Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam.
i MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY … Vo Thi Thuc OWNERSHIP STRUCTURE, ACCOUNTING CONSERVATISM AND FIRM PERFORMANCE: EVIDENCE FROM VIETNAM Major: Accounting Code: 9340301 SUMMARY OF THE DISSERTATION Ho Chi Minh City, 2023 ii The dissertation is prepared at: University of Economics Ho Chi Minh City Academic advisors: Prof, Dr Vo, Xuan Vinh Prof Jonathan A, Batten Reviewer 1: Reviewer 2: Reviewer 3: The dissertation will be presented to the University of Economics Ho Chi Minh City At…….hours…… day…….month………year……… This dissertation can be found at the library of University of Economics Ho Chi Minh City ABSTRACT Purpose The goals of this thesis are to investigate the influence of ownership structure on accounting conservatism and the benefits of accounting conservatism on firm performance in Vietnam context The literature review shows that ownership structure has an effect on accounting conservatism and accounting conservatism also has a positive effect on the firm performance in countries around the world, however, the findings have not been consistent In addition, there are a few studies that provide evidence on the relationship between ownership structure and accounting conservatism, especially ownership concentration, institutional ownership in the Vietnam context Regarding the impact of accounting conservatism on the firm performance, there are limited studies on this issue until the time the thesis conducts the research in the Vietnam context Design/methodology/approach The research sample was selected from non-financial companies listed on the Ho Chi Minh City Stock Exchange in the period from 2012 to 2020 Data were collected from consolidated financial statements, annual reports, market prices and volume of trade are collected from the Ho Chi Minh City Stock Exchange The panel data methodology is used to test the developed hypotheses The thesis uses three popular methods to measure accounting conservatism: asymmetric timeliness (Basu, 1997), asymmetric timeliness score developed by Khan and Watts (2009) and accrual-based method developed by Ahmed and Duellman (2007) Accounting-based measures and market-based measure are used to measure the firm performance For ownership structure variable, it is classified into ownership concentration and ownership type Ownership type consists of managerial ownership, institutional ownership, foreign ownership and state ownership Findings In respect of the effect of ownership structure on conservatism, the results display as expected In particularly, higher institutional ownership, foreign ownership, state ownership leads to more conservatism; however, higher managerial ownership, ownership concentration leads to lower conservatism Additionally, companies adopted more accounting conservatism principle are shown that the firm performance have better Originality/value The findings of this study contribute to the literature of ownership structure and accounting conservatism in the context of frontier market in Vietnam This study also gives some useful implications for policymakers, practice of accounting, researchers, and users of accounting information in financial statements in Vietnam context Keywords: Accounting conservatism; Ownership structure; A frontier market; Firm performance INTRODUCTION Motivation for research Accounting conservatism is an age-old and common feature of financial accounting (Biddle et al., 2022) There are different definitions of accounting conservatism, such as Basu (1997), Givoly and Hayn (2000), Watts (2003) In accounting, conservatism improves the reliability of financial statements by limiting the opportunistic behaviors of company management (Ball and Shivakumar, 2005; Watts, 2003; Mora and Walker 2015) Ownership structure is formed from the nature of shareholders and respective shares It represents ownership agreements and is the basis for determining a company's control structure, the foundation of governance of company For listed companies, Watts (1993) states that accounting conservatism is affected by a variety of governance factors The performance information of a company cannot be separated from the use of accounting principles applied when preparing the financial statements (Zulfikara et al., 2020) The quality of the profit information in income statement is influenced by factors such as compliance with accounting principles (Penman and Zhang, 2002) According to LaFond and Watts (2008), conservatism can reduce manipulation of financial statements and reduce agency costs, which in turn will increase corporate profits and subsequently improve firm performance This study research on adoption of accounting conservatism principle in Vietnamese listed firms' financial statements, the impact of ownership structure on the level of accounting conservatism in the financial statements as well as consequence economic of accounting conservatism on firm performance in Vietnamese listed firm Previous studies suggest that ownership structure can impact the use of accounting conservatism, with closely held companies being more likely to use conservative accounting International research suggests that accounting conservatism can have a positive impact on firm performance, particularly in industries that are more prone to financial distress (Ramalingegowda and Yu, 2018, Mohd et al., 2020; Cui et al., 2021) However, the studies on these issues in Vietnam context are limited Vietnam is a civil law country (An, 2022) and is one of the dynamic and growing emerging markets with its unique legal, cultural, and institutional characteristics (Le et al., 2021) In addition, Vietnam is a frontier equity market that having typical characteristic with high ownership concentration and weak investor protection (Tran and Le, 2020) Financial reporting practices vary from country to country, it is a matter which are interested in understanding by Global investors, as well as how the particular institutional structure of each country affects the quality of financial reporting (Le and Moore, 2021) Currently, the situation of disclosing information about financial statements of companies listed on the Vietnamese stock market has significantly improve, information about the financial situation of enterprises is more and more transparent However, according to representative of State Securities Commission of Vietnam (SCC), in fact, there are still shortcomings and violations This causes loss of public confidence in the stock market as well as difficulties for State management agencies Vietnam is trying to improve its accounting