Earnings Management In Mergers And Acquisitions Evidence From Listed Companies In Vietnam.doc

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THE UNIVERSITY OF DA NANG
UNIVERSITY OF ECONOMICS
PHAM NGUYEN DINH TUAN
EARNINGS MANAGEMENT IN MERGERS AND
ACQUISITIONS: EVIDENCE FROM LISTED COMPANIES
IN VIETNAM
SUMMARY OF DOCTORAL THESIS IN ECONOMICS
DA NANG – 2023

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The thesis is completed at
UNIVERSITY OF ECONOMICS - THE UNIVERSITY OF DA NANG
Supervisors: Assoc. Prof. Nguyen Cong Phuong
Reviewer 1 …………………………………………………………
Reviewer 2 …………………………………………………………
The thesis shall be defended in front of the thesis defense committee
meeting at University of Economics – The University of Da Nang At
.... hour .... day ............... month ............ year 2023
This thesis is available at:
- The National Library
- The Center for Learning Information Resources and
Communication - University of Da Nang

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INTRODUCTION
1. The necessity of the research
In recent years, along with the development of the stock market, M&A
activities in Vietnam have gradually become bustling and developed in both
quantity and value. The explosion of M&A activities in Vietnam has only
happened in the past 10 years (from 2009 to 2019), but with 4,424 M&A deals
and a total value of 45.9 billion USD, 8 times more than in quantity and 10
times in value compared to the previous period. In the M&A deal, the acquiring
firms have the initiative to choose the target firm, execution time, and payment
method. In the case where the stock swap method is selected by the acquiring
firms, the stock swap rate determination - is the number of shares of the
acquiring firm and exchanging one share of the target firm, between the
acquiring firm and the target firm. The target firm leads to beneficial
motivations for the employee's corporate governance behavior. Managers will
tend to find ways to increase the accounting profit targets on the financial
statements. This is because profit margins are often an important measure in
assessing the performance of an enterprise's business, as well as when
determining the value of the enterprise and these are the factors that will affect
the determine the stock swap rate. The manager at the acquiring firms with the
initiative when performing the M&A deal will find ways to increase accounting
profit in the years (or quarters) immediately preceding the announcement of the
M&A deal. They use the data on these adjusted financial statements to achieve
a favorable stock swap rate relative to the target firm. Since then, the manager
has achieved many goals such as: increasing the share price, increasing the
number of shares received when exchanging, avoiding decreasing voting rights,
and reducing stock dilution after the M&A at the acquiring firm.
The initial research on earnings management in the M&A deal mainly
originated in countries with developed stock markets and active M&A

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activities, this is also the context of research with accounting regulations and
legal regulations. revolving around complete M&A activities such as the US
(Erickson & Wang, 1999), the UK (Botsari & Meeks, 2008), Canada
(Francoeur et al., 2012), France (Njah & Jarboui, 2013), Japan (Higgins, two
thousand and thirteen),… Also, a handful of studies have been placed in the
context of developing countries, which lack investor protections such as Greece
(Koumanakos et al., 2005), Malaysia (Ardekani et al., 2005). The, 2012),...
Especially Karim et al (2016) showed that the level of earnings management of
acquiring firms in the M&A deal increased in developing countries.
Earnings management in the M&A deal has not been fully studied in the
Vietnamese context. Since then, it leaves a research gap including the lack of
evidence about earnings management of the acquiring firm in the M&A deal, as
well as not being able to identify the factors affecting this earnings
management. Along with the development of M&A activities in Vietnam, this
requires research to identify and measure earnings management of the
acquiring firm in the M&A deal and the factors affecting earnings management
of the acquiring firm in the M&A deal. The research results are an important
basis to explain the question of whether the acquiring firms manager performs
earnings management in the M&A deal. Besides, if earnings management in
the M&A deal exists in acquiring firms in Vietnam, what factors will it be
affected? Research results will be the basis for making relevant policy
implications. This is an important contribution not only in terms of research in
Vietnam but also can be applied to research abroad with a similar context as in
developing countries. Stemming from this judgment, the author chose the topic
"Earnings management in mergers and acquisitions: Evidence from listed
companies in Vietnam" to perform the PhD thesis.

