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1 CHAPTER INTRODUCTION OF THE THESIS TOPIC efficiency of information users as well as the performance of the stock market However, in recent time, there are many frauds regarding the information quality in FS which caused serious consequences and great losses for companies and investors 1.1 Urgency of thesis topic Currently, Vietnam is integrating deeper into the world market The development of Vietnamese stock market (SMVN) has played a significant role in the development of the economy in general and created a borderless capital flow SMVN is one of young stock markets in the world; it was officially put into operation on July 20, 2000 via the Ho Chi Minh Stock Exchange (HOSE) and Hanoi Stock Exchange (HNX) The development of the stock market during the period of 2000-2005 was quite small with the value of market capitalization of just under 1% of GDP The market size had grown by leaps and bounds to 22.7% of Gross Domestic Product (GDP) in 2006, over 43% of GDP in 2007 and by now to 78% of GDP, respectively This provides a channel for listed companies to mobilize capital and provides opportunities for investors to seek reasonable investment methods on the stock market Financial statements (FS) are an important basis for providing information for investors and related parties to make optimal decisions as financial information of the company is provided on the financial statements From a theoretical perspective, the main objective of the financial statements is to provide high-quality information but this is a complex multi-dimensional structure that cannot be observed directly (Barth, Landsman and Lang, 2008) The measurement outcome depends heavily on personal preferences, perceptions and the context of the information (Schwedler, 2010) Quality of financial reporting information is mentioned in many national accounting standards and many research works of Jonas and Blanchet (2000), Cohen et al (2004), Beest et al (2009), Nguyen Trong Nguyen (2015), Nguyen Phuong Hong (2016), Pham Quoc Thuan (2016) From the perspective of FASB and IASB, qualitative characteristics are attributes that make the information on the FS useful for users As for Vietnam, in the context of being a developing economy and undergoing integration in terms of capital and accounting standards, it is necessary to study, correct and develop a measurement scale of information quality to comprehensively assess information in the FS From a practical perspective, every change in business and financial situations of listed companies affects not only the operations of companies and investors but also the whole stock market as well as the economy This applies especially for information in the FS because this is an important source of information not only for company executives but for those who are interested in the “health” of companies as well in order to make appropriate decisions This directly affects the quality and It is essential to study factors affecting of quality of financial reporting information and the influence level of these factors to provide recommendations and improve information quality Therefore, the author chooses the following topic which has both theoretical and practical significance: “A study of factors affecting the quality of financial reporting information of listed companies on the Vietnamse stock market” 1.2 Research objectives Overall objective: To study factors affecting the quality of financial reporting information of listed companies on the SMVN; then present recommendations for influencing factors to improve information quality The thesis has the following specific objectives: Objective No.1: To create the measurement scale of the quality of financial reporting information of listed companies on the SMVN Objective No.2: To identify factors affecting quality of financial reporting information of listed companies on the SMVN Objective No.3: To identify the influence level and direction of factors on the quality of financial reporting information of listed companies on the SMVN Objective No.4: To present several recommendations to enhance the quality of financial reporting information of listed companies on the SMVN Objective No.5: To study the assessment of the makers and users of FS about the quality of financial reporting information and factors affecting the quality of financial reporting information of listed companies on the SMVN 1.3 Research questions Regarding the specific study objectives of the thesis, the following questions are presented: Question No.1: How is the quality of financial reporting information of listed companies on the SMVN? Question No.2: What are factors affecting the quality of financial reporting information of listed companies on the SMVN? What are their influencing levels and directions about the quality of financial reporting information of listed companies on the SMVN? Question No.3: What is the most influential factors of the quality of financial reporting information of listed companies on the SMVN? Question No.4: What are recommendations for influencing factors to enhance the quality of financial reporting information of listed companies on the SMVN? Question No.5: Are there any differences in the assessment of FS makers and FS users regarding information quality and factors affecting the quality of financial reporting information of listed companies on the SMVN? 1.4 Research objects and scopes Research objects: Factors affecting the quality of financial reporting information of listed companies on the SMVN Research scope: Space: Study non-financial listed companies in HOSE and HNX Time: To ensure research time, the source of research data includes survey results of respondents about quality of financial reporting information of nonfinancial listed companies within months from May 