practice, implementing and encouraging adoption of IFRS Therefore, this should improve investor confidence and reduce investment risk premiums For the above-mentioned reasons, these facts should motivate analysis in this study In particularly, some matters needs must be examined such as whether the adopting of accounting conservatism principle is ensured in Vietnamese listed firm's financial statements, whether ownership structure impact on accounting conservatism, besides, the consequence of accounting conservatism in Vietnamese listed companies Therefore, the thesis decided to choose the topic “Ownership structure, Accounting Conservatism and Firm Performance: Evidence from Vietnam” to implement the doctoral thesis Research objective (1) Whether there is an adoption of accounting conservatism principle in Vietnamese listed firms' financial statements; (2) Whether there is a relationship between ownership structure and the level of accounting conservatism in Vietnamese listed firms; (3) Whether there is a relationship between the level of accounting conservatism and firm performance in the Vietnamese listed firms Research questions Question 1: Is there an adoption of accounting conservatism principle in Vietnamese listed firms' financial statements? Question 2: Is there a relationship between ownership structure and the level of accounting conservatism in Vietnamese listed firms? Question 3: Is there a relationship between the level of accounting conservatism and firm performance in the Vietnamese listed firms? Methodology This study mainly applied quantitative research method The research is carried out based on popular fundamental theories such as the agency theory, political cost theory, signal theory, positive accounting theory and based on the previous studies related to measuring accounting conservatism, the effect of ownership structure on accounting conservatism as well as the effect of accounting conservatism on firm performance to determine the research model and test the hypotheses in Vietnam context Research subjects and research scope Research subjects: The thesis studies the situation of adopting conservatism principle; the impact of ownership structure on the level of accounting conservatism and impact of the level of accounting conservatism on firm performance of Vietnamese listed companies Scope of the study About space: This study focuses on non-financial companies listed on HOSE in the Vietnamese Stock Exchange as the research sample About time: The thesis conducts empirical research on the final database of companies listed on HOSE in Vietnam over the period from 2012 to 2020 About content: About ownership structure: Ownership concentration; Managerial ownership; Institutional ownership; Foreign ownership; State ownership About the level of accounting conservatism: The thesis focuses on the conditional conservatism Regarding firm performance: This study measures the firm performance through both accounting-based and market-based measures Contribution of the thesis Theoretical contribution: The first, the thesis synthesis and evaluates the measurement of accounting conservatism, from which, the thesis recognizes the advantages and limitations of each measurement and selects an appropriate method to measure accounting conservatism for companies listed on the Vietnamese stock market The second valuable contribution is related to measure accounting conservatism In order to test the impact of ownership structure on accounting conservatism in accordance with the characteristics in the Vietnam context, the thesis uses alternative measures of accounting conservatism such as earnings/stock return measures (Basu, 1997; Khan and Watts, 2009) and income statement measures (Ahmed & Duellman, 2007) Besides, the thesis also explores the impact of accounting conservatism on the firm performance by measuring the performance based on both accounting and market aspects (Demsetz and Villalonga, 2001) The findings of this study additional the evidence on relationship between ownership structure and accounting conservatism as well as the benefit of accounting conservatism by using a multi-perspective approach to accounting conservatism and firm performance in Vietnamese listed firms, especially, the firm-specific asymmetric timeliness score The third contribution of this study is that through the findings of the thesis, they are possible partly supplement the results of previous studies which are not consistent on the relationship between ownership structure and accounting conservatism At the same time, it also adds research results on the relationship between institutional ownership, ownership concentration and accounting conservatism that there are limited studies implementing in the Vietnam context Thus, the thesis provides a comprehensive empirical study on the relationship between ownership structure and accounting conservatism of listed firms in Vietnam's stock market Last but not least, with accounting conservatism measured by earnings/stock return measures, this study provides evidence about the benefits of accounting conservatism on firm performance in Vietnam context It is complementary to evidence of previous studies in the aspect of a positive relation between accounting conservatism and firm performance in frontier market Practical contributions: Firstly, providing the status of compliance with the principle of accounting conservatism both from the perspective of the whole market and firm - year level in listed firms in Vietnam stock market through a multiperspective approach Secondly, the thesis helps accountants, managers and the users of accounting information have full information about the level of accounting conservatism in financial statements They can recognize the importance of the principle of accounting conservatism, the impact of the practice of conservatism and the method of measuring it so that they can consider applying the principle of conservatism appropriately to provide more useful and reliable financial statement information In addition, the content related to the principle of conservatism, the relationship between ownership structure and the level of accounting conservatism may help investors and other stakeholders analyze more deeply the factors affecting the quality of financial statement's information in order to have a basis for making the most effective economic decisions Thirdly, the thesis provides empirical evidence on the influence of ownership structure on the level of accounting conservatism and the impact of the level of accounting conservatism on the firm performance, thereby analyzing, evaluate