Summary of doctoral thesis: The determinants of financial statement quality of companies listed on stock market evidence in Vietnam

The research objectives are investigating and analyzing the determinants of financial statement quality by the measuring earning quality of companies listed on stock market - evidence in Vietnam. On the basis of the above information, some recommendations are proposed for people who use, create and manage the quality of financial statements of companies listed on the stock market of Vietnam.

MINISTRY OF EDUCATION AND TRANINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY

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NGUYEN THI PHUONG HONG

THE DETERMINANTS OF FINANCIAL STATEMENT QUALITY OF COMPANIES LISTED ON STOCK MARKET

EVIDENCE IN VIETNAM

Major: Accounting Code: 62.34.03.01

SUMMARY OF DOCTORAL THESIS

HO CHI MINH CITY, 2016

Thesis research was done at: University of Economics Ho Chi Minh City

Professional advisor:

Associate Professor – PhD Mai Thi Hoang Minh

PhD Huynh Loi

Critic 1: Critic 2: Critic 3: This thesis will be presented

to the Thesis Committee at

At ………, the day…month…….year……

Thesis is available at the library of the University of Economics Ho Chi Minh City

INTRODUCTION

1 Research problem

Financial information of companies listed on stock market are concerned and used

by a wide range of interested users, namely investors, creditors, customers, etc Therefore, improving the financial statement quality plays a vital role in term of providing realistic and objective picture of certain company in decision making process

In recent years, many listed companies have submitted their financial statements incompletely and untimely In addition, this submission also illustrates a lack of reliability and falls to meet the requirements of submitting audited financial statements to the State authorities However, some researchers around the world have identified that the high – quality financial statements would reduce the information asymmetry and the cost of capital (Glosten and Milgrom, 1985; Amihud and Mendelson, 1986; Diamond and Verrecchia, 1991; Bhattacharya et al, 2003 và Barth et al, 2013) As a result, the study of the actual quality of the financial statements and the determinants of financial statement quality of companies listed on stock market in Vietnam is becoming extremely necessary

2 Research objectives and research questions

a Research objectives

The research objectives are investigating and analyzing the determinants of financial statement quality by the measuring earning quality of companies listed on stock market – evidence in Vietnam On the basis of the above information, some recommendations are proposed for people who use, create and manage the quality of financial statements of companies listed on the stock market of Vietnam

b Research questions

To achieve the recommended objectives, a main content of this thesis has to answer

the following questions:

1 What is the reality of the financial statement quality by the measuring earning quality of companies listed on the stock market of Vietnam at the moment?

2 What are the determinants of the financial statement quality by the measuring earning quality of listed companies in Vietnam at the moment?

3 What recommendations proposed for people who use, create and manage the financial statement quality of companies listed on the stock market of Vietnam at the moment?

3 Subject and scope of research

- Research subject: Companies listed on the stock market of Vietnam, and more specifically, the financial statements and the annual reports of listed companies in Vietnam from 2012 to 2014

- Research scope:

+ Space: Analyzing the determinants of the financial statement quality of non – financial companies listed on the stock market of Vietnam including HOSE and HXN (Notably, this thesis does not analyze finance companies such as the Banks, brokerage firms, etc.)

+ Time: the period from 2012 to 2014

4 Research methodology

This research has employed a mixed method approach in which the quantitative research method is the main one To be more specific, the majority of the literature which seeks to explain factors influencing the quaility of financial statements draws on some common theoretical foundations of accounting and auditing, such as the agency theory, the signaling theory, the contract theory, etc Moreover, author also uses many published studies around the world and in Vietnam also which related to the financial statement quality and the determinants of the financial statement quality in term of reference Furthermore, this study ulitizes the qualitative method when discussing with the professionals so as to add some new factors to the research model and test this model in Vietnam

5 Contributions of research

Since there is a growing concern over quality of financial statement of companies listed on stock market in Vietnam, findings of this thesis is highly essential The results of this study make some great contributions in both theoretical and practical implications, as detailed below:

- Theoretical implications:

Based on the result of the research model testing in which the determinants are collected from the prior researches and four new factors are added by the author, the completed thesis will add to the theoretical model of the determinants of financial statement quality that is measured by the earning quality of companies listed on stock market in Vietnam, and this result is going to be a reference for many related researches Especially, the research result of this thesis have demonstrated that among 17 determinants significantly influencing the financial statement quality, four new factors added to the research model by the author, including the financial statement delay, quick ratio, listed time, listed status (stock exchange), also influence significantly the financial statement quality of researched companies

- Practical implications:

+ The research results claim that the financial statement quality of companies listed

on stock market in Vietnam at present is not really high According to a research of author, this thesis is one of the first study in Vietnam analyzing the reality of financial statement quality of listed companies, through the financial statement measurement approach method

of earning quality, especially, the earning quality measurement is based on two basics, which are accounting basic and market basic, along with the up-to-date secondary data (data presented in financial statements) during the period of 2012 to Therefore, the results

of analyzing the financial statement quality of listed companies in this thesis reflect the reality based on the data which listed companies performed on their financial statements,

so this thesis is unlike the previous researches in Vietnam whose results were based on the evaluation opinion of users about the financial statement quality

+ With the recommended model, many factors influencing the financial statement quality of listed companies are added to the model to test, and the results of this thesis

show that 17 of 23 testable factors influence the financial statement quality of companies listed on stock market of Vietnam

+ Based on the results of evaluating the reality of financial statement quality from

2012 to 2014, which are detailed for each year and even for each sectors, and the results of the determinants of financial statement quality of companies listed on stock market in Vietnam These results are becoming an essential science fundamental for the interested users, such as managers, auditors, investors, government agency, State Securities Commission of Vietnam, etc Therefore, many solutions are going to be addressed for improving the financial statement quality of listed companies in Vietnam, as well as a reference for financial statement users in order to make many related decisions effectively

6 Thesis structure

Research introduction:

Chapter I: Overview of research about the measurement of financial statement quality and determinants of financial statement quality of companies listed on the stock market

Chapter II: Theoretical foundations and research model

Chapter III: Research methodology

Chapter IV: Research results and discussion

Chapter V: Conclusion and proposed recommendations

CHAPTER 1

OVERVIEW OF RESEARCH ABOUT THE MEASUREMENT OF FINANCIAL STATEMENT QUALITY AND THE FACTORS EFFECT ON STATEMENT QUALITY OF COMPANIES LISTED ON THE STOCK MARKET

In the main content of this chapter, the author will introduce an overview of researches around the world and Vietnam ab financial statement about the quality measurement method, and the determinants of financial statement quality of listed companies Therefore, the author reveals the gap of research and recommends the research approach for this thesis

1.1 The approaches to the financial statement quality measurement method based on the prior researches

In any researches relating to the financial statement quality, although the financial statement quality plays the role as the factor influencing the others or the factor influenced

by the others, the measurement of financial statement quality has been really important However, the financial statement quality is difficult to observe directly For this reason, the prior studies have used many different measurement methods which is able to divide into two main methods: Measurement by the characteristics of financial statement quality and measurement by earning quality

1.1.1 Financial statement quality measurement by the quality characteristics

The method of financial statement quality measurement by the quality characteristics has been used for evaluating many aspects and sizes of financial and non – financial information in financial statements, in order to indentify the necessity of this financial information This method of financial statement quality measurement means that the financial statement quality is evaluated based on the scales that are built based on the quality characteristics of FASB These include two fundamental characteristics that are relevance and reliability, two secondary characteristics that are consistency and comparability On the other hand, the characteristics, which are based on the opinions of the combined project of FASB and IASB, include two fundamental characteristics, which are relevance and faithful representation, and four enhancing characteristics including comparability, verifiability, timeliness and understandability