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2. Research objectives
The overall goal is to study earnings management in the M&A deal in
listed companies on the Vietnamese stock market. Thereby, the author
proposed implications from the research results to contribute to limiting the
behavior of energy management. From general goals, research and
development of specific goals are as follows:
+ Identify and evaluate earnings management at the acquiring firms in the
M&A deal on Vietnam's stock market.
+ Identify factors affecting earnings management at acquiring firms in the
M&A deal on the Vietnamese stock market. Thereby, the study discusses the
results and gives implications to limit earnings management of the manager in
general and associated with the M&A deal in particular.
3. Research questions
+ What is the earnings management of the company manager who buys in
the M&A deal on the Vietnamese stock market and how is it done?
+ What factors affect the earnings management of the manager of the
acquiring firm in the M&A deal on the Vietnamese stock market?
4. Research subject and scope
Research subject
The research object is earnings management of the acquiring firm in the
M&A deal and the factors affecting earnings management of the acquiring firm
in the M&A deal.
Research scope
In terms of space: Research and select acquiring firm to list on two stock
exchanges in Ho Chi Minh City (HOSE) and Hanoi (HNX) with completed
M&A deal.
In terms of time: Research using a list of M&A deals, data of Annual
Financial Statements, Annual Report for the period 2009-2018.

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5. Research methodology
The study uses quantitative methods to test hypotheses about earnings
management of the manager of the acquiring firm in the M&A deal and
hypotheses about the effects of factors on earnings management of the manager
of the acquiring firm in the M&A deal. The study identifies the dependent
variables - representing earnings management of the acquiring firm through the
measurement model of Kothari et al (2005); Roychowdhury (2006).
Independent variables were determined from a national and international basis.
The research conducted discussing and proposing related implications from the
results obtained.
6. Research contribution
Theoretical Contributions
This study contributes to (i) systematize the theoretical basis of earnings
management, identify research gaps in earnings management at the acquiring
companies in the M&A deals and the factors affecting the earnings
management of the acquiring company; (ii) provide empirical evidence in
Vietnam on earnings management at the acquiring company in the M&A deals
and the influence of factors, thereby contributing to the theoretical framework
of earnings management in M&A deals.
Practical Contributions
The results are significant for: (i) Policymakers and State regulatory
agencies on the stock market have a broad and in-depth view of earnings
management, thereby developing feasible and appropriate regulations suitable
to the Vietnamese context; (ii) listed companies can evaluate themselves,
consider earnings management and build an appropriate governance
mechanism to harmonize the company's interest span, shareholders and
stakeholders.
7. Thesis structure

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The structure of this thesis includes 4 chapters as follows:
Chapter 1: Theoretical Framework and literature review.
Chapter 2: Research Methodology.
Chapter 3: Research Results and Discussion.
Chapter 4: Conclusions and Implications.
CHAPTER 1: THEORETICAL FRAMEWORK AND LITERATURE
REVIEW
1.1. Earning management
From the definition of previous researchers, within the research scope, the
author considers that earnings management is the flexible application of
accounting policies in the framework of accounting standards and regulations.
relate to or/and make economic decisions that affect the profitability of the
business (increase or decrease compared to real earnings) to achieve certain
goals. Manager's goals can derive from personal or corporate interests,
resulting in misleading and affecting the interests of stakeholders.
1.2. Theories related to earnings management
1.2.1. Positive accounting theory
1.2.2. Agency theory
1.2.3. Asymmetric information theory
1.3. Earnings management motivations and methods
1.3.1. The motivations for earnings management
Erickson and Wang (1999) argue that the acquiring firm performs CG in
the M&A deal to find a way to reduce the swap rate to avoid reducing
shareholder voting and control rights.
1.3.2. The methods for earnings management
1.3.2.1. Accrual-based earnings management
Earnings management can do this by flexibly choosing accounting
principles, accounting policies, and accounting estimates.

