms and reduce the risk of inaccurate information due to EM. Originality/value Among the few studies that test the influence of market liquidity on EM, to the best of the authors’ knowledge, this study is the first to examine the effect of market liquidity on EM in the context of SEO firms considering the impact of capital access.

No abstract available.

PurposeThis paper examines how manufacturing firms impacted by the nitrogen oxides (NOx) Budget Trading Program (NBP) strategically managed working capital to release funds for increased costs and mitigate the negative impact on firm performance.Design/methodology/approachThe study uses a panel data set including 11,302 manufacturing firm-year observations listed on the US exchanges during the period 2000–2008. The authors use Tobin's Q to proxy for firm performance, and cash holding, cash conversion cycle (CCC), days sales outstanding (DSO), days sales inventory (DSI) and days payable outstanding (DPO) for working capital management (WCM). The empirical analysis is conducted using both ordinary least squares (OLS) and propensity score matching (PSM) regressions.FindingsThe authors find that firms respond to the higher utility costs imposed by the NBP by decreasing CCC, DSO and DSI. This active WCM response partially mitigated the impact of increased compliance costs on performance for firms affected by the NBP. Results are robust in PSM regressions.Research limitations/implicationsClimate change is a global issue that has attracted increasing attention in recent years. This study shows how firms can adjust short-term financing strategies to address the costs of compliance with climate change regulation.Originality/valueThe paper contributes to the emerging literature on corporate finance and climate policy actions. The authors use the unique experimental setting of the NBP to examine the regulatory impact on corporate financial management. The authors demonstrate how firms used active WCM to mitigate the negative performance impact of regulatory compliance with the NBP, providing novel insight on the implication of compliance with climate change legislation.