[Research Contribution] Earnings Management Affects Stock Prices of Listed Enterprises Through Financial Statement Disclosure Violations: An Empirical Study of the Ho Chi Minh City Stock Market During the Covid-19 Pandemic
25 May, 2025
Keywords: Earnings management; stock prices; financial statement disclosure; disclosure violations; stock market.
In the context of Vietnam’s stock market growing steadily in both market capitalization and the number of listed enterprises, transparency and the quality of disclosed information have become paramount concerns. In particular, following the Covid-19 pandemic – a period during which the economy fell into recession and market sentiment became highly sensitive – numerous enterprises such as FLC, ITA, and SJF were delisted due to information disclosure violations and stock price manipulation. Against this backdrop, the research team led by Assoc. Prof. Dr. Ha Xuan Thach (University of Economics Ho Chi Minh City – UEH) and Dr. Tran Thi Thanh Quy (Ho Chi Minh City University of Industry and Trade) conducted a large-scale empirical study covering 160 production and trading enterprises listed on the Ho Chi Minh City Stock Exchange during the 2019–2021 period. This is also the first empirical study in Vietnam to systematically investigate this relationship during a period in which the market was profoundly affected by the Covid-19 pandemic.
Research Context
In 2023, according to VnEconomy magazine, “the market capitalization and listing scale of Vietnam’s stock market continued to grow, reaching a capitalization level of VND 5,937 trillion (an increase of 13.6% compared to the end of 2022, equivalent to 58.1% of estimated 2023 GDP), and the listing and registered trading scale reached VND 2,128 trillion (an increase of 7.3% compared to the end of 2022). By the end of 2023, the stock market had 739 stocks and fund certificates listed on the two Stock Exchanges, and 862 stocks registered for trading on UPCoM” (Ta Thanh Binh, 2024). Vietnam’s stock market is expected to be upgraded to an emerging market in 2025. On the other hand, the number of enterprises delisted due to stock price manipulation violations, serious financial statement disclosure violations, and other infractions has been increasing, as seen in the cases of FLC, ITA, TNA, SJF, and others.
Enterprises that violate financial statement disclosure requirements do so at varying degrees of severity and complexity, exerting significant impacts on stock trading prices – particularly during the period when the global economy was ravaged by the Covid-19 pandemic and international trade came to a standstill. The behavior of earnings management that manipulates stock prices on Vietnam’s stock market through financial statement disclosure violations has emerged as a critical issue warranting research, given that to date, no academic study – either globally or in Vietnam – has examined the mediating variable of financial statement disclosure violations.
Does earnings management affect stock prices through financial statement disclosure violations?
This question has attracted considerable attention from both the research community and market practitioners. Numerous domestic and international studies have demonstrated that earnings management directly influences financial statement disclosure violations as well as stock prices. Notable works include those by Baik et al. (2022), Aljawaheri et al. (2021), Al-Shattarat (2021), Khuong et al. (2022), Le Thi Thanh Hai & Nguyen Hong Nga (2021), and Vuong (2021), among others.
Additionally, several other studies have demonstrated that financial statement disclosure violations directly affect stock price fluctuations, with representative works by Salawu (2022), Rahman & Liu (2021), Bushee et al. (2019), Dang Ngoc Hung (2022), and Duong An Thao (2020), among others.
However, studies examining the mediating role of financial statement disclosure violations in the relationship between earnings management and stock prices remain extremely rare globally and are virtually nonexistent in Vietnam.
One of the few studies with a similar approach is that of Ahmed (2021), conducted in Iraq using data from 2017–2021 and grounded in efficient market theory and asymmetric information theory. The results revealed that accounting profits disclosed by enterprises serve as a key source of information, exerting a strong influence on investors’ perceptions and investment decisions in financial markets.
In Indonesia, the study by Sochib & Setyobakti (2019) – based on data from 80 observations during the 2014–2018 period – analyzed both the direct and indirect effects of earnings management on stock prices, using board composition as a mediating variable. Although the study found no direct impact of earnings management on stock prices, it did identify a significant indirect effect through the role of the audit committee or independent supervisory board.
Based on the above evidence, the following can be observed:
- Earnings management can lead to financial statement disclosure violations;
- Financial statement disclosure violations can affect stock prices;
- And earnings management itself can also directly impact stock prices.
Therefore, if these relationships are tested and found to be significant, financial statement disclosure violations can indeed serve as a valid mediating variable in the research model, providing a clearer explanation of the mechanism through which earnings management behavior affects stock market prices.