and make recommendations for listed firms, investors, policymakers and other stakeholders Particularly, the results of this study may help policy-makers have a picture about the impact of ownership structure on the level of accounting conservatism and the benefit of accounting conservatism in order to have a mechanism to protect minority shareholders from the dominance of ownership structure in Vietnamese listed firms Thesis structure The thesis is arranged as follows: Chapter 1: Literature reviews; Chapter 2: Conceptual framework and hypotheses; Chapter 3: Research methodology; Chapter 4: Results and Discussion; Chapter 5: Conclusion and recommendations CHAPTER 1: LITERATURE REVIEW 1.1 Research concepts 1.1.1 Accounting conservatism Basu (1997) defines conservatism as the tendency to demand high recognition of good news rather than bad news in the income statement Givoly and Hayn (2000) argues that conservatism is an accounting tool that leads to faster expense recognition and slower revenue recognition Watts (2003) defines conservatism as the asymmetric timeliness in recognizing loss versus gain For accountants, they cannot ignore the concept of conservatism Conservatism can briefly understand that if there is no certainty in a transaction, the accountant may make estimates and record all probable losses, however, not recognize the probable profits if there is no solid evidence 1.1.2 Ownership structure Ownership structure is an important topic in the overall concept of corporate governance (Tran and Dang, 2021), and interested by many researchers in the corporate governance system Follow to Jensen and Meckling (1976), "ownership structure" indicate the share held between members inside and outside company as well as between investors have role direct and not direct management In addition, the ownership structure is an important role for attracting large amounts of capital for listed firms and creating wealth Consistent with Anh (2019), ownership variables are divided into two groups: ownership concentration and ownership structure type 1.1.2.1 Ownership concentration Ownership concentration is defined as the majority of equity capital in the company owned by a shareholder, this shareholder can be an individual or a group of individuals or organization, they have a right to participate in decision-making in the company Major shareholders are allowed to participate in the board of directors and exercise control over the operation of the company 1.1.2.2 Ownership structure type In terms of the characteristics of shareholders, the researchers divide the types of ownership structures into the following groups: Managerial ownership (MANA): The number of shares held by senior managers divided by total number of shares outstanding (Liu, 2019; El-habashy, 2019; Sugiarto and Fachrurrozie, 2018; Mohammed et al., 2017; Ahmed and Henry, 2012); Institutional ownership (INSTI): The number of shares held by institutional investors divided by total number of shares outstanding (El-habashy, 2019; Ramalingegowda and Yu, 2012; Chi et al., 2009; Lin, 2016; Ahmed and Henry, 2012); Foreign ownership (FORE): The number of shares held by foreign investors divided by the total number of shares outstanding (Khalil et al., 2019; Liu, 2019; Alkurdi et al., 2017); State ownership (STATE): The number of state-owned shares divided by the total number of shares outstanding (Alkurdi et al., 2017) 1.1.3 Firm performance The performance of the company is an indicator that most users of accounting information are interested (Osadchy et al., 2018), it is measured through financial and non-financial indicators (Ahmed et al., 2016) In accounting, firm performance is widely used mainly related to financial information, specifically, profitability measurement to reflect the ability achieve the objectives of the company (Mohd et al., 2020) Most research on corporate governance use either accounting-based measures (El-habashy, 2019) or market-based measures (Bhagat and Bolton, 2008) 1.2 Summary methods on the measurement of accounting conservatism There are many methods, which are used to proxy accounting conservatism The literature provides some measurements that are frequently used consisting of market-to-book (MTB), earnings, accruals, accruals/cash flows relation and earnings/stock return relation measures These measurements are stratified into a balance sheet measure, income statement measures, Earnings/stock return relation measures (Zhong and Li, 2017) 1.3 Research on the relationship between ownership structure and accounting conservatism 1.3.1 Ownership concentration and accounting conservatism Theoretically, majority shareholders have two attitudes of the effect on financial statements Firstly, they intervene directly business activities in the companies Secondly, in order to serve their own personal interests, they may collect and seek information based on their own advantage or impact on manager’s decisions (Elhabashy, 2019) Empirically, the findings on association of Ownership concentration and accounting conservatism are not consistent Research results of Nguyen et al (2017) show that ownership concentration prevents independent directors from performing their supervisory function in governance, therefore, it makes negatively affects firm performance with Vietnam context In another, study of Tran and Dang (2021) exploring the influence of ownership concentration on earnings management in emerging countries and Vietnam, the results show that the degree of ownership concentration does not affect earnings management Nguyen et al (2022) find that ownership concentration has a negative relationship with accounting conservatism in Vietnam context 1.3.2 Ownership type and accounting conservatism 1.3.2.1 Managerial ownership and accounting conservatism Theoretically, managerial ownership helps to control the practice of earning management, lead to enhances the accounting information quality (Ellili, 2013) El-habashy (2019) also suggests that companies are high managerial ownership, that means the manager who is an agent, and an owner of the company at the same time This is able to weaken agency conflict problems and have more demand accounting conservatism However, follow to positive accounting theory, managements base on their advantage to boost the earnings to improve their benefits With the argues of Ball (2001), Lafond and Roychowdhury (2008) give hypothesis and find that accounting conservatism is negatively related to managerial ownership Empirically, the findings on association of managerial ownership and accounting conservatism are not consistent In Vietnam