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1.3.2.2. Real activities manipulation
Real activities manipulation can do this by accelerating the timing of sales
and/or generation additional unsustainable sales through increased price
discounts of more lenient credit terms; reduction of discretionary expenditures;
and increasing production to report the lower cost of goods sold.
1.3.2.3. The relationship between accrual-based earnings management and
real activities manipulation
1.4. Detecting model earnings management
1.4.1. Accrual-based earnings management model
1.4.1.1. Jones model (1991)
1.4.1.2. Modified Jones (1991)
Two typical models developed from the Jones model (1991) include
Dechow et al (1995); Kothari et al (2005).
1.4.2. Real activities manipulation model
Roychowdhury's (2006) model is often used to measure energy efficiency
based on economic decisions.
1.5. An Overview of studies
1.5.1. Studies measuring the earnings management in the M&A deal
1.5.1.1. Studies abroad
The first study by Erickson and Wang (1999) showed that acquiring firms
tend to increase earnings in the quarter before the M&A announcement. Heron
and Lie (2002) performed a similar study but the results did not show the
presence of the corporate purchasing behavior of the company. This opens a
gap for the next researchers to try to re-test through many different methods or
market contexts, typically:
Early-stage studies such as Botsari and Meeks (2008); Louis (2004)
continues to use new models in the measurement of accruals based on returns

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such as Dechow et al (1995); Kothari et al (2005) to test results in the context
of developing stock markets such as the US, UK, ...
The second stage since Roychowdhury's (2006) model is published to
measure energy efficiency through economic decisions. The following studies
as Chang and Pan (2020); Farooqi et al (2017); Fasipe and Sun (2020);
Kassamany et al (2017) have applied this model to produce new results in the
same developed world context.
Researchers have been flexible in using many models of earnings
management and the research context is no longer concentrated in the US and
UK but gradually spread to other countries such as China (Lennox et al, 2018),
France (Njah & Jarboui, 2013), Poland (Piosik & Genge, 2020), Korea (Jeong
& Bae, 2013), some studies with broad context such as Karim et al ( 2016) in
18 developed countries and 12 developing countries.
1.5.1.2. An Overview of Related Studies in Viet Nam
Many studies measuring earnings management are published in association
with corporate circumstances and events such as issuing additional shares
(Pham Thi Bich Van, 2017), earnings management to avoid losses (Nguyen Thi
Phuong Loan & Nguyen Minh Thao, 2016), associated with the risk of
bankruptcy (Vo Van Nhi & Hoang Cam Trang, 2013), ... In the context of the
M&A deal, the study of Dang Huu Man et al (2019 Starting from the target
firms rather than focusing on the acquiring firm.
1.5.2. Studies of factors affecting earnings management and their
application in the M&A deal
1.5.2.1. Studies of factors influencing earnings management abroad and
Vietnam
a. Ownership structure
Ownership structure factors are often applied in research affecting earnings
management such as manager ownership (Ngo Hoang Diep, 2019; Teshima &

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Shuto, 2008; Yang et al., 2008 ), institutional ownership (Koh, 2007; Lo et al.,
2017), foreign ownership (Guo et al., 2015; Nguyen Ha Linh, 2017; Shayan-
Nia et al, 2017), State ownership (Cheng et al., 2015; Nguyen Ha Linh, 2017;
Wang et al., 2008) and concentrated ownership (Iturriaga & Hoffmann, 2005).
b. Characteristics of the Board of Directors
In the research context in Vietnam, most studies choose to approach
factors related to the characteristics of the Board of Directors and are reflected
in the number of members of the Board of Directors (Nguyen Ha Linh, 2017;
Xie et al., 2003), the proportion of independent members of the Board of
Directors (Klein, 2002; Ngo Hoang Diep, 2019) and concurrent membership of
the Chairman of the Board of Directors (Pham Thi Bich Van, 2017; Xie et al,
2003).
c. Independent audit
An independent auditor has a role to play in limiting earnings management
in general as well as expected in event contexts such as the M&A deal.
1.5.2.2. Studies on factors affecting earnings management in the M&A deal
Current studies are discrete to test several factors of earnings management
in the M&A deal such as the size of the mergers (Erickson & Wang, 1999;
Fakhfakh & Nasfi, 2012; Lehmann, 2016); Ownership structure (Fakhfakh &
Nasfi, 2012; Francoeur et al, 2012; Lehmann, 2016) and some characteristics
from the Board of Directors (Fakhfakh & Nasfi, 2012; Lehmann, 2016).
1.6. Comments and research gaps
1.6.1. Comments on related studies
This topic is of interest to many researchers in developed countries and
demonstrated by a series of studies published in the US Erickson and Wang
(1999); (Farooqi et al, 2017; Fasipe & Sun, 2020); Heron and Lie (2002); Louis
(2004), England (Kassamany et al, 2017; Lehmann, 2016), France (Njah &
Jarboui, 2013) ... In contrast, there are only a few studies in developing