Figure 2.1: Proposed Research Model Source: Proposed by the authors
Research Design and Results
Research Subjects and Scope
The study was conducted on 160 production and trading enterprises listed on the Ho Chi Minh City Stock Exchange (HOSE) during the 2019–2021 period. Enterprises in the financial and banking sectors were excluded from the research sample due to the distinctive characteristics of their financial reporting systems.
The 2019–2021 research period represents a particularly unique timeframe during which the Vietnamese and global economies were profoundly affected by the Covid-19 pandemic. Fluctuations in business operations and corporate governance in this context may have given rise to earnings management behaviors distinct from those observed in previous studies conducted under stable economic conditions or ordinary recessions.
Research Data
Data were collected from authoritative sources including:
- Audited financial statements
- Annual reports
- Environmental reports of enterprises within the research sample
Stock prices were recorded as of the end of March of the subsequent year to ensure the market had sufficient time to reflect the enterprises’ financial information. The research sample comprised enterprises with fiscal years running from January 1 to December 31 that continuously disclosed financial statements over the three-year period. Information regarding financial statement disclosure violations was extracted from official HOSE announcements, without distinction based on the severity of violations.
Research Methodology
The study was conducted using a mixed-methods approach:
- Qualitative research: aimed at exploring potential relationships between earnings management behavior and stock prices through the channel of financial information disclosure violations.
- Quantitative research: conducted subsequently to measure the direct and indirect impact levels of the above factors, using Generalized Structural Equation Modeling (GSEM). This is a modern analytical method that enables simultaneous testing of causal relationships within the research model.
The research results revealed:
- Earnings management has a direct negative impact on stock prices (inverse effect);
- Earnings management has a positive impact on financial statement disclosure violations (positive effect);
- Financial information disclosure violations have a negative impact on stock prices.
These findings clarify the mediating role of financial statement disclosure violations in the relationship between earnings management and stock prices. In other words, enterprises engaging in earnings management not only directly affect stock prices but can also exert an indirect influence through violations of their financial information disclosure obligations.
In conclusion, the research model has elucidated both the direct and indirect mechanisms of impact among the variables, while fully achieving all stated research objectives, thereby contributing a novel approach to the field of finance and accounting research in Vietnam.
| Hypothesis | Hypothesis Name | Impact Coefficient | Direction of Impact |
| H1 | Earnings management has a direct impact on stock prices. | –2.12 | – |
| H2 | Earnings management has an impact on financial statement disclosure violations. | 2.28 | + |
| H3 | Financial statement disclosure violations have an impact on stock prices. | 0.29 | + |
| H4 | Earnings management has an indirect impact on stock prices through financial statement disclosure violations. | 0.66 | + |
Source: Stata results from 160 enterprises listed on HOSE, 2019–2021
Policy Implications
Based on the empirical findings, the research team proposes several important policy implications for enterprises, state regulatory agencies, and investors as follows:
For enterprises: The research results indicate that earnings management behavior tends to be employed more aggressively in the context of economic recession caused by the pandemic. Specifically, some enterprises deliberately made their financial statements reflect losses more severe than the actual situation (impact coefficient of –2.2), while simultaneously violating their financial information disclosure obligations (coefficient of +2.8), thereby negatively affecting stock prices. Such behavior may be aimed at manipulating market prices for illicit purposes, including: repurchasing stocks at low prices for personal gain; obtaining tax incentives or state budget support (particularly in state-invested enterprises); and creating an impression of a “spectacular” post-crisis recovery to attract new investment flows. Market practice in Vietnam’s stock market in recent times has seen several notable cases such as FLC and ITA stocks, underscoring the urgency of controlling such behavior from within enterprises.
For state regulatory agencies: This study provides a new perspective that helps investors enhance their awareness of the impact of earnings management behavior on stock prices – not only through direct channels but also through violations in financial information disclosure. Early identification of abnormal signals in financial statements and disclosure behavior will help investors accurately assess risks, thereby making prudent and market-appropriate decisions regarding stock purchases and sales.
Research Team: Assoc. Prof. Dr. Ha Xuan Thach – University of Economics Ho Chi Minh City; Dr. Tran Thi Thanh Quy – Institute of Accounting, Ho Chi Minh City University of Industry and Trade.
This article is part of the Series on Research Dissemination and Applied Knowledge from UEH, carrying the message “Research Contribution For All”. UEH cordially invites readers to follow the next edition of UEH Research Insights.
News and image: Authors, UEH Department of Communications and Partnerships
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