Over the past few years, there are many researches on the financial statement quality These researches have analyzed many problems, such as evaluating the quality characteristics, the determinants of the quality characteristics or the quality characteristics based on the opinions of many general users or auditors, investors, etc To be more detail,

it can be easily seen on the research of Jonas and Blanchet (2000), Beest et al (2009), Beest and Braam (2011), Jara et al (2011), Bauwhede (2001), Saheli & Nassirzadeh (2012), Terzungwe (2013), Tasios (2012), Obaidat (2007)

The purpose of this above method is not the earning quality measurement and evaluating many specific factors of financial statements, but the main purpose is evaluating the necessity level of information through the quality characteristics The benefit gained from this method is a research concentration on quality characteristics, whereas the others concentrated on many aspects of the quality management or stock prices However, the disadvantage of this method is that identifying scales of quality characteristics is very difficult Moreover, because of this evaluation based on the scales, the other drawback is that the result will not have high reliability since it depends on many subjective factors of the assessors and it has a high identifiable emotion component, for example, this assessor gives high score for this indication point in the financial statement, whereas, the other may not

1.1.2 Financial statement quality measurement by the earning quality

The main advantage of the method of financial statement quality measurement by the earning quality is its reliability Because the measurement by the quality characteristics, which is used by the other research, is based on the opinions of the assessors based on the secondary data (the data in the financial statements and annual reports) or the opinions of the people who answer in the survey (in the researches using the viewpoint survey and the data is the primary data), and this may lead to the result that the evaluation will depend on their opinions, and the research result may not reflect the reality of financial statements of companies On the other hand, the method of financial statement quality measurement by the earning quality, the data used for this method is based on the avaialable data in the financial statements and annual reports (secondary data) and the evaluation is directly based on these data Moreover, according to the opinions of the financial statement users, the investors, the debtors and the accounting standard issuers, the method of financial

statement quality measurement by the earning quality is really useful

1.1.2.1 Some models of earning quality measurement based on extraordinary accrual model

There are some models of earning quality measurement based on extraordinary

accrual model The author chooses the model of Jones, which has been adjusted by

Dechow et al (1995) and utilizes cross – sectional data based on the research of DeFond & Jiambalvo (1994) The researches of Teoh et al (1998), Myers et al (2003), Xie et al (2003), Hsu & Koh (2005), Aboody et al (2005), Qinghua et al (2007), Jiang et al (2008), Jaggi et

al (2009), Alves (2014), Gonzalez et al (2014), Aygun et al (2014), Gonza´lez, J S., and Meca, E G (2014), also used this method to measure the dependent variable, which is earning management in their research

1.1.2.2 Some models of earning quality measurement based on a value relevance of accounting information model

Among the models based on a value relevance of accounting information to measure earning management, the author has chosen the adjusted EBO model, which is one of two models measuring financial statement quality in this thesis The researches of Abubakar (2011), Hassan (2012) và Ahmed (2012), also used this method to measure the dependent variable, which is financial statement quality, in their research

There are many prior researches measuring financial statement quality by earning management, including the researches using financial statement quality as an independent variable as well as a role of independent variable, such as the researches of Choi and Pae (2011), Gajevszky (2015), Darabi et al (2012), Hashim (2012) and Alzoubi (2012)

Besides, many researches of the determinants of financial statement quality have used earning management to measure this dependent variable, which will be presented in the next content

1.2 Overview of previous studies about the determinants of financial statement quality by measuring earning quality

1.2.1 Overview of previous studies in the world

There are many research in the world in regard to the determinants of financial

statement quality, especially earning quality in financial statements, including internal and external factors These are Dechow et al (2010), Qinghua et al (2007), Radzi et al (2011), Alves (2014), Hassan (2013), Healy (1985), Gaver et al (1995), Holthausen et al (1995), Abed et al (2012), Waweru và Riro (2013), Ahmed (2013), Aygun et al (2014), Hassan (2012), Habib & Azim (2008), Jamaluddin et al (2009), Klai (2011), Chalaki et al (2012)

Besides, there are more researches relating to the determinants of financial statement quality, the author has summarized the research results in the world in the thesis