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countries such as Koumanakos et al (2005) in Greece, Ardekani et al (2012) in
Malaysia, Jeong and Bae (2013) in Korea, ...
In Vietnam, only research by Dang Huu Man et al (2019) with starting
points from the target companies did not show a strong trend of implementing
earnings management in the M&A deal.
Also, studies on the factors affecting earnings management in the M&A
deal are still limited, there are not enough studies in the world as well as in
Vietnam.
1.6.2. Research gaps
The specific research gaps are as follows:
Firstly, there is not enough research on the context of the M&A deal in
developing countries, with newly developed stock markets, and legal policies
and regulations to protect investors, are not enough.
Secondly, there are not enough researches to fully synthesize the factors
affecting earnings management in the M&A deal from a world perspective as
well as in Vietnam.
1.6.3. Research directions
Therefore, the research direction of this thesis will be:
Firstly, identifying and measuring the earnings management at the
acquiring firm in the M&A deal on the Vietnamese stock exchange through the
AEM and REM measurement models.
Secondly, learn and model the factors that affect the earnings management
at the acquiring firms in the M&A deal on the stock exchange in Vietnam, after
that there discuss and build related implications.
CONCLUSION OF CHAPTER 1
CHAPTER 2: RESEARCH METHODOLOGY
2.1. Research process
The research to build the process is divided into 3 phases:

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Step 1: Research and synthesize relevant studies in the country and the
world on the behavior of energy management in the M&A deal.
Step 2: Research and collect data on the list of buying companies in the
M&A deal and the data of the respective financial statements and financial
statements.
Step 3: Conducting research discussing results and building policy
implications from research results in the context of Vietnam's stock market.
2.2. Research hypotheses
2.2.1. The hypothesis of earnings management in acquiring firms
Hypothesis 1: Acquiring firms in stock swap mergers engage in
earnings management.
Hypothesis 2: Acquiring firms in cash mergers engage in earnings
management.
2.2.2. The hypothesis of effects from independent variables
2.2.2.1. Size of the mergers
Hypothesis H3: There is a positive relationship between the size of
mergers and earnings management.
2.2.2.2. Ownership structure
Managerial ownership
Hypothesis H4: There is a positive relationship between managerial
ownership and earnings management.
Institutional ownership
Hypothesis H5: There is a negative relationship between institutional
Foreign ownership
Hypothesis H6: There is a negative relationship between foreign
State ownership

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Hypothesis H7: There is a negative relationship between state ownership
and earnings management.
Concentrated Ownership
Hypothesis H8: There is a negative relationship between concentrated
2.2.2.3. Board characteristics
Board size
Hypothesis H9: There is a negative relationship between board size
The role of the outside director
Hypothesis H10: There is a negative relationship between outside
directors and earnings management.
The effect of the CEO duality
Hypothesis H11: There is a positive relationship between CEO duality and
2.2.2.4. Independent audit
Hypothesis H12: There is a negative relationship between Big4 audit and
2.2.3. The hypothesis of effects from moderator variables
2.2.3.1. Size of the merger
Hypothesis H13: The size of the mergers has a moderator impact on the
relationship between the ownership structure and earnings management.
2.2.3.2. The effect of the CEO Duality
Hypothesis H14: CEO Duality has a moderator impact on the relationship
between the board characteristics and earnings management.
Hypothesis H15: CEO Duality has a moderator impact on the relationship
between Big4 audit and earnings management.
2.3. Quantitative research

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2.3.1. Timing of measuring earnings management in M&A deal
The time of disclosure of M&A information is defined as year t0, the study
measures the period from the period before the time of information disclosure
(from years t-4 to years t-1) and the period after Time of information
announcement (from year t1 to year t4)
2.3.2. Detecting model earnings management
2.3.2.1. Measuring accrual-based earnings management
Model Kothari et al (2005) are used to measure due to the popularity and
advantages of this model in the study of earnings management.
2.3.2.2. Measuring real activities manipulation
Three models in Roychowdhury (2006) are used to measure three
decisions associated with earnings management.
2.3.2.3. Overall real activities manipulation variables
The study using two synthetic variables is presented in the study of Cohen
and Zarowin (2010); Zang (2012).
2.3.3. Research model
Research model of influencing factors:
(2.13)
Research model of moderator effects from size of the mergers:
| | | | (2.14)
Research model of moderator influence from the concurrentness of the
Chairman of the Board of Directors:

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| |
(2.15)
In which: i: firms; t: time; D: size of the mergers; MO: managerial
ownership; IO: institutional ownership; FO: foreign ownership; SO: state
ownership; CO: concentrated ownership; Bsize: board size; Bindep: outside
director; Dual: CEO Duality; Big4: independent audit; Lev: leverage; Size: size
of acquiring firms; ROA: return on assets.
2.3.4. Data collection
2.3.4.1. Research Sample
This study is conducted on a sample of 43 acquiring firms with stock swap
mergers from 2009 to 2018 classified by sectors with ratios include industry
(35%), information technology (2%), pharmaceuticals and health care (5%),
use service (5%), consumer goods (23%), raw materials (23%), community
utility (7%).
The sample of cash mergers includes 322 observations with rates by
industry: industry (45%), information technology (4%), pharmaceuticals and
health care (3%), services used (10 %), consumer goods (22%), raw materials
(11%), copper utilities (4%).
2.3.4.2. Sample for model earnings management
The sample is built from 5,584 observations in 7 sectors from 2009 to 2018
with the ratios: industry (45%), information technology (4%), medicine and
health (4%), translation consumer goods (10%), consumer goods (16%),
materials (15%), community utilities (7%).
2.3.5. Estimation and testing method
CHAPTER 3: RESEARCH RESULTS AND DISCUSSION

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3.1. Earnings management behavior at the acquiring firms in the M&A
deal
3.1.1. Descriptive statistics
3.1.2. Earnings management in stock swap mergers
3.1.2.1. Discretionary accruals (DA)
The highest adjusted earnings result is in year t0 and continues to the year
following year t1.
3.1.2.2. Abnormal cash flow operation (Ab_CFO)
The research results show that profit is adjusted from year t0 and is
strongest in year t1.
3.1.2.3. Abnormal discretionary expenses (Ab_PROD)
The research results show that the manager implements earnings
management through the production policy that starts from year t0 and lasts
until year t2.
3.1.2.4. Abnormal production costs (Ab_SGA)
Limited evidence that the acquiring firm cuts arbitrary costs to increase
profitability for the M&A deal.
3.1.2.5. REM1
The results show that the manager has earnings management starting from
year t0 and ending one year after the completion of the M&A deal.
3.1.2.6. REM2
The results showed that the implementing manager started implementing
earnings management two years before the M&A announcement time (year t0)
and ended the behavior after the deal was completed (year t1).
3.1.3. Earnings management in cash mergers
The results do not show evidence of earnings management associated with
the buying company making cash payments in the M&A deal.

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Research results show that the acquiring firm manager may have
performed earnings management by loosening credit rating for customers or
sharply reducing selling prices in these years to increase revenue.
Research results show that there is no earnings management through
increasing the number of manufactured products associated with the M&A
deal.
The research results do not show the earnings management from the
discretionary cost reduction at the acquiring firm in the M&A deal.
3.1.3.5. REM1
The study results were similar when using the two variables Ab_PROD
and Ab_SGA, when it did not show the earnings management at the acquiring
firm.
3.1.3.6. REM2
The study results were similar when using two variables Ab_CFO and
Ab_SGA, when it did not show the earnings management at the acquiring firm.
3.2. Influence from factors to earnings management at the acquiring firm
in the M&A deal
3.2.1. Descriptive statistics
3.2.1.1. Dependent variables
3.2.1.2. Independent variables
3.2.2. Correlation matrix
The correlation matrix shows that the independent variables do not have a
significant dependence on each other.
3.2.3. Test of hypothesis

