From M-Score to F-Score: Moderating the Relationship between Earnings Management and Stock Performance

Abstract

Earnings management and value relevance are critical due to their impact on financial decisions. This study examines the relationship between earnings manipulation as measured by the Beneish M-Score and Dechow F- Score and excess stock returns in the Vietnamese market from 2004 to 2019. The analysis uses robust econometric techniques such as stochastic generalized method of moments (SGMM) to address endogeneity. The findings show a significant inverse relationship between the M-Score and excess returns, while the F- Score shows a nuanced, positive post-crisis relationship. This suggests investors in frontier markets may tolerate higher accounting discretion during economic uncertainty due to limited information sources. The results imply that it is desirable to improve financial reporting quality and transparency. In addition, the results show that investors would benefit from incorporating manipulation scores into risk assessments, avoiding firms with high M-scores, and from recognizing that firms with high F-scores may be more resilient during crises.