context, the study of Nguyen (2019) also found that managerial ownership is negatively associated with accounting conservatism 1.3.2.2 Institutional ownership and accounting conservatism Theoretically, in corporate governance, institutional investors are considered as critical role, especially, in the developed markets (Liu, 2019) Jensen (1993) contends that institutional investors are active investments, play an important role in the corporate governance system, and participate in independent and objective control of the company Therefore, they demand timeliness and reliable information to help them make better oversight of the company's activities and participate in planning the company's business strategy (Bushman et al., 2004; Jensen, 1993) Empirically, previous studies on the association between institutional ownership and accounting conservatism have shown mixed findings Regarding institutional ownership, Vo (2016a) shows that institutional ownership plays an important role in maintaining stability in emerging stock markets, specifically Vietnam The results of Ha and Hiep (2019) show that institutional ownership has a significant impact on firm performance As far as this thesis knows, the study has not found previous research investigating the relationship between institutional ownership and accounting conservatism of listed companies in Vietnam context 1.3.2.3 Foreign ownership and accounting conservatism Theoretically, foreign ownership are investors that they are attracted by large investment in the company, this occurs problems which have associated with the low degree of asymmetry information (Fan and Wong, 2002; Lafond and Roychowdhury, 2008; LaFond and Watts, 2008) Based on previous studies, An (2015) argued that foreign shareholders likely play a valuable controlling role as a large institutional investor, external controlling by foreign ownership is considered as large institutional investors that curb the opportunities for discretionary choices of management in providing financial accounting information, therefore lead to enhance the quality of financial reporting Kho et al (2009) offer that the company gain benefits if existing the foreign shareholders who come from countries have good corporate governance and control over companies And they also indicate that conservatism make a decrease the handling of accounting data and claim more utilizing of financial reporting in contracting and communicating, therefore, increasing demand for accounting conservatism practices (Ball and Shivakumar, 2005) Empirically, previous studies on the impact of foreign ownership on accounting conservatism provide evidence of a positive relationship between them Studies in Vietnam have opposite results Le et al (2017) and Le et al (2021) indicate that foreign ownership is negatively related to accounting conservatism However, Dang and Tran (2020) state that the relationship between foreign ownership and accounting conservatism is negative with accounting conservatism measured follow Ball and Shivakumar (2005) model, in contrast, it is not significant when accounting conservatism measured by Givoly and Hayn (2000) model This shows that the research results in Vietnam context on this issue are sensitive to the measures of accounting conservatism 1.3.2.4 State ownership and accounting conservatism Theoretically, there are two competing views in the literature First stream shows that the higher state ownership effect management monitoring, particularly, it makes controlling system less effective and finally, lead to increase agency problems (Armstrong et al., 2010; Firth et al., 2007) Second stream indicates that state ownership reduces agency issues Since the State as a shareholder and take control, they have an interest in both maximizing profits and control over the company, then their interests will be protected (Shleifer and Vishny, 1997) Empirically, there are many studies on the impact of state ownership on accounting conservatism, specifically whether state ownership encourages or discourages conservatism, the results of which provide mixed evidence (Cullinan et al., 2012) The evidence of studies in Vietnam context are not consistent Nguyen (2019) and Le et al (2021) found that state ownership is negatively associated with accounting conservatism Do (2022) find that state ownership has a positive impact on accounting conservatism However, Dang and Tran (2020) provide the evidence that there is no significant relation between accounting conservatism and state ownership 1.4 Research on the relationship between accounting conservatism and firm performance Theoretically, Bushman et al (2001) and Lambert et al (2007) suggest that accounting conservatism is expected to improve firm performance by providing managers with sufficient information to support the decision-making According to LaFond and Watts (2008), the principle of conservatism can alleviate the manipulation of financial statements and decrease agency costs Decreasing agency costs will improve company profits and subsequently enhance firm performance Ahmed and Duellman (2007) provide the evidence that the company is more conservatism, more efficient to invest Lim (2011) argues that the performance of the company is attribute to the conservatism in accounting Previous researches provide empirical evidence that conditional conservatism leads to high firm value through alleviating asymmetric information, decreasing the capital cost, enhancing efficient investment by way of improved monitoring and contracting (Lafond and Roychowdhury, 2008; Francis and Martin, 2010; Ahmed and Duellman, 2011; Lara et al., 2011; Artiach and Clarkson, 2014; Kim et al., 2013; Balakrishnan et al., 2016; Ha and Feng, 2018) Contrary to the above arguments, there is a view that accounting conservatism reduces the value relevance of financial statements (Ugwunta and Ugwuanyi, 2019) Particularly, Feltham and Ohlson (1995); Basu (1997); and Penman and Zhang (2002) argue that earnings which generated from accounting conservatism is less relevant According to contingency theory, there is a difference in the relationship between accounting conservatism and firm performance under different institutional environments (El-habashy, 2019) Therefore, the benefits of accounting conservatism and its economic consequences is ongoing debates (Ardiansyah, 2022) Empirically, studies on the effects of accounting conservatism on firm performance mainly focus on in developed and developing economies in recent years and the results provide the inconsistent findings on the consequence of accounting conservatism In Vietnam context, studies