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The test results show that a random model with the vce (robust) option will
be used to estimate the dependent variable Ab_SGA. The fixed model with the
vce (robust) option is used to estimate the dependent variables DA, Ab_CFO,
Ab_PROD, REM1, and REM2.
3.2.4. Result for the factor model
The results show the relationship between DA and variables as follows: SO
(-0,284 and p < 0,05); DxMO (0,00790 and p < 0,05); DxIO (0,359 and p <
0,05); DxFO (0,296 and p < 0,01); Dual(D)xBSize (0,299 and p < 0,05); ROA
(0,398 and p < 0,01).
The results show the relationship between Ab_CFO and variables as
follows: D (0,00539 and p < 0,05); FO (0,332 and p < 0,1; SO (-0,431 and p <
0,01); DxMO (0,00796 and p < 0,05); DxIO (0,260 and p < 0,01); DxSO (0,857
and p < 0,1); Dual(D)xBSize (0,266 and p < 0,05); Size (-0,0444 and p < 0,01);
ROA (-0,223 and p < 0,05).
The results show the relationship between Ab_PROD and variables as
follows: D (0,0273 and p < 0,01); FO(0,464 and p < 0,05; MO (-0,454, p <
0,05); DxMO (-0,0323 and p < 0,01); DxCO (-0,244 and p < 0,05).
The results show the relationship between Ab_SGA and variables as
follows: MO (0,0660 and p < 0,1); Bindep (0,0584 and p < 0,1); Bsize (-0,116
and p < 0,05); DxMO (0,00756 and p < 0,01); DxSO (0,197 and p < 0,1);
Dual(D)xBSize (0,183 and p < 0,01); Size (0,0212 and p < 0,05).
3.2.4.5. REM1
The results show the relationship between REM1 and variables as follows:
D (0,0279 and p < 0,01); FO (0,468 and p < 0,05); MO (-0,396 and p < 0,05);

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IO (-0,584 and p < 0,1); DxMO ( -0,0217 and p < 0,01); DxCO ( -0,209 and p
< 0,05); Dual(D)xBSize (0,545 and p < 0,1).
3.2.4.6. REM2
The results show the relationship between REM2 and variables as follows:
D (0,00601 and p < 0,1); FO (0,336 and p < 0,1); SO (-0,428 and p < 0,01);
DxMO (0,0185 and p < 0,01); DxFO (0,274 and p < 0,01); Dual(D)xBSize
(0,433 and p < 0,05).
CHAPTER 4: CONCLUSIONS AND IMPLICATIONS
4.1. Conclusions
4.1.1. Discuss the results of the earnings management measurement at
acquiring firms
The research results that accept hypothesis H1 set out show that the
acquiring firms and swapping stocks has an earnings management with the
M&A deal.
The study rejects hypothesis H2 and therefore concludes that the acquiring
firms with the cash payment option do not have earnings management with the
M&A deal.
The research results confirm that earnings management only appears in
stock-swap mergers in the research context in Vietnam. Methods of
implementing energy management include relying on accrual-based and
through sales policy to increase revenue, production policies to reduce the cost
of goods, and policy to cut costs to increase earnings. This result is consistent
with most research derived from motives in the M&A deal in other contexts in
the world such as Erickson and Wang (1999); Louis (2004) in the US, Botsari,
and Meeks (2008); Kassamany et al (2017) in the UK, Francoeur et al (2012) in
Canada, Njah and Jarboui (2013) in France and some studies in Asia such as
Higgins (2013) in Japan, Lennox et al. ( 2018) in China,...

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4.1.2. Discuss the effects from the independent variables in the model to
the earnings management at the acquiring firms
The research that accepts hypotheses H3, H5, H7, H9 shows that factors:
Size of the deal, institutional ownership, State ownership, and Board size affect
earnings management in M&A deals.
Research shows that earnings management in stock swap mergers is
influenced by the size of the M&A deal and this is a factor that plays a
regulating role in the relationship between the ownership structure and the level
of earnings management. This affirms that, at M&A deals of great value, the
greater the benefits that the groups holding shares of the company are and thus
this will motivate the groups to encourage the acquiring firms to implement
earnings management. Also, research shows that the concurrent role of the
Chairman of the Board of Directors also has a regulatory effect, reducing the
role from the Board of Directors and auditing to earnings management.
4.1.3. Discuss the effects from the moderating variables in the model to the
earnings management at the acquiring firms
4.1.3.1. Size of the mergers
Research shows that the size of M&A deals has an impact on the
relationship between manager, organizational, foreign, State, concentrated
Ownership and earnings management.
4.1.3.2. The effect of the CEO Duality
Study shows that the duality of the CEO has an impact on the relationship
between the number of members on the Board of Directors and earnings
management.
Study shows that the duality of the CEO has no impact on the relationship
between the proportion of independent members in the Board of Directors and

