Dissertation summary: The impact of corporate governance on the quality of financial reporting information of listed companies in Vietnam

Research objectives: The first research objective is to determine the factors of measurement quality of(financial reporting information) FRI of listed companies in Vietnam. The second research objective is aimed at determining the impact of CG characteristics on the quality of FRI. The last research objective is to assess the reality of quality of FRI and the impact of CG on the quality of FRI of listed companies in Vietnam.

INTRODUCTION

1 Research motivations

Financial reporting information (FRI) is one of the information channels that listed companies be required to publish on the stock market In the stock market, the listed company supply information, the investor is primarily subject to receive and use this information in making their decisions The quality of FRI depends on the quality of the set of procedures: preparing, presentation and disclosure of the listed company, these procedures are influenced by internal and external factors

of the enterprise

FRI quality is influenced by many factors in which corporate governance (CG) is concerned over recent decades CG includes internal and external mechanisms Internal mechanisms are setting up structures to control behavior preparing, presentation and disclosure The effectiveness of the mechanism will help high quality financial reporting Academic research has found an association between weaknesses in governance and poor financial reporting quality (Cohen, 2004) According to the author's knowledge, in Vietnam there are few studies measuring the quality of FRI as well as an assessment of the impact of CG on the quality of

comprehensive FRI Therefore, the study chooses subject: “The impact of corporate governance on the quality of financial reporting information of listed companies in Vietnam”

2 Research objectives

- The first research objective is to determine the factors of measurement quality of FRI of listed companies in Vietnam

- The second research objective is aimed at determining the impact of CG characteristics on the quality of FRI

- The last research objective is to assess the reality of quality

of FRI and the impact of CG on the quality of FRI of listed companies in Vietnam

3 Research questions

To achieve these objectives, there are three study questions which are set out as follows:

The first question: What level of quality of FRI of listed

companies in Vietnam is assessed?

The second question: How is the CG impact on the quality

of Vietnamese FRI?

The third question: What is orientation to strengthen CG and

thus enhance the quality of FRI of listed companies in Vietnam?

4 Research subjects and scope of research

Research subjects

The study subject of this thesis is the quality of FRI and the impact of CG on the quality of FRI

Scope of research

- Investigated subjects were FRI and characteristics of the

CG of listed companies on HOSE and HNX in fiscal year 2012

- FRI including financial and non-financial information is now published in the reports, namely: annual reports, corporate governance reports, 4th quarter’s financial statements

- The corporate governance factors are limited in the thesis include: Board of Directors (BOD), Supervisory Board (SB) and Internal Audit (IA)

5 Research methodology

The author employed mixed research approach (embedded design and explanatory design) including qualitative research

and quantitative research

6 Novel contributions of the thesis

The thesis’ results have created new scientific and factual contributions as follows:

Scientific

- Systemize and clarify general reasoning aspects in terms of the quality of FRI and CG from previous studies in Vietnam and the world This content includes systematizing theoretical background on the quality of FRI and CG, as well as, the impact

of CG on the quality of FRI These results help future research approach to theory on quality of FRI and CG in a systematic and easier

- In terms of methodology, the thesis has built the scale which is tested conformity and reliability as well as their values The scale measure the quality of FRI towards useful for economic decision making These results help academic researchers in Vietnam and subsequent studies used, adjust and supplement to incrementally scale the value and reliability to assess the quality of FRI of the listed companies in Vietnam on

a more complete

Factual

The study results analyzed and evaluated the factors of FRI quality and the characteristics of CG help policy makers, legislators have insight in developing relevant legislation to improve better on quality of FRI and CG, thereby, suited to the requirements of international integration Besides, the

recommendations in the thesis helps listed companies themselves complete contents of the information on financial reporting to shareholders and perfecting corporate governance

to ensure quality of published financial reporting information

7 Structure of the thesis

Except for the Introduction, the thesis consists of five chapters, presenting in orders and including main contents as follows: Chapter 1: Literature review on FRI and CG; Chapter 2: Theory of FRI and CG; Chapter 3: Research Methodology; Chapter 4: Results and Discussion, Chapter 5: Conclusions and Recommendations

