[Research Contribution] The Impact of Earnings Management on Stock Prices of Listed Firms through Financial Statement Disclosure Violations: An Empirical Study on the Ho Chi Minh City Stock Exchange during the COVID-19 Pandemic

31 July, 2025

Keywords: Earnings management; stock prices; financial statement disclosure; disclosure violations; stock market.

As Vietnam’s stock market continues to expand in terms of both capitalization and the number of listed firms, transparency and the quality of corporate disclosures have become key concerns for investors and regulators alike. This issue became particularly critical in the aftermath of the COVID-19 pandemic—a period marked by economic downturn and heightened market sensitivity—during which a number of firms such as FLC, ITA, and SJF were delisted due to information disclosure violations and stock price manipulation. In response to these developments, a research team led by Assoc. Prof. Dr. Hà Xuân Thạch (University of Economics Ho Chi Minh City – UEH) and Dr. Trần Thị Thanh Quý (Industrial University of Ho Chi Minh City) conducted a large-scale empirical study involving 160 listed manufacturing and business enterprises on the Ho Chi Minh City Stock Exchange during the 2019–2021 period. This study is notably the first in Vietnam to systematically investigate the relationship between earnings management and stock prices through the lens of disclosure violations in the context of a market heavily affected by the COVID-19 pandemic.

Research Context

In 2023, according to VnEconomy, “the scale of Vietnam’s stock market continued to expand in terms of both market capitalization and listing volume, reaching a total capitalization of VND 5,937 trillion (an increase of 13.6% compared to the end of 2022, equivalent to 58.1% of the estimated GDP for 2023), while the total volume of listed and registered securities rose to VND 2,128 trillion (up 7.3% from year-end 2022). By the end of 2023, Vietnam’s stock market recorded 739 listed stocks and exchange-traded fund certificates across the two major stock exchanges, along with 862 stocks registered on UPCoM” (Tạ Thanh Bình, 2024). Vietnam’s stock market is projected to be reclassified as an emerging market by 2025.

However, alongside this expansion, an increasing number of firms have been delisted due to serious violations, such as stock price manipulation and non-compliance with financial statement disclosure requirements. Notable cases include companies such as FLC, ITA, TNA, and SJF.

Violations related to financial statement disclosure have occurred with increasing frequency and complexity, significantly impacting stock prices—particularly during the COVID-19 pandemic, when global trade and economic activity were severely disrupted. Within this context, earnings management (EM) behaviors that affect stock prices through financial disclosure violations have emerged as a critical issue requiring systematic investigation. Notably, there remains a lack of academic research—both internationally and within Vietnam—that explores disclosure violations as a mediating variable in the relationship between earnings management and stock price movements. This gap highlights the necessity of the current empirical study.

Does Earnings Management Affect Stock Prices through Financial Statement Disclosure Violations?

This question is currently attracting substantial attention from both academic researchers and market practitioners. Numerous domestic and international studies have demonstrated that earnings management (EM) directly influences financial statement disclosure violations, as well as stock prices. Notable contributions include those by Baik et al. (2022), Aljawaheri et al. (2021), Al-Shattarat (2021), Khương et al. (2022), Lê Thị Thanh Hải & Nguyễn Hồng Nga (2021), and Vương (2021).

In parallel, a body of literature has also confirmed the direct impact of financial statement disclosure violations on stock price volatility. Representative studies in this area include Salawu (2022), Rahman & Liu (2021), Bushee et al. (2019), Đặng Ngọc Hùng (2022), and Dương An Thảo (2020).

However, research that investigates the mediating role of disclosure violations in the relationship between earnings management and stock prices remains extremely limited on a global scale, and virtually absent in the Vietnamese context.

One of the few studies with a similar approach is that of Ahmed (2021), conducted in Iraq using data from 2017 to 2021. Grounded in the Efficient Market Hypothesis and theories of information asymmetry, the study concluded that the accounting profits disclosed by firms serve as a key source of information that significantly shapes investors’ perceptions and decisions in financial markets.

In Indonesia, the study by Sochib and Setyobakti (2019), based on 80 observations between 2014 and 2018, analyzed both the direct and indirect effects of earnings management on stock prices, incorporating board composition as a mediating variable. Although the research did not find a direct impact of earnings management on stock prices, it revealed a notable indirect effect mediated by the roles of the audit committee or independent supervisory board.

Taken together, the existing evidence suggests the following:

Earnings management may lead to financial statement disclosure violations;
Disclosure violations may, in turn, affect stock price movements;
Earnings management may also exert a direct influence on stock prices.

Thus, if empirically validated, financial statement disclosure violations could reasonably function as a mediating variable in the proposed research model, offering deeper insights into the mechanisms through which earnings management affects stock prices in the context of emerging financial markets such as Vietnam.