15, 2018 to August 15, 2018 Respondents: Users of FS of listed companies on the SMVN (investors, management agencies, auditors, specialists) and makers of the FS in listed companies on the SMVN (accountants, chief accountants, directors of listed companies) 1.5 Introduction of research methodologies The thesis combines qualitative research methods and quantitative research methods to achieve research objectives Qualitative research method: The thesis uses in-depth interview techniques and group discussion with experts to identify suitable criteria to evaluate and measure quality of financial reporting information and factors affecting quality of financial reporting information of listed companies in SMVN Quantitative research method: The quantitative method is carried out through two stages: preliminary survey and wide-area survey phases; survey data are analyzed by the SPSS 22.0 software 1.6 Contributions of the thesis In terms of theories: Firstly, adjust and develop a comprehensive measurement scale of information quality on FS based on basic and advanced qualitative characteristics of IASB (2018) Secondly, the thesis uses qualitative and quantitative research methods to identify factors affecting the quality of financial reporting information of listed companies on the SMVN and the levels of impact This helps enrich the overview of research and research results about these factors In terms of practical application, the thesis has the following contributions Firstly, the research results reflect the reality of quality of financial reporting information of listed companies based on a comprehensive approach to measurement characteristics of information quality information in the FS according to IASB 2018 Some new indicators are developed in this study The research results show that the quality of financial reporting information of listed companies on the SMVN is at a relatively good level of 3.4069/5 points In general, the quality of financial reporting information meets the requirements of information users when making decisions Secondly, the results of regression analysis of the topic have identified six factors including five factors have the same impact directions: accounting staff, efficiency of internal control, independent audit quality, application of International Financial Reporting Standards (IFRS), regulatory role of the State Securities Commission (SSC) In particular, the profit management behavior factor inversely affects the explanation of 72.9% of quality of financial reporting information of listed companies on the SMVN There are two factors that are considered to be new in this study: the application of IFRS and the regulatory role of the SSC The accountant factor have observed variables about accounting ethics (DD1, DD2, DD3, DD4, DD5) and NL2 that are discovered in this study Thirdly, the research results show that there are different assessment of FS makers and users about quality of financial reporting information There are two factors, namely independent auditing quality and the application of international financial statements standards that not display statistically significant differences Fourthly, based on the research results and discussion of the research results, the thesis has proposed recommendations for six independent factors to enhance the quality of financial reporting information of listed companies on the SMVN 1.7 Structure of the thesis The thesis includes chapters: Chapter 1: Introduction of the thesis topics Chapter 2: Research overview and the theoretical basis of information quality of the financial statement Chapter 3: Research methodologies Chapter 4: Research results Chapter 5: Disussions of research results and recommendations List of reference materials Appendix CHAPTER RESEARCH OVERVIEW AND THE THEORETICAL BASIS OF INFORMATION QUALITY OF OF THE FINANCIAL STATEMENT 2.1 Research overview 2.1.1 Studies on the measurement of information quality of the financial statement There are many different methods to evaluate and measure quality of financial reporting information; commonly used methods are presented in Table 2.1 Method Pros Cons Author Table 2.1 Overview of measurement methods of information quality of the financial statements Method of assessing Method of using the relation between A specific Qualitative profit profit and market factor in the FS characteristic response Asses the profit Consider the Have in-depth Examine the adjustment level relationship between analysis of usefulness of FS of the executive profit and response specific factors decision through (representative) of the SM to in the FS by qualitative measure quality of conducting characteristics financial reporting empirical information research Easy to collect Relatively easy to Focus on quality Focus on quality of data to measure measure Provides of financial financial reporting profit adjustment an insight into the reporting information economic value of information Directly measure income figures Directly measure quality of the FS quality of the FS Focus on profit Focus on profit Focus only on It is generally quality.Measure quality Measure the selected difficult to information information quality factors Difficult measure quality indirectly indirectly Not to measure Difficult to provide an insight estimate into the trade-off cumulative values between relevance arbitrarily and reliability Jone (1999) Barth et al (2001); Hirst et al Jonas et al (2000), Method of assessing Method of using the relation between profit profit and market response Healy &Wahlen Choi et al (1997); (1999); Dechow Nichols & Wahlen et al (1995); (2004); Nelson Radzi et al (1996) (2011), Nguyen Ha Linh (2017) A specific factor in the FS Qualitative characteristic (2004); Beretta & Bozzolan (2004); Cohen et al (2004), Roudaki 2011, Hirschey et al (2012) Schipper &Vicent (2003); Vander Meulen et al (2007); Barth (2006); Ferdy et al (2009); Geert Braam & Ferdy (2013), Pham Quoc Thuan (2016), Nguyen Phuong Hong & Duong Khanh Linh (2014), Nguyen Trong Nguyen (2016) Source: Complied by the author 2.1.2 Studies of factors affecting quality information of the FS 2.1.2.1 Internal factors of companies There are many factors that affect information quality of financial statements In this study, the author has complied the following internal factors: accounting staff competence, professional accounting ethics, internal control, level of dispersion of shareholders, company size and financial leverage, earning management behavior, quick solvency, company culture, commitment to business ethics, business characteristics 2.1.2.2 External factors of companies Application of IFRS, independent audit quality, regulatory roles of the SSC 2.1.3 Research gap Study the the impact of accounting ethics on the quality of financial reporting information of listed companies on the SMVN Study the impact of apply IFRS on quality of financial reporting information of listed companies on the SMVN Study the impact of the regulatory role of the SSC on quality of financial reporting information of listed companies on the SMVN 7 Do the FS makers and users have different assessments on the quality of financial reporting information and its influencing factors on the SMVN? What are recommendations from the research results to improve information quality on the financial statements? 2.2 Financial statement and information quality of financial statement 2.2.1 Financial statement 2.2.1.1 Overview of financial statement The thesis’s approach about FS is according to the concept of IASB (2018) as Vietnam is currently on a roadmap to gradually integrate with international accounting and step by step apply IFRS in listed companies with a view to compulsory application for all listed companies by 2025 According to this approach, financial statements are reports on the situation of assets, capital, revenue, expenses, business results and financial relations of companies at a specific point of time after an operation period 2.2.1.2 Financial statement users The thesis' viewpoint is to consider the users of financial statements according to the approach of IFRS with priority given to investors and capital providers who have less information on production, business and financial situation of companies 2.2.2 Information quality of financial statement 2.2.2.1 Information quality In brief, information includes signals that are received, perceived and useful for users during the decision-making process Quality Due to the above-mentioned reason, the thesis chooses the approach according to the viewpoint about information quality of professional accounting organizations such as FASB, Vietnamese Accounting Standards, and the International Accounting Standards Board (IASB) to analyze and choose the most suitable standards of quality of financial reporting information 2.2.2.2 Quality information of financial statements a Basic characteristics Relevance, faithful representation b Advanced characteristics Comparability, understandability, timeliness 2.3 Theories about the relation among factors affecting information quality of financial statements 2.3.1 Contingency theory Theoretical application in this study: Contingency theory shows that there is no optimal organizational structure for listed companies on the SMVN There are many factors affecting the effectiveness of the organizations in general and the quality of financial reporting information of these companies in particular That helped the author form the idea about the impact of factors of company size, corporate culture, quick solvency, financial leverage, commitment to business ethics, business characteristics on quality of financial reporting information of listed companies on the SMVN 2.3.2 Agency theory Theoretical application for quality of financial reporting information of listed companies on the SMVN The agency theory is used to explain managerial behavior in providing information in the financial statements to ensure reliability for the benefit of the owner or to maximize the benefits of the principal In the event that the contract between the owner and the manager is effective and the interests of the executives are guaranteed, they will act entirely in the interests of the principal, disclose a lot of information with high quality and reliability in the FS and vice versa From that, the author has realized that executives can perform earning management activities to maximize their by providing information on the FS, especially for listed companies in case the management rights and ownership rights are separate Or there is a relation between earning management behaviour and quality of financial reporting information of listed companies on the SMVN Therefore, the thesis continues to explore the relationship of these two factors Based on the analysis of this theory, the author has studied the relation among the factors of the effectiveness of internal control, independent audit quality, regulatory role of SSC, dispersion level of shareholders, competency of accountants, professional ethics of accountants, earning management behavior regarding quality of financial reporting information of listed companies on the SMVN 2.3.3 Stakeholder theory This theory helped the author form the idea that the dispersion level of shareholders has a negative impact on the quality of financial reporting information The SSC's regulatory role has a positive impact on the quality of financial reporting information of listed companies on the SMVN When regulators commit to business ethics, it shows that the company wishes to treat all parties with related interests in a fair manner The regulatory role of the SSC is to ensure fairness for parties, especially