on the impact of accounting conservatism and firm performance are limit The researches focus on the relation of accounting conservatism on factor such as the dividend policy of enterprises in Vietnam and the effect of earnings quality level on firm value 1.5 Research gaps Based on the theoretical background, an overview of domestic and foreign published studies, the thesis identifies some research gaps, as follows: Firstly, based on the above literature review, the thesis finds that there are quite a lot of research abroad exploring the relationship between ownership structure and accounting conservatism However, the results of previous studies are not consistent and the number of studies on this issue in the context of emerging markets such as Vietnam is still limited The ownership structure mainly focuses on ownership concentration and ownership types including managerial ownership, institutional ownership, foreign ownership and state ownership Therefore, it is necessary to conduct a comprehensive empirical study on the association between ownership structure and accounting conservatism of listed firms in Vietnam's stock market Second, about the consequence of accounting conservatism, most of studies have done in developed and developing economies such as, Sana'a (2016) in Jordan, Ramalingegowda and Yu (2018) in U.S, Ugwunta and Ugwuanyi (2019) in Nigeria, Mohd et al (2020) in Malaysia, Cui et al (2021) in China, and Al-Fasfus et al (2022) in Amman The benefits of accounting conservatism and its economic consequences is ongoing debates (Ardiansyah, 2022) According to contingency theory, the relationship between accounting conservatism and firm performance varies according to the institutional environment (El-habashy, 2019) In addition, previous studies provide the inconsistent findings on the consequence of accounting conservatism In Vietnam context, as far as the thesis knows, studies on the impact of accounting conservatism and firm performance are limited Third, regarding the measurement method of accounting conservatism, in the Vietnamese context, most previous studies mainly focused on measuring accounting conservatism according to the model of Basu’s 1997; Givoly and Hayn (2000); Ball and Shivakumar (2005); Ahmed and Duellman (2007) There is a method of measuring the level of accounting conservatism that is quite popular and applied by many overseas studies, that is the model of Khan & Watts (2009) This model is developed from the model of Basu (1997), measuring the level of accounting conservatism through the firm-specific asymmetric timeliness score (C_SCORE) Basing on the literature review, the author finds that this model has not been widely applied in the Vietnamese context 10 implementation of accounting policies as conservatism in accounting The evidence of Cullinan et al (2012) indicate that ownership concentration have negative relation with accounting conservatism With the sample of Egypt, El-habashy (2019) also found that higher the ownership of block holders are correlated with a less level of accounting conservatism and will generate low accounting information quality, which approves that the largest shareholders acquire personal benefits or impact the manager’s decisions Vietnamese enterprises have a high concentration of ownership structure, with a weak and underdeveloped national governance system like that of Vietnam, this concentration of ownership can be considered a governance mechanism (Nguyen et al., 2015) Therefore, this study proposes the following hypothesis: H1: There is a negative relationship between ownership concentration and accounting conservatism 2.2.1.2 The relationship between managerial ownership and accounting conservatism According to Jensen (1993), managers have a strong incentive to perform if they have a substantial equity stake in the firm (known as the alignment effect) However, Morck et al (1988), Jiang and Kim (2000) claimed that a high level of manager ownership (concentration) will lead to poorer performance and poor reporting quality respectively due to the influence of insiders (known as the manipulative effect) Lafond and Roychowdhury (2008) provided evidence that there is a negative impact of managerial ownership on accounting conservatism Mohammed et al (2017) argues that more managerial ownership, lower the demand for conservatism In Vietnam, the characteristic of the ownership model is a large percentage of shares that are owned by the board of directors, a large percentage of internal shareholders, leading to a high possibility of non-transparent information (Vo et al., 2020) Therefore, this study proposes the following hypothesis: H2: There is a negative relationship between managerial ownership and accounting conservatism 2.2.1.3 The relationship between institutional ownership and accounting conservatism Institutional investment is one of effective elements which joining the control system as external control in corporate governance Institutions are a group of investors, having directly or indirectly influence in the operations of a company's management (Gillan and Starks, 2003) Through the supervision of institutional investors, the behavior of managers can limit (Gillan and Starks, 2003) From mitigating the problem related to asymmetric information, Jiang and Kim (2000) finding that institutional ownership increases the level of accounting conservatism and reduces information asymmetry in terms of market In addition, they can influence the choosing of accounting procedures and lead to impact on the financial reporting, finally, increasing the financial reporting quality by controlling management's behavior (Song, 2015) Some studies provide that institutional ownership has a positively related to accounting conservatism such as Ramalingegowda and Yu (2012), Alkurdi et al (2017) Vietnam is a frontier equity market that having typical characteristic with weak investor protection (Tran and Le, 2020) Therefore, this study proposes the following hypothesis: H3: There is a positive relationship between institutional ownership and accounting conservatism 2.2.1.4 The relationship between foreign ownership and accounting conservatism Large external block holders can effectively monitor management by using sufficient voting control, thus minimizing agency problems (Shleifer and Vishny, 1986) Since external monitoring by foreign ownership is intense and effective, the discretionary choices' opportunities in publishing accounting information become more constrict And for protecting their wealth and to cut down monitoring costs, foreign shareholders have substantial incentives