Market competition and earnings management: Evidence from Vietnam

Abstract

With a panel data of 596 non-financial firms and 4,988 firm-year observations, the paper examines the relation between product market competition and earnings management in Vietnamese listed firms on Ha Noi and Ho Chi Minh stock exchanges during the period 2008–2014. The empirical results show that market competition is negatively correlated with earnings management. This means firms operating in highly competitive market have low level of earnings management. It could be that intensified market competition works as an external disciplinary governance mechanism or it makes corporate misreporting more costly by increasing firms’ exposure to predation risk so as to curtail managers’ opportunistic behavior in these firms. The results are robust with respect to alternative measures of market competition and earnings management.