CHAPTER 1: LITERATURE REVIEW ON FRI AND CG 1.1 The domestic studies related to FRI and CG

- Financial reporting is not only the output of a set of procedures, but the set of procedures themselves The quality of the output depends on the quality of each step taken to produce

it Most of domestic studies focus various aspects of FRI in the traditional sense The authors study the current status of Vietnamese accounting procedures and accounting standards, through improve accounting procedures and to perfect accounting standards towards integration of international accounting standards Research and approaches methods were done mainly by qualitative methods

- Regarding the impact on CG to FRI quality, as of the present time, Vietnamese studies have little research the relationship between the quality of FRI and CG, which only studied under different aspects related FRI and CG

1.2 The foreign studies related to FRI and CG

The foreign studies have evaluated the quality of financial reports in a variety of measures The different measures that are contemplated as: Earnings management, Financial Restatement, Financial Statement Fraud…, focus on information disclosed in financial statements to assess the financial reporting quality Most of foreign studies investigated the CG characteristics as: BOD, audit Committee (AC) and IA on the specific factors

of the quality of financial reporting, as: Earnings management, Financial Restatement, Financial Statement Fraud, Voluntary Disclosure

CG characteristics, namely:

- BOD: board side, Board Independence, Board Accounting

- Financial Expertise, CEO Duality, Meetings’ Frequency…

- AC: AC Independence, AC Accounting - Financial Expertise, Meetings’ Frequency…

- IA: The presence of the IA

Research methods of foreign studies mostly used regression analysis to assess the impact of CG on the quality of FRI

1.3 The gap in research

Firstly, in Vietnam, there is no study of the impact of CG on the quality of FRI, while the foreign studies only investigate the impact of CG on the quality of FRI in other aspects

Secondly, to assess the quality of FRI, the Vietnamese studies focused on review accounting procedures and quality accounting standards are set in Vietnam, through improve accounting procedures and to perfect accounting standards towards integration of international accounting standards There

is no any study the quality FRI in the direction of the useful economic decision making

Thirdly, while the domestic research mainly use qualitative methods to measure the quality of FRI, the foreign studies using quantitative methods to assess the impact of CG on the quality

of FRI

From these gaps in the above research, in view of inheritance and combining the previous research models, the thesis will study the impact of CG on the quality of FRI in the stock market in Vietnam

Summary of chapter 1

CHAPTER 2: THEORY OF FRI AND CG

To answer the research question, the content of the chapter 2 presents the foundational theories and the conceptual framework related to CG and FRI, particularly in this chapter will present the following:

- Thesis presents 4 the foundational theories: usefulness theory, the theory of asymmetric information, agency theory and behavioral theory of management

decision Besides, the thesis presents the concepts related to the quality of FRI, thereby it will be basis for assessing the quality

of FRI, through to build scale the quality of FRI in chapter 3

To measure the quality of FRI, thesis use the fundamental and enhancing qualitative characteristics laid out in the conceptual framework of the IASB and FASB (2010) In addition, the thesis presents the concept and origin of CG and structure or

CG, this is a basis to build hypotheses about the relationship between CG and FRI’ quality in the next chapter

- From the above researching theories related to FRI and

CG, the thesis build research model to answer the research questions

Figure 4: The research model

3.1.1 The general approach: The general approach of the

thesis, the author employed mixed research approach (embedded design and explanatory design) including qualitative research and quantitative research

3.1.2 Specific approach: Deductive approach, investigation

approach, inductive approach

3.1.3 Framework of thesis:

The combination of research methods, as described, to achieve the research objectives, the steps of the thesis can be summarized as the following major steps:

Step 1: Constructing scale of quality of FRI

To construct a measurement tool, we use Ferdy Van Beest literature (2009), which defines financial reporting quality in terms of the fundamental qualitative characteristics and the enhancing qualitative characteristics (underlying decision usefulness as defined in the IASB (2010) However, the scale of Ferdy Van Beest is done in the developed countries To ensure construction of the scale is suitable for Vietnamese environmental, the thesis using qualitative methods to interview experts about the need of scale

Step 2: Measuring quality of FRI and hypothesis Testing

This step, the thesis mainly uses quantitative methods to measure the quality of FRI and investigates the level of impact

of these variables CG on the quality of FRI, in particular:

- Since the scale is built in step 1, thesis survey of 195 annual reports of listed companies based on Likert five point rating scales to determine the total score of each company The original scale includes a conceptually-based 10 item index laid out in the conceptual framework of the FASB (2010) and IASB (2010) After the data is collected, the thesis assesses reliability (Cronbach alpha) and value of scale (analysis EFA) Final results showed that the official scale includes 16 elements

Step 3: Using qualitative methods explain the results of the regression model

After obtaining the results from the regression model of step

2 on the impact of CG variables on the quality FRI variable, thesis will interview experts on corporate governance in order

to explain and comment from results of regression models

Relevance is operationalized using five items referring to

predictive and confirmatory value: We measure predictive value using three items: the extent to which annual reports provide forward-looking statements (P1); the extent the annual reports discloses information in terms of business opportunities and risks (P2); company’s use of fair value (P3) Next to, information has confirmatory value “if it confirms or changes past (or present) expectations based on previous evaluations”

We measure confirmatory value using two items: the extent the reported results provide feedback to users of the annual report

as to how various market events and significant transactions affected the company (P4); the extent the annual report contain information concerning divisions (P5)

Faithful representation: To faithfully represent economic

phenomena that information purports to represent, annual reports must be complete, neutral, and free from material error (IASB, 2010: 18) We measure faithful representation using five items: the extent valid arguments provided to support the decision for certain assumptions and estimates in the annual report (T1); the extent the company base its choice for certain accounting principles on valid arguments (T2); the extent the company, in the discussion of the annual results, highlight the positive events as well as the negative events (T3); The disproportion in earning between before and after audit (T4); The type of auditors’ report is included in the annual report (T5); the extent the company provide information on CG

Understandability: 3 items: Classified and characterized

information refers to how well-organized the information in the annual report is presented (H1); the amount of tabular or graphic formats (H2); the explanation of glossary (H3)

Comparability: 4 items: To what extent do the notes to

changes in accounting estimates explain the implications of the revision? (S1); to what extent do the notes to changes in accounting policies explain the implications of the change? (S2); to what extent does the company provide a comparison of the results of current accounting period with previous accounting periods? (S3); to what extent does the company

presents financial index numbers and ratios in the annual report? (S4)

Timeliness: 1 item: The amount of days from the end of the

financial year to the date of announcement (K)

The thesis use a five point rating scales to assess the scores

on the items This process results in a score between 1 and 5 for all items: 1 indicating a poor score, while an outcome of 5 implies excellence

3.2.2 Hypotheses Development

From the research model is described chapter 2, the thesis build hypotheses to consider the impact of the factors CG on the quality of FRI, as follows:

H1: The independence of the board of directors is positively related to the quality of FRI among listed companies

H2: CEO duality is negatively related to the quality of FRI among listed companies

H3: The accounting-financial expertise of the board of directors is positively related to the quality of FRI among listed companies

H4: The number of board of directors meeting positively related

to the quality of FRI among listed companies

H5: The independence of the Supervisory Board is positively related to the quality of FRI among listed companies

H6: The accounting-financial expertise of the Supervisory Board is positively related to the quality of FRI among listed companies

H7: The presence of the internal Audit is positively related to the quality of FRI

Moderating variables:

Besides examining the impact of the seven independent variables in CG on the quality of FRI, the thesis uses two moderating variables: the size of the company and the proportion of the state-owned capital in the charter capital of the company

Company size variable

H8a: the bigger companies become, the more quality or FRI they are

H8b: The impact of CG on the quality of FRI is stronger in companies with larger size

The proportion of the state-owned capital in the charter capital

H9a: The companies with higher proportion of the state-owned capital in the charter capital, the lower quality of FRI they are H9b: The impact of CG on the quality of FRI is stronger in companies with lower proportion of the state-owned capital in the charter capital

3.2.3 Regression Model

In order to establish a correlation among the level of FRI and

CG characteristics, this thesis uses regression analysis while the dependent variable is the quality of FRI and independent variables are seven the CG characteristics mentioned above The model is built as follows:

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