and expertise to independently controlling firms Thus, higher ratio of foreign ownership generates firms to improve transparency and to reduce opportunities of managerial accounting choices and decisions An (2015) provides empirical evidence that foreign ownership is positively related to conservatism 11 in Korean context Liu (2019) also found that foreign ownership is positively associated with accrual conservatism with the sample of Jordan For listed companies in Vietnam, the research results of Vo (2017) suggest that foreign ownership have an incentive to be more cautious in their financial management Therefore, this study proposes the following hypothesis: H4: There is a positive relationship between foreign ownership and accounting conservatism 2.2.1.5 The relationship between state ownership and accounting conservatism Based on political cost theory, the thesis expects that higher state ownership, the better the quality of specific financial statements, particularly, it means the higher degree of accounting conservatism in the presentation of financial statements Cullinan et al (2012) point out that state ownership has a positive effect on the level of accounting conservatism in Malaysia context Furthermore, Bushman and Piotroski (2006) used country-level data to conduct their research, and they found that the relationship between state ownership and accounting conservatism depends on the legal system Specifically, they find that state ownership is associated with lower conservatism in common-law countries (such as the United States) and higher degrees of conservatism in civil law countries (such as China) Vietnam is a country in the direction of civil law country, the characteristics of joint stock companies listed on the Vietnam stock market are derived from the equalization of state-owned enterprises (Le et al., 2021) Therefore, based on the above arguments, the hypothesis is stated as follows: H5: There is a positive relationship between state ownership and accounting conservatism 2.2.1.6 The relationship between accounting conservatism and firm performance Bushman and Smith (2001) argue that accounting information plays an important role in monitoring senior managers in the company, it contributes in making moral hazard problems better, and decreases the problems generated by information asymmetries (Lara et al., 2009), and it facilitates the estimation of firms’ future cash flows (Lambert et al., 2007) Bushman and Smith (2001) and Lambert et al (2007) suggest that these effects are expected to increase firm performance by improving firm’s investment decisions Affes and Sardouk (2016) concluded that the application of conservatism in accounting has a positive effect on firm performance LaFond and Watts (2008) argue that the application of conservative principles in financial statements can reduce the ability of managers to manipulate financial statements and reduce agency costs In addition, Zulfikara et al (2020) find that the application of accounting conservatism will reduce agency costs and improve the quality of financial statement information so that it will improve firm performance Callen et al (2016) provide evidence that in a highly asymmetric information regime, highly conservative borrowers (Companies) typically incur lower interest rate differentials than less conservative borrowers Study of Dinh et al (2022) also examine the association between financial reporting quality and investment efficiency with a sample of listed firms in Vietnam, they find that financial reporting quality is positively associated with investment efficiency Therefore, the hypothesis can be formed as: H6: There is a positive relationship between accounting conservatism and firm performance 2.2.1.7 Other factors that not belong to the ownership structure affect the level of accounting conservatism Firm size (FSIZE), Leverage (LEV), Sales growth (GROWS), Profitability (ROA), Market-to-book (MTB) 12 2.2.2 Conceptual framework This study explores the influence of ownership structure on conservatism, as well as the influence of conservatism on firm performance in the Vietnamese context Figure 2.1 shows the framework of this study Firm size Leverage H1 Ownership concentration Market to Book value H2 Managerial ownership H3 Institutional ownership H6 Accounting conservatism H4 Foreign ownership H5 State ownership Firm size ss Leverage Return on Asset Growth in Sales Figure 2.1: Conceptual model of the study Firm performance 13 CHAPTER 3: RESEARCH METHODOLOGY 3.1 Research method and research process 3.1.1 Research method In this research, the thesis uses a quantitative method First, basing on the research problem, the thesis summaries the definitions and reviews the previous studies consisting of measurement methods of accounting conservatism; the influence of the ownership structure on accounting conservatism; the impact of accounting conservatism on firm performance On that basis and combined with the background theories, the thesis determines a research model and test the components of the ownership structure affecting accounting conservatism In addition, the study investigates the influence of accounting conservatism (consequence of accounting conservatism in reporting financial statements) on the firm performance of listed companies in Vietnam 1.1.2 Research process The research process consists of steps: Step 1: Synthesize and draw conclusions from previous studies related to the measurement of accounting conservatism, the influence of ownership structure and accounting conservatism, as well as the influence of accounting conservatism on firm performance Fully systematize the underlying theories related to the relationship between ownership structure, accounting conservatism and firm performance On that basis, identify research gaps and propose a research model of the thesis Step 2: Collect data for quantitative research and regression analysis In order to provide data for analyzing the situation of compliance with the conservatism principle, and the composition of ownership structure that affect accounting conservatism as well as the effect of accounting conservatism on firm performance of companies listed on Vietnam's stock market, the thesis collects data The research sample was selected from non-financial companies listed on the Ho Chi Minh City Stock Exchange in the period from 2012 to 2020 Data were collected from consolidated financial statements, annual reports, market prices and volume of trade are collected from the Ho Chi Minh City Stock Exchange The panel data methodology is used to test the developed hypotheses Panel data methodology