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Related party transactions, accrual-based earnings management and real activities earnings management in emerging market

Author

Listed:
  • Nguyen Vinh Khuong
  • Nguyen Thanh Liem
  • Le Huu Tuan Anh
  • Bui Thi Ngan Dung

Abstract

Purpose - The purpose of this study is to examine the association between related party transactions (RPTs) in terms of sales and purchases and earnings management (EM). Design/methodology/approach - The authors use the estimation method of system generalized method of moments (Sys-GMM) on a sample of 413 non-financial firms in Vietnam in the period from 2015 to 2019, totaling 1,638 firm-year observations. Multiple proxies for RPTs and EM are used to provide a comprehensive assessment of the relationship between the two factors. Findings - There is a positive association between RPTs and EM, suggesting that both types of RPTs could reduce financial reporting quality and allow firms to be more engaged in earnings manipulation. Originality/value - There are a number of studies investigating the above link, but they tend to use aggregate values (the sum of both sales and purchases with related parties) or just either accruals-based earnings or real EM. This study is the first to extend the literature on the relationship between RPTs and EM by examining both sales-based and purchases-based RPTs on both real and accruals-based earnings manipulation. This approach helps uncover the differences in the effect of the two types of RPTs on both types of upward EM.

Suggested Citation

  • Nguyen Vinh Khuong & Nguyen Thanh Liem & Le Huu Tuan Anh & Bui Thi Ngan Dung, 2023. "Related party transactions, accrual-based earnings management and real activities earnings management in emerging market," Pacific Accounting Review, Emerald Group Publishing Limited, vol. 36(1), pages 60-76, November.
    • Handle: RePEc:eme:parpps:par-08-2022-0112
    DOI: 10.1108/PAR-08-2022-0112
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    More about this item

    Keywords

    Related party transactions; Accruals earning management; Real earnings management; M40; M41;
    All these keywords.

    JEL classification:

    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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