Detection of real earnings management: The case of Vietnamese listed companies

Abstract

There are a great number of incentives that drive managements to manipulate firms’ profit. Beside exploiting the allowed discretional accrual choices, managers could perform real earnings management by altering the normal operating scale of the companies. This paper examines the three most prevalent means of real earnings management, including (1) boost in sales through price discounts or more lenient credit terms; (2) reduction of discretional expenses and (3) overproduction. The main concentration of the study is the applications of these measures to avoid losses. By using data of 610 listed companies on Ha Noi and Ho Chi Minh Stock Exchange from 2008 to 2015 and verified regression models, the research finds evidence that managers do apply real earnings management to avoid losses. These findings are consistent with other researches’ result. Based on the empirical result, the paper raises recommendations to enhance the profit’s reliability and protect investors.