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Study shows that the duality of the CEO has no impact on the relationship
between being audited by Big4 audit firms and earnings management.
4.1.4. Discuss the effects from the control variables in the model to the
earnings management at the acquiring firms
4.2. Implications
4.2.1. Government
It is necessary to strictly sanction the violation of information disclosure on
the stock market
Ensuring managers are truthful, complete, and timely disclosure of
information can limit earnings management. Because this provision contributes
to avoiding profiting through insider transactions that are usually performed by
managers.
4.2.2. Listed companies
Establish a Board of Directors with full capacity to deal with a variety of
issues
The board should ensure a diversity of knowledge, experience, behavior,
cultural aspects, age, and gender; clear development of rules during the
appointment process; regularly organize training programs on skills and
professional knowledge; Maintain public disclosure of good policy, practices,
and practices.
Ensure effective leadership of the Board of Directors
It is necessary to limit the concurrentness of the Chairman of the Board of
Directors with managerial positions in the company to avoid monopoly in
making management decisions.
Develop a policy of rewarding, assessing the ability of an appropriate
manager
Evaluate the performance of a manager systematically and
comprehensively, including many factors not only in terms of profitability but

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also in sustainable development. The clear disclosure of remuneration, bonuses,
and other incentives (shares, dividends) to managers is also an important factor
in ensuring multiple-sided scrutiny of their earnings management.
Enhance the effective participation of shareholders
The Company should develop, document, and publish policies to ensure
shareholder rights and regularly monitor the implementation of these policies;
ensure equal treatment for all shareholders including minority shareholders;
Dividend policy must be built on fair and consistent criteria.
CONCLUSION
In the M&A deal, the stock swap ratio indicates the required number of
shares that the acquiring firm and the target firm to exchange - receive.
According to the regulations in Vietnam, the approval of the stock swap ratio
requires the consent of an independent functional entity. However, the index of
accounting profit will have direct and indirect effects on the determination of
the stock swap rate. Through an overview of research around the world, the
benefits gained from the M&A deal under the stock swap method are the
motivation for the acquiring firm manager to implement earnings management
to increase profits in the years before the M&A deal was announced. Research
evidence is provided in many countries with laws and development
management such as the US, UK, France, ... and even countries with stock
markets still in development stage such as Malaysia, Greece. , ... Looking at the
Vietnamese stock market, the earnings management, which is mainly adjusted
to increase the manager's profit, is proven in many cases such as issuing
additional shares, avoiding losses and declining profits. ... Set not only for State
management, shareholders, investors to seek solutions to limit and control the
earnings management. Therefore, the study determines that the research on
earnings management in the M&A is necessary and an important factor as the

21
basis for building policy implications, as well as the foundation for developing
the following studies. in the world and Vietnam.
To achieve the goals and solve the research questions posed, the study uses
AEM measurement model of Kothari et al (2005) and Roychowdhury's (2006)
REM measurement model for M&A deals from 2009 to 2018. Accordingly,
research results show that acquiring firm stock swaps make adjustments to
increase profits for one to two years before announcing information about the
M&A deal. This is the stage when the manager prioritizes REM selection to
perform earnings management. During the year the M&A deal took place, the
manager performed both AEM and REM to increase profits. Also, the study
conducted a study on the effects of 10 independent factors including size of the
M&A deal, ownership of managers, ownership of organizations, foreign
ownership, state ownership, centralized ownership, number of members of the
Board of Directors, the proportion of independent members of the Board of
Directors, concurrently Chairman of the Board of Directors, independent audit
and 3 control variables including financial leverage, acquiring firm size and
brand Business results in the acquiring firm. Also, the study assesses the
regulatory role from the size of the M&A deal and the concurrent model of the
Chairman of the Board of Directors in companies with high benefits from the
M&A deal.
Research findings from influencing factors provide evidence for research
in discussing and developing appropriate policy implications to control and
limit earnings management in general and in the context of M&A deals in
particular. On the State side, improving valuation performance is an important
factor because the valuation unit determines the exact swap rate, which
comprehensively reflects the relationship between the value of the acquiring
firm and the target firm will eliminate the earnings management. Also, strict
handling of information disclosure breaches on the stock market is an