Figure 2.1. Proposed Research Model

Source: Proposed by the authors

Research Design and Findings

Subjects and Scope of the Study

This study was conducted on a sample of 160 manufacturing and commercial enterprises listed on the Ho Chi Minh City Stock Exchange (HOSE) during the period 2019–2021. Firms operating in the financial and banking sectors were excluded due to the distinctive characteristics of their financial reporting systems.

The research period of 2019–2021 represents a particularly significant phase in which the Vietnamese and global economies were deeply affected by the COVID-19 pandemic. The disruptions in business operations and corporate governance during this context may have led to earnings management behaviors that differ notably from those observed in prior studies conducted under conditions of economic stability or typical recessionary cycles.

Research Data

Data were collected from official and reliable sources, including:

Audited financial statements,
Annual reports, and
Environmental reports of the sampled firms.

Stock price data were recorded as of the end of March of the subsequent fiscal year to allow sufficient time for the market to fully reflect financial disclosures. The sample consisted of firms with fiscal years ending on December 31 and that published financial statements continuously across all three years of the study. Information regarding financial statement disclosure violations was extracted from official announcements issued by HOSE, regardless of the severity of the violation.

Research Methodology

A mixed-methods approach was employed in this study:

Qualitative research was used to explore the potential underlying relationships between earnings management and stock prices, mediated by disclosure violations.
Quantitative research was subsequently implemented to measure the direct and indirect impacts of these variables using Generalized Structural Equation Modeling (GSEM). This modern analytical technique enables the simultaneous testing of causal relationships within the proposed model.

Research Findings

The empirical results reveal that:

Earnings management exerts a negative direct effect on stock prices (i.e., an inverse relationship);
Earnings management has a positive impact on financial statement disclosure violations (i.e., a direct relationship);
Financial disclosure violations, in turn, have a negative effect on stock prices.

These findings substantiate the mediating role of financial disclosure violations in the relationship between earnings management and stock prices. In other words, firms engaging in earnings management may affect stock prices both directly and indirectly through their non-compliance with disclosure obligations.

Conclusion

The proposed research model successfully clarifies both the direct and indirect mechanisms through which earnings management influences stock prices, thereby fulfilling the study’s objectives. The findings contribute a novel perspective to the field of financial accounting research in Vietnam, particularly within the context of emerging markets during periods of macroeconomic uncertainty.

Hypothesis	Statement	Estimated Coefficient	Effect Direction
H1	Earnings management has a direct impact on stock prices.	–2.12	Negative (–)
H2	Earnings management influences violations of financial statement disclosure.	2.28	Positive (+)
H3	Violations of financial disclosure have an effect on stock prices.	0.29	Positive (+)
H4	Earnings management has an indirect impact on stock prices through disclosure violations.	0.66	Positive (+)

Source: Authors’ estimation using Stata, based on data from 160 non-financial firms listed on the Ho Chi Minh City Stock Exchange (HOSE), 2019–2021.

Policy Implications

Based on the empirical findings, the research team proposes several key policy implications for enterprises, state regulatory bodies, and investors as follows:

For Enterprises:

The results suggest that earnings management (EM) practices tend to be more prevalent during periods of economic downturn, such as the COVID-19 pandemic. Specifically, some firms deliberately manipulated their financial statements to report exaggerated losses (coefficient: –2.2), while also engaging in violations of financial disclosure obligations (coefficient: +2.8), thereby negatively impacting stock prices. These practices may serve illicit purposes such as:

Manipulating market prices to repurchase shares at undervalued levels for personal gain;
Qualifying for tax incentives or state-funded support programs (particularly in state-owned enterprises);
Creating a perception of a dramatic post-crisis recovery to attract new investment inflows.

Recent developments in Vietnam’s stock market, notably involving companies such as FLC and ITA, underscore the urgency of implementing stronger internal controls to prevent such manipulative behavior at the corporate level.

For State Regulatory Authorities:

This study offers a new analytical lens for policymakers to better understand the indirect pathways through which earnings management influences stock prices—specifically via violations in financial disclosure. The findings reinforce the importance of early detection of irregularities in financial statements and disclosure behaviors, which can enhance investors’ ability to assess risks more accurately. Consequently, this enables more informed, prudent buy–sell decisions that are aligned with prevailing market conditions.

For Investors:

The research enhances investor awareness of the multifaceted impact of earnings management—not only as a direct influence on stock valuation but also as a contributor to disclosure irregularities that erode market transparency. Vigilant scrutiny of financial statements, particularly during times of crisis, is essential for protecting investment interests and promoting fair market behavior.

Authors:

Assoc. Prof. Dr. Hà Xuân Thạch – University of Economics Ho Chi Minh City (UEH)
Dr. Trần Thị Thanh Quý – Institute of Accounting, Industrial University of Ho Chi Minh City

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