Earnings management to avoid earnings decreases and losses: Evidence from Vietnamese listed companies

By combining Empirical Distribution Approach (EDA) and Discretionary Accruals Approach (DAA) with data including 2,949 observations of 295 Vietnamese listed companies from 2006 to 2016, we provide evidence that the firms have conducted earnings management behavior to avoid losses but have not committed earnings management behavior to avoid earnings decreases. The evidence indicates that the firms conducting earnings management behavior to avoid