Consequently, there are many research works on the determinants of financial statement quality in the world in which the financial statement quality is measured by many methods, each researches usually concentrates on one or some factor groups, such as the management of companies, the characteristics of companies, etc Most of the researches used a regression model and the ordinary least square method (OLS) (Houqe et

al, 2010; Radzi et al, 2011; Liu, 2012; Waweru & Riro, 2013; Hassan, 2013; Johl et al, 2013; Aygun et al, 2014), some researches used finite element method (FEM) (Soliman & Ragab, 2013; Rahman et al, 2008), and few researches used the method of generalized least square (GLS) (Alkdai & Hanefah, 2012; Rafiee et al, 2014)

1.2.2 Overview of previous studies in the country

In Vietnam, the theme relating to financial statement quality has been also concerned by some researchers, these parlicular researches are listed below:

Nguyen Phuc Sinh (2008), Nguyen Dinh Hung (2010), Nguyen Thi Bich Van (2012), Duong Nguyen Hung (2013), Nguyen Thi Hong Nga (2013), Ngo Thu Giang và Dang Anh Tuan (2013), Pham Thi Bich Van (2014), Nguyen Cong Phuong and Nguyen Thi Thanh Phuong (2014), Nguyen Thi Phuong Hong and Mai Thi Hoang Minh (2014), Nguyen Thi Phuong Hong and Duong Thi Khanh Linh (2014), Nguyen Thi Hong Nga (2014), Nguyen Trong Nguyen (2014), Doan Thi Hong Nhung and Vu Thi Kim Lan (2014), Ngo Thi Thu Giang (2014), Pham Ngoc Toan and Hoang Thi Thu Hoai (2015), Le Thi My Hanh (2015), Dang Ngoc Hung (2015), Pham Thi Bich Van (2015), Nguyen Trong Nguyen (2015)

Therefore, Vietnamese researchers have been initially concerned about researching

on some related theme about financial statements However, researchers have just analyzed

basic contents relating to financial statements There are few researches on the determinants of financial statement, but they have only analyzed the information disclosure, the determinants analyzed and tested have not been concerned thoroughly, or some researches have also focused on the financial statement transparency

1.3 The gap of research

Through the synthesis of the researches in the world relating to this thesis, it can be claimed that financial statement quality and its determinants are one of the topics specifically concerned by researchers of many countries around the world Therefore, there have been many researches on this topic On the other hand, there have been many researches on financial statement quality in one country, but they have many approaches to measure it Most of these researches also use the quantitative research method to approach based on the prior researches, theoretical foundations and the economic and social characteristics of each country to build and test models However, these researches are usually analyzed respectively and mostly focus on the factors of company management, each research has only focused on one specific factor group, such as company management, company characteristics and there are researches analyzing few factors, such

as one or two factors

With the reality of researches relating to the determinants of financial statement quality in Vietnam, such as the above synthesis summarizing researches in Vietnam, the author has some observations as below:

- In some countries around the world, the research on topics relating to financial statement is conducted earlier than Vietnam, however, in recent years, Vietnamese researchers has also concerned more and had many studies relating to this topic

- Researchers have also perceived an importance of research on the determinants of financial statements However, these researches have just focused on the financial statement transparency or some researches have just analyzed the financial statement disclosure, and the number of these researches is very limited

Therefore, in addition to the achievements, it can be said that a number of Vietnamese researches relating to this topic is very limited, the researches conducted have analyzed only basic contents about the financial statements, there are few researches on the

determinants of financial statements but they have just analyzed the financial statement disclosure, the determinants analyzed and tested are not concerned These researches have not analyzed the financial statement quality profoundly Besides, the results of evaluating financial statements and analyzing the determinants in most of the researches are based on survey methodology, hence, they have not reflected the reality of financial statements, which are created and designed by companies in Vietnam at present There are few researches analyzing directly on financial statements and annual reports of companies, but they have just approached the determinants of financial statement disclosure or focused on the financial statement transparency

