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Earnings management, market liquidity and capital access of seasoned equity firms in a transition economy

Author

Listed:
  • Ben Le
  • Nischala Reddy
  • Paula Hearn Moore

Abstract

Purpose - This study aims to examine the effects of market liquidity on earnings management (EM) of seasoned equity offering (SEO) firms considering external capital access. Design/methodology/approach - This study uses a panel data set of 158 Vietnamese SEO firms from 2007 to 2019. Both real and accrual EM measures are analysed. The study uses two proxies for market liquidity: stock turnover (the ratio of total shares traded over the year divided by total shares outstanding for the year) and high–low spread (estimated following Corwin and Schultz [2012]) and fixed-effects panel and two-stage least squares regression in the analysis. Findings - Firms with high (low) market liquidity report low (high) EM, and the result is robust after controlling for endogeneity. The results hold for both real and accrual-based EM for both market liquidity proxies. However, the results are robust only for firms with low external capital access and non-state-owned companies. The authors find a negative market reaction to earnings manipulation. Practical implications - This study’s findings help policymakers, investors and managers make better decisions regarding SEO firms and reduce the risk of inaccurate information due to EM. Originality/value - Among the few studies that test the influence of market liquidity on EM, to the best of the authors’ knowledge, this study is the first to examine the effect of market liquidity on EM in the context of SEO firms considering the impact of capital access.

Suggested Citation

  • Ben Le & Nischala Reddy & Paula Hearn Moore, 2023. "Earnings management, market liquidity and capital access of seasoned equity firms in a transition economy," Pacific Accounting Review, Emerald Group Publishing Limited, vol. 35(5), pages 800-838, July.
    • Handle: RePEc:eme:parpps:par-09-2022-0142
    DOI: 10.1108/PAR-09-2022-0142
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    More about this item

    Keywords

    Earnings management; Market liquidity; Capital access; Seasoned equity offering; G14; G32; M41;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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