Impact of banking uncertainty on firm opacity: Evidence from Vietnam

Abstract

This study examines the effects of banking uncertainty on firms' financial reporting quality. Using data obtained from commercial banks and non-financial listed firms in the bank-based market of Vietnam during 2007–2022, we find that banking uncertainty is associated with higher corporate earnings opacity. We present evidence demonstrating the importance of financing constraints in shaping the relationship between banking uncertainty and firms' earnings management. Further, we find that the impact of banking uncertainty on corporate earnings manipulations is less pronounced for firms with solid bank-firm relationships, firms having improved financial strength and superior performance, and firms listed on the Ho Chi Minh stock exchange. Finally, we detect that the uncertainty effect on firm opacity is more potent during macroeconomic shocks. Overall, our findings caution stakeholders to maintain a degree of skepticism regarding the earnings disclosures of specific firms during periods of uncertainty in a bank-dominated market.