is used to explore the association between ownership structure and accounting conservatism; the relationship between accounting conservatism and firm performance Statistical software STATA version 14 is used to data analysis Step 3: Analyze and discuss research results, comments and recommendations Based on the research results of step 2, the thesis analyzes these results with the specific conditions in Vietnam context, and at the same time, compares the results with studies of some countries in the world, from there, some recommendations proposed that are useful in the thesis's opinion 1.2 Regression model 3.2.1 Model to analyze the feature of accounting conservatism in Vietnamese listed firms Model 1: 𝑋𝑖,𝑡 𝑃𝑖,𝑡−1 = 𝛼0 + 𝛼1 𝐷𝑅𝑖,𝑡 + 𝛽0 𝑅𝑖,𝑡 + 𝛽1 𝑅𝑖,𝑡 ∗ 𝐷𝑅𝑖,𝑡 + 𝜀𝑖,𝑡 (1) where: X: Earnings per share (EPS) of firm i at the ending fiscal year; P: Share price at the beginning of the fiscal year; DR: Equals if R is negative, otherwise; R: Stock return In the above model, β1 is expected positive and significant 3.2.2 Model to investigate the effect of ownership structure on accounting conservatism 14 Model 2: C_SCOREi,t = β0 +β1 Ownershipkt + β2 FSIZEi,t-1 + β3 GROWSi,t + β4 ROAi,t-1 + β5 LEVi,t-1 + εi,t (2) Model 3: CONS_ACCi,t = β0 +β1 Ownershipkt + β2 FSIZEi,t-1 + β3 GROWSi,t + β4 ROAi,t-1 + β5 LEVi,t-1 + εi,t (3) where: C_SCORE: The level of accounting conservatism measured by the model of Khan & Watts (2009); CONS_ACC: The level of accounting conservatism measured by Ahmed and Duellman (2007); Ownershipkt : Ownership structures in hypothesis k; k = 1, 2, …,5; Owner structure: Ownership concentration (CON), Managerial ownership (MANA), Institutional ownership (INSTI), Foreign ownership (FORE), State ownership (STATE); FSIZE, GROWS, ROA, LEV: Control; β0 : Constant; β1 , β2 ,… β5 : The coefficients of variables (slope); εit: A residual error 3.2.3 Model to investigate the effect of the level of accounting conservatism on firm performance Model 4: Empirical test using the firm-specific asymmetric timeliness FPi,t = β0 + β1 C_SCOREi,t + β2 FSIZEi,t-1 + β3 MTBi,t-1 + β4 LEVi,t-1 +εi,t (4) Model 5: Empirical test using the accrual-based measure FPi,t = β0 + β1 CONS_ACCi,t + β2 FSIZEi,t-1 + β3 MTBi,t-1 + β4 LEVi,t-1 +εi,t (5) where: FPi,t: Firm performance measured by accounting-based (ROA, ROE) and market-based measures (Tobin’s Q Ratio, Stock liquidity); C_SCORE: The level of accounting conservatism measured follow to Khan and Watts (2009); CONS_ACC: The level of accounting conservatism measured follow to Ahmed and Duellman (2007); Control Variables: Firm size, Leverage, Market-to-book; 𝛽0 : Constant; 𝛽1 , 𝛽2 ,… 𝛽4 : The coefficients of variables (slope);𝜀𝑖𝑡 : A residual error 3.3 Measurement variables 3.3.1 Accounting conservatism This study uses three methods of measuring accounting conditional conservatism, combining both accrual measures and earnings/stock return measures Including: Earnings/stock return relation measures: Basu’s asymmetric timeliness model; Asymmetric timelines score of Khan and Watts’ (2009) model; Accruals measures: Ahmed and Duellman (2007) 3.3.2 Ownership structures Table 3.1:Summary of the measures of ownership structure variables No Variable Ownership concentration Managerial ownership Institutional ownership Symbol CON MANA INSTI Measurement Proportion of the largest shareholders in the firms at ending year Foreign ownership FORE State ownership STATE (2017) Hajawiyah et al board of directors in the firms at ending year (2020) Proportion of shares owned by institution (from 5% or more) in the firms at ending year foreigners (from 5% or more) in the firms at ending year Yasser et al Proportion of shares owned by members of Proportion of shares owned by institutional References Proportion of shares owned by government (from 5% or more) in the firms at ending year Ahmed et al (2007) Alkurdi et al (2017) Mohammed et al (2017) 15 3.3.3 Firm performance Table 3.2.Summary of the measures of firm performance No Variable Symbol Return on Assets Return on equity Tobin’s Q Ratio Stock liquidity Measurement Source ROA Net profit divided by total assets Yasser et al (2017) ROE Net profit divided by total equity Yasser et al (2017) (Market value equity + the book value of TBQ total liabilities)/ Total Assets LIQ Traded share in year / Total average shares outstanding in year Chung and Pruitt (1994); Lin (2010) Doan and Vo (2017) Muñoz (2013) 3.3.4 Control variables No Variable Firm size Leverage Sales Growth Market-tobook Return on Asset Table 3.3 Summary of the measures of control variables Symbol Measurement References Ahmed and Duellman FSIZE Natural Logarithm of Total Assets (2007); Cullinan et al (2012) Long-term debt plus short-term debt Khan and Watts (2009); LEV deflated by market value of equity Kieschnick and Shi (2021) Percentage of annual growth in total Ahmed and Duellman, 2007; GROWS sales Kieschnick and Shi (2021) Mohammed et al (2017); MTB = Market capitalization/ Total MTB Mohd et al (2020); Cui et al Book Value (2021); Cullinan et al (2012) ROA Net profit divided by total assets Yasser et al (2017) 3.4 Research design 3.4.1 Sample and data collection methods The sample in this study consists of a commercial database of all listed firms in the Ho Chi Minh Stock Exchanges (HOSE) in the period 2011 – 2021 With original data, thesis exclude non-financial companies which having fiscal year difference with calendar year, the missing data of the level of accounting conservatism in 2011, 2021 and the final data contains 356 non-financial companies and 3,204 firm-year observations from 2012 to 2020 These companies are classified into 14 sectors (Subdivision according to NAICS) 3.4.2 Data analysis 3.4.2.1 Panel data analysis Panel data methodology is used to explore the association between ownership structure and accounting conservatism; the association between accounting conservatism and firm performance Statistical software STATA version 14 is used to analysis the data 3.4.2.2 Selecting the best regression equation The analysis steps to select the appropriate model are as follows: Step 1: The thesis uses the commands in STATA software to analyze the Pooled OLS and FEM regression methods, then compare the results to choose a model that is the most suitable among these two models 16 Step 2: The thesis compares two models Pooled OLS with REM, using The Lagrange Multiplier (LM) with Breusch-Pagan test to verify the appropriateness of the estimate After completing the above steps, if the test results show that both these steps Pooled OLS is more suitable than FEM and REM, the thesis will choose the Pooled OLS regression