In the world, although there are many researches on the determinants of financial statement quality and earning quality, most of these focus on analyzing one specific group factors, such as company management, company characteristics, dividend policy, audit quality influencing financial statement quality, etc There is a limited amount of researches analyzing all these factors in one research, because if researchers analyzed like this, the results of the general research may be more crucial than the specifically research

As a result of the synthesis of the prior researches in the world and in Vietnam, and the analysis of achievements and limitations in these researches, the author has realized that it is necessary to have one research on the determinants of financial statement quality

of companies listed on stock market of Vietnam at present Therein, the financial statement quality is measured based on data presented in financial statements (secondary data) by companies, and measured by many methodologies contemporarily, a number of determinants analyzed has been increased; therefrom, a recommendation will be proposed

in order to improve the financial statement quality of listed companies Moreover, this result is going to be a necessary and important reference for many related users, such as the country authorities, company managers, auditors, investors and many other related users in the case that the reality of financial statement quality of Vietnamese companies has been concerned at present

CHAPTER 2 THEORETICAL FOUNDATIONS AND RESEARCH MODEL

The main content of this chapter is analyzing the related theoretical foundations which are the foundation for the author to build the research model and develop the research hypothesis associated with the content of previous chapter This helps to achieve the main goals of the thesis to assist the readers in approaching the contents of this thesis easier In this chapter, the author also introduces some definitions and some important terms

2.1 Theoretical foundations relating to the determinants of financial statement quality

As the contents mention above, there are many researches on the determinants of financial statement quality in the world and the results of these demonstrate that there are many factors influencing the financial statement quality However, these results are not similar, there is a factor which has influences the quality in this research but has not influenced in the other Furthermore, there is also a situation that this factor has a possitve effect on financial statement quality in some researches, but in the other researches, this factor has a negative effect Therefore, in order to develope the research hypotheses from the research model in this study, the author conducts an analysis of some related theoretical foundations, which are the agency theory, resource dependency theory, political cost theory, the signaling theory, exclusive cost theory and the contract theory

2.2 Research model

2.2.1 Research model:

Based on the related prior researches and the quantitative research result, the author has built the research model with many determinants influencing the financial statements, which are the financial statement quality as the dependent variable and 23 independent variables (determinants) divided into five groups of factor These are (1) group of factors relating to ownership structure including foreign ownership, state ownership, managerial ownership, institutional ownership and ownership concentration, (2) group of factors relating to corporate governance including board size, CEO duality, board independence, number of board meetings, financial expertise level of board and the existence of bonus plan, (3) group of factors relating to capital structure including firm leverage and firm

liquidity, (4) group of factors relating to market characteristics including firm size, firm age, list time, list status, auditor type, delay of financial statement and industrial sector, (5) group of factors relating to performance of company including profitability (ROE), firm growth and dividend policy

2.2.2 Developing the research hypotheses

Based on the research model, the results of related researches, which are in a summary table of the determinants of financial statement quality from the prior researches, and the analysis of the relationship between these factors and financial statement quality from the above theoretical foundations, the author builds 23 hypotheses

CHAPTER III RESEARCH METHODOLOGY

To achieve the goal of one research, the research methodology is an important content where it contributes greatly to the research efficiency of this thesis Therefore, the author has focused on the research methodology of this thesis, the content of this chapter will present the research model and research methodology chosen by the author

3.1 Research methodology and research process

3.1.1 Research methodology

In this thesis, the author has used the mixed approach in this research From the research problem, the author has observed the related prior researches on the measurement methodology of financial statement quality, the determinants of financial statement quality Therefrom, the author has built and tested the model of the determinants of financial statement quality of listed companies in Vietnam However, besides the factors added to the model based on the prior researches, according to the opinion of the author about characteristics of Vienam, the author intends to add four new factors to the model, which are not researched in the prior researches In order to have a basic for a decision whether it

is necessary to add these factors in the model, the author has used the qualitative research methodology through the data collection method which is the discussions with the professionals (5 professionals) about the problem, which is whether four new factors suggested by the author should be added to the model Furthermore, the author has