22
important requirement to reduce opportunities for managers' self-interested
behavior. On the side of listed companies, this is an important subject because
earnings management only appears if the company's control mechanisms are
not effective. Accordingly, the study attracts the implications of concentration
and improving the quality of corporate governance, including the establishment
of a diverse Board of Directors capable of solving all problems, ensuring the
role of Effective leadership role of the Board avoids concurrently the Chairman
of the Board of Directors, promotes independent and objective judgment of all
members of the Board of Directors. The understanding of the earnings
management of the shareholders, investors and the audit company has a certain
influence to limit and control the behavior of managers.
The study still has certain limitations from evaluating the role of corporate
governance based on single representative variables such as the number of
board members, the proportion of independent members of the Board of
Directors. Board of Directors and Board of Directors' experience may not fully
reflect the level of quality of corporate governance at the acquiring firm.
Although this is still an approach applied by many researchers in the world and
Vietnam. But it is also necessary to learn and implement other approaches to be
able to provide more evidence on the influence of corporate governance on
earnings management in general and in the M&A deal in particular.
From the research results, the achievements and limitations of the research,
the next development directions can be considered in depth the corporate
governance mechanism through the set of evaluation criteria applied from
countries. have Vietnamese context or build Vietnamese appropriate criteria.
Besides, it is possible to develop studies to find out whether there is a
difference between the behavior of earnings management in a friendly takeover
and hostile takeover in the M&A deals.

AUTHOR’S RESEARCHES RELATED TO THE THESIS
1. Pham Nguyen Dinh Tuan, Tran Thi Bich Duyen & Nguyen Thanh Tu
(2018). Role of independent auditor in earnings management: Evidence
from companies listed on Vietnam stock exchange. ESR National
Scientific Conference - 2018: Research, training, application in the field of
Administration - Finance - Banking and Accounting - Auditing to meet the
needs of integration, Ho Chi Minh, 398–406.
2. Pham Nguyen Dinh Tuan (2019). Research on factors affecting real
earnings management in listed companies on Vietnam. Quy Nhon
University.
3. Pham Nguyen Dinh Tuan, Ho Thi Thuy Hang, Le Thi Thu Ngan & Mai
Nhu Phuong (2019). Research on earnings management in unlisted public
companies. Journal of Finance and Business Administration, 13, 60–68.
4. Pham Nguyen Dinh Tuan, Ho Thi Thuy Hang, Le Thi Thu Ngan & Mai
Nhu Phuong (2019). Research on factors affecting earnings management
of public unlisted companies in Vietnam. External Economics Review,
120, 99–116.
5. Pham Nguyen Dinh Tuan, Tran Thi Bich Duyen & Tran Xuan Quan
(2019). Study the effects of board characteristics and ownership structure
on earnings management in Vietnamese enterprises. Central Vietnamese
Review of Social Sciences, 62 (6), 15–31.
6. Nguyen Cong Phuong, Pham Nguyen Dinh Tuan (2019). Profits and Debt
Management: Evidence from listed companies in Vietnam. JABES, 30
(11), 31–50.
7. Pham Nguyen Dinh Tuan & Tran Thi Bich Duyen (2020). Profit
management in companies issuing additional shares on the Vietnamese
stock market. Journal of Finance - Marketing, 56, 1–13.
8. Pham Nguyen Dinh Tuan, Tran Thi Bich Duyen & Tran Xuan Quan
(2020). Influence from earnings management on business performance:

Evidence from companies listed on Vietnamese stock exchanges. Journal
of Finance and Business Administration, 17, 21–30.
9. Tran Thi Bich Duyen, Pham Nguyen Dinh Tuan (2020). Corporate
Governance and earnings management in Vietnam: Approach from
integrated analysis. Journal of Finance - Marketing, 59, 25–39.
10. Tuan, P. N. D., & Duyen, T. T. B. (2020). Accrual-based earnings
management and real activities manipulation to avoid losses: Evidence
from unlisted public companies in Vietnam. Journal of Science and
Technology, 18 (6), 87–92.
11. Pham Nguyen Dinh Tuan (2021). Overview of research on earnings
management in the M&A deal. Asia – Pacific Economic Review, 04, 58–
60.
12. Pham Nguyen Dinh Tuan (2021). Earning management at companies
purchasing stock swap in mergers and acquisitions. Viet Nam Trade and
Industry Review, 09, 124–129.

Earnings Management In Mergers And Acquisitions Evidence From Listed Companies In Vietnam.doc

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