Earnings management and subsequent stock performance: Evidence from an emerging market

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Abstract

Based on a sample of 161 newly listed firms on the Ho Chi Minh Stock Exchange (HOSE) from 2009 to 2016, the study investigates the pattern of earnings management and stock performance in the long run. This study then explores the effect of earnings management on stock performance in the long run around the listing phenomenon. Two models based on current accruals were adopted for this study to estimate earnings management (Teoh et al., 1998a, 1998b). The study consistently finds that managers have manipulated their company’s earnings in the pre-listing year but not in the listing year when earnings management is measured by current accruals models. In addition, in line with previous research, significant underperformance was found in all measures over three holding periods: 12, 24 and 36 months. Finally, the results also demonstrate that companies associated with aggressive current accruals in the year before listing tend to suffer from post-listing earnings and share return underperformance. The more aggressive the practice of earnings management, the greater its adverse effect on stock performance in the following years.

Keywords: Current Accruals Models, Earnings Management, Stock Performance, Listing, Vietnam

Authors’ individual contribution: Conceptualization — D.T.C.; Methodology — D.T.C. and N.T.T.D.; Software — D.T.C.; Validation — D.T.C. and N.T.T.D.; Writing — Original Draft — D.T.C. and N.T.T.D.; Writing — Review & Editing — N.T.T.D. and H.N.T.; Supervision — D.T.C., N.T.T.D., and N.T.H.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: M41, M14, G34

Received: 11.04.2023
Accepted: 20.11.2023
Published online: 22.11.2023

How to cite this paper: Chi, D. T., Diep, N. T. T., & Nguyen, H. T. (2023). Earnings management and subsequent stock performance: Evidence from an emerging market [Special issue]. Corporate Governance and Organizational Behavior Review, 7(4), 221–232. https://doi.org/10.22495/cgobrv7i4sip1