method Otherwise, the thesis will continue the third step Step 3: The thesis makes estimates with FEM and REM, using Hausman test under the hypothesis H0: Cov (Xit, ui) = If the test results reject the hypothesis H0 (Prob>chi2 = 0.0000), the thesis chooses FEM If the test results not reject the hypothesis H0, the thesis will choose REM 3.4.2.3 Diagnostic Tests A model has explanatory significance only when its assumptions are satisfied Therefore, the thesis has to test the assumptions before interpreting the results of the model The process of testing the assumptions can be done through the possible defect detection of the model such as Heteroskedasticity, Autocorrelation, Multicollinearity 3.4.2.4 Remedying defects with FGLS If the thesis finds the defects of the model such as autocorrelation and heteroskedasticity The thesis uses FGLS to solve those defects (Nguyen et al., 2022) 17 CHAPTER 4: RESULTS AND DISCUSSION 4.1 Accounting conservatism of listed firms on the Vietnamese stock market 4.1.1 The feature of accounting conservatism in Vietnamese listed firms The result in Table 4.1 shows the regression model for Basu (1997) during the full sample period A significant regression was found F (3, 2533) = 18.21, Prob>F = 0.0000; the β1 = 0.3022>0 and significant with the p-value less than 0.01 This indicates that the existence of asymmetric timeliness in which unrealized losses (bad news) are more likely recognized earlier than unrealized gains (good news) The result shows that the existence of accounting conservatism in financial reporting by sample firms during the analysis period in Vietnam context Table 4.4: Multiple linear regressions for Basu (1997) model Variables Coefficients Constant P>|t| 0.1980 0.0124 0.0000 -0.0093 0.0242 0.7010 0.0133 0.0114 0.2450 0.3022*** 0.0718 0.0000 DR R DR*R Std Error R 0.0211 Adjusted R 0.0200 F 0.0000 Note: DR: Equals if R is negative and otherwise; R: Stock return from months before the fiscal year-end to months after the fiscal year-end; ***, **, *, show the level of significance at %, %, and 10 %, respectively 4.1.2 Measuring level of accounting conservatism 4.1.2.1 The level of accounting conservatism measured by asymmetric timeliness score according to Khan and Watts (2009) Table 4.5: The level of accounting conservatism measured follow to Khan Watts (2009) Year Obs Mean Std Dev Min Max 2012 238 0.9776 0.5778 -0.6043 2.0889 2013 243 0.2010 0.7113 -6.9348 0.9676 2014 252 0.8352 0.4540 0.0129 4.8776 2015 272 0.1956 0.1654 -0.7650 0.6093 2016 286 0.4367 0.6011 -0.5280 4.3272 2017 316 0.0659 0.4640 -2.9283 1.9481 2018 336 -0.3564 0.5926 -1.5911 4.7633 2019 343 -0.0189 0.0985 -0.3641 0.4565 2020 351 -0.1769 0.4132 -2.0361 0.8325 years 2,637 0.1906 0.6310 -6.9348 4.8776 The results in the table 4.2 indicates that the level of accounting conservatism is high in 2012, 2014, 2016 and have a tendency to decrease gradually from 2017 to 2020 18 4.1.2.2 The level of accounting conservatism measured follow to Ahmed and Duellman (2007) Table 4.6: The level of accounting conservatism measured follow to Ahmed and Duellman (2007) Year Obs Mean Std Dev Min Max 2012 280 -0.0400 0.0796 -0.3630 0.4507 2013 290 -0.0287 0.0924 -0.4546 0.6483 2014 306 -0.0410 0.0712 -0.3498 0.1973 2015 326 -0.0433 0.0713 -0.4042 0.1913 2016 339 -0.0496 0.0778 -0.4384 0.3285 2017 348 -0.0515 0.0812 -0.3702 0.3111 2018 352 -0.0488 0.0799 -0.4123 0.2792 2019 353 -0.0396 0.0687 -0.2942 0.2101 2020 343 -0.0422 0.0655 -0.4054 0.1321 years 2,937 -0.0431 0.0767 -0.4546 0.6483 The results in the table 4.3 indicates that the level of accounting conservatism from 2012 to 2020 is not high and have a tendency to decrease gradually from 2016 to 2020 4.2 Descriptive Statistics Table 4.7: Descriptive Statistics Variables C_SCORE CONS_ACC ROA ROE TBQ LIQ CON MANA INSTI FORE STATE FSIZE LEV MTB GROWS Obs 2,637 2,937 3,024 3,024 3,024 2,634 3,204 3,204 3,204 2,797 2,797 2,950 3,204 3,204 3,204 Mean 0.1906 -0.0431 0.0638 0.1209 1.0717 0.9240 0.4566 0.0982 0.3517 0.0515 0.1608 7.2450 1.5367 0.9353 0.1994 Std Dev 0.6310 0.0767 0.0716 0.1261 0.6446 1.3381 0.2708 0.1478 0.2976 0.1058 0.2496 1.3778 2.3108 1.0473 0.7355 Min -6.9348 -0.4546 -0.1689 -0.6044 0.0974 0.0011 0.0000 0.0000 0.0000 0.0000 0.0000 4.3069 0.0000 0.0000 -0.9024 Max 4.8776 0.6483 0.3785 0.6524 7.1294 11.2618 0.9946 0.6750 0.9879 0.5169 0.9444 11.4856 16.3838 9.2041 7.1966 Notes: C_SCORE: The level of accounting conservatism measured by the firm-specific asymmetric timeliness score CONS_ACC: The level of accounting conservatism measured by accrual-based conservatism; ROA: Return on assets; ROE: Return on equity; TBQ: Tobin’s Q Ratio; LIQ: Stock liquidity; MANA: Managerial ownership; CON: Ownership concentration; INSTI: Institutional investors; FORE: Foreign ownership; STATE: State ownership: FSIZE: Firm size; LEV: Leverage; MTB: Market-to-book; GROWS: Sales Growth 4.3 Correlation and regression statistics 4.3.1 Correlation analysis Through the analysis results in Pearson (Spearman) Correlations, the correlation between the independent variables and the dependent variable and between the independent variables is low and all value below 0.8 19 Thus, the factors considered in this study have low correlation coefficients, so there is little possibility of multicollinearity 4.3.2 Multivariate analysis 4.3.2.1 Ownership structure and accounting conservatism measured follow to Khan and Watts (2009) Choosing the suitable model: According to the results of F – test; Breusch – Pagan test; Hausman test comparing models Pooled OLS, FEM and REM, it can be concluded that the Pooled OLS estimate is the most suitable for model Checking the model's defect cases due to the violation of assumptions: The results of Breusch-Pagan test, Wooldridge test, VIF values indicate that this model has heteroscedasticity and autocorrelation phenomenon Results of regression after handling model defects: To overcome the violation of heteroskedasticity and autocorrelation, the thesis performs regression by using FGLS method to overcome these defects Table 4.8: Results of regression of ownership structure and accounting conservatism measured by Variables Constant CON MANA INSTI FORE STATE FSIZE LEV ROA GROWS N Predicted signs + + + asymmetric timeliness score (C_SCORE) Coefficients Model 2a Model 2b Model 2c Model 2d 0.9900*** 0.9690*** 0.9470*** 0.9430*** -0.0780* -0.1480** 0.0099 0.1490* -0.1170*** 0.0506*** 0.0576 0.0178* 2,625 -0.1170*** 0.0521*** 0.0052 0.0190* 2,625 -0.1170*** 0.0515*** 0.0263 0.0187* 2,625 -0.1180*** 0.0523*** 0.0794 0.0199* 2,606 Model 2e 0.9370*** 0.4430*** -0.1240*** 0.0487*** -0.1120 0.0288*** 2,606 ***p