shareholders and capital providers who are provided with information that are truthful, objective, accurate, transparent, easy to understand and timely in the FS Based on the application of this theory, the author has built the basis for recommendation that the regulatory role of the SSC and the application of international financial reporting standards affect quality of financial reporting information of listed companies on the SMVN 10 3.3.1.1 Measurement scale of dependent variables Dependent variables of quality of financial reporting information are measured through observed variables: Relevance, faithful representation, comparability, understandability, verifiability, timeliness 3.4.1.2 Measurement scale of independent variables a Competency of accountants: The factor of competency of accountant is measured and quantified as the mean value of observed variables from NL1 to NL5 b Professional ethics of accountants This factor is quantified as the mean value of observed variables DD1 to 2.4 Planned research model from theoretical basis 2.4.1 Planned research model from theoretical basis DD5 From the results of the research overview and the theoretical basis, the author has compiled factors affecting the quality of financial reporting information of listed c Effectiveness of internal control companies on the SMVN and proposed the planned research model from the theoretical basis presented in diagram 2.3 d Application of the International Financial Reporting Standards 2.4.2 Research hypotheses from theoretical basis Based on the research overview and the theoretical basis of the thesis, the author proposes the research hypotheses presented in Table 2.3 This factor is quantified as the mean value of observed variables KS1 to KS5 The IFRS is a set of accounting standards that are created and developed by the IASB This factor is quantified as the mean value of observed variables AC1 to AC5 e Earning management behaviour This factor is quantified as the mean value of observed variables HQ1 to SUMMARY OF CHAPTER CHAPTER RESEARCH METHODOLOGIES 3.1 Research process 3.2 Qualitative research method In the thesis, the author used the qualitative research method to accomplish the main objectives of identifying factors affecting quality of financial reporting information of listed companies on the SMVN and building a scale of factors including independent and dependent variables This is the first step in the preliminary study of the thesis; qualitative research results serve as the scientific basis for the author to build a questionnaire for the survey in quantitative research Based on the literature review of previous studies, the author then interviewed experts and proposed research models and research hypotheses 3.3 Quantitative research method 3.3.1 Building a measurement scale of variables HQ5 f Independent audit quality This factor is quantified as the mean value of observed variables KT1 to KT7 g Regulatory role of the State Securities Commission This factor is quantified as the mean value of observed variables UB1 to UB3 The thesis uses a 5-level Likert scale to find out whether these factors affect qthe uality of financial reporting information of listed companies on the SMVN 3.4.2 Questionnaire design and trial survey 3.4.3 Official survey Sample survey The author conducted a large-scale survey and distribution of questionnaires After unusable survey slips were removed, the number of survey 11 12 slips used for analysis was 350 which were sufficient for Exploratory Factor Analysis (EFA) and regression analysis After having quantitative research results, the author continued to conduct indepth interviews with a group of experts to discuss research results in Chapter Data processing method The author examined all the obtained survey slips Out of 764 survey slips sent, author collected 368 survey slips with 18 being invalid In the end, the author had 350 survey slips used in this study The author then proceeded to process the data; for direct survey cases, the author entered data into the survey slips and the answer was automatically updated in the software Afterwards, the author used the SPSS 22.0 software to perform the next quantitative research steps Test of the measurement scale’s quality (Cronbach's Alpha test) EFA Kaiser - Meyer - Olkin Barlett’s test Total Variance Explained Factor loading Pearson's Correlation Test and multiple linear regression analysis Pearson's Correlation Test Multiple linear regression analysis SUMMARY OF CHAPTER CHAPTER RESEARCH RESULTS 4.1 Overview of listed companies in the Vietnamese stock market 4.1.1 The establishment and development of the Vietnamese stock market 4.1.2 Realiy of information quality of financial statements of listed companies in the Vietnamese stock market 4.2 Impact levels of factors on the information quality of financial statements of listed companies in the Vietnamese stock market 4.2.1 Qualitative research results Based on the research data gathered from group discussions, the author has built a theoretical research model including factors affecting quality of financial reporting information and developed observed variables to measure independent factors as described in Chapter 4.2.2 Quantitative research results Descriptive results of the value of observed variables in dependent variable are presented in Table 4.7 and Table 4.9, displaying the mean value of the observed variables in dependent variables in the range of 2, to 3.8 This shows the differences in assessment level about quality of financial reporting information of listed companies on the SMVN and the standard deviation of observed variables 0.3, ensuring the given scales have statistical significance 4.2.4 Checking the convergence of the quality of financial reporting information The variable of quality of financial reporting information includes 32 observations To see if these observations are converged, the author put all observed variables of the dependent variable into analysis through KMO and Bartlett's Test tests The observed variables of the dependent variables all converge Table 4.12 KMO and Bartlett's Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy Approx, Chi-Square Bartlett's Test of Df Sphericity Sig, ,865 11474,995 496 ,000 Source: The thesis’s research 13 14 EFA analysis in Table 4.12 shows that KMO coefficient> 0.5, eligible to conduct factor analysis, and sig is 0.000, indicating that the observed variables are correlated with each other in the factor The author then conducted the analysis via perpendicular rotation H2: The effectiveness of internal control positively affects the quality of financial reporting information of listed companies on the SMVN H3: The application of the IFRS positively affects the quality of financial reporting information of listed companies on the SMVN According to the results, it is possible to draw from 32 observations and the total variance extracted is 73.999% The results show that the observed variables have factor loadings larger than the standard (0.40) and the difference in factor loading of an observed variable among factors>0.3 No observed variable is removed H4: Earning management behaviour negatively affects the quality of financial reporting information of listed companies on SMVN 4.2.5 Checking the convergence of observed variables of the independent variables by EFA analysis H6: The regulatory role of the SSC has the same impact direction on the quality of financial reporting information of listed companies on the SMVN After analyzing the Cronbach's alpha, the scales were further evaluated by EFA, using the Principal Axis Factoring method with Promax rotation (Gerbing and Anderson, 1988) and stop point for extracted factors when Eigenvalue >1 Observed variables of influencing factors were included in factor analysis The result shows that KMO = 0.864 which satisfied KMO condition> 0.5 (Kaiser, 1974) Thus, it can be concluded that EFA is appropriate with the existing data Similarly, the Barlett test result of 1.00; 35 observed variables are grouped into six factors; the total extracted variance is 70,970 indicating that these six factors are explained 71,001% the variation of observed variables Most observed variables have factor loading> 0.5 but observed variables, KS4 and KS5, have factor loading 0.5 (Kaiser, 1974) Thus, it can be concluded that factor analysis is appropriate with the existing data Similarly, the Barlett = 0.00 1.00; 33 observed variables are grouped into six factors, the total extracted variance is 72,528, indicating that these factors explained 72,528% of the variation of observed variables Observed variables of all factors have factor loading greater than 0.5 Thus, all scales selected for variables in the model met the requiements and can be used in subsequent analyzes Through the factor analysis process, the hypotheses are reset H1: The competence and professional ethics of accountants positively affect the quality of financial reporting information of listed companies on the SMVN H5: Independent audit quality positively affects the quality of financial reporting information of listed companies on the SMVN The variables are encrypted and renamed as follows: NV: Accountant (Competency and ethics) KT: Independent audit quality HQ: Earning management behaviour KS: Effectiveness of internal control UB: Regulatory role of the SSC AC: Applications of IFRS The official research model is as follows: H1 H4 Earning management behaviour Accountant + H2 Effectiveness of internal control Quality of financial reporting information + H5 + Independent audit quality H3 Applications of international financial reporting standards H6 + + Regulatory role of the State Securities Commission Diagram 4.4: Official research model Source: The thesis’s research 15 16 4.2.6 Testing correlation coefficient Table 4.14: Diagram of correlation coefficient of factors Variable NV Correlation coefficient r Significance level KT Correlation coefficient r Significance level NV KT HQ KS UB AC CLBCTC coefficient of 0.802; 0.664; 0.470; 0.445; 0.665; 0.681, respectively, showing a fair degree of mutual influence between factors and that they have practical significance Results of correlation analysis show variables are eligible to be put into regression analysis 4.2.7 Linear regression model analysis ,620** ,451** ,366** ,566** ,703** ,000 ,000 ,000 ,000 ,452** ,229** ,665** ,626** ,649** ,000 ,000 ,000 ,000 ,802** ,000 ,000 ,000 ,219** ,396** ,502** ,470** After several times of processing regression model by different methods, the author chooses the Enter method (including all variables in the regression equation) to give the best regression model results as below The author uses multivariate regression model that has the following form: Quality of financial reporting information = bο + b1* NV + b2*KT + b3* HQ + b4* AC + b5* KS + b6* UB + ε Testing the suitability of the model HQ Correlation coefficient r Model Significance level KS Correlation coefficient r Significance level UB Correlation coefficient r Significance level AC Table 4.15 Model Summary Correlation coefficient r ,000 ,000 ,000 R 1 ,325** ,330** ,000 ,000 ,445** ,857 Correlation CLBCTC coefficient r a Adjusted R Square Std Error of the Estimate ,734 ,729 ,38419 a Predictors: (Constant), UB, KS, HQ, AC, KT, NV Source: The thesis’s research ,000 Table 4.16 ANOVA table a ,512** ,654** Model ,000 ,000 ,681** Regression Residual Total Significance level R Square ,000 ,000 Sum of Squares Mean Square Df F 139,515 23,252 50,629 343 ,148 190,143 349 157,531 Sig ,000b a Dependent Variable: CLBCTC b Predictors: (Constant), UB, KS, HQ, AC, KT, NV Source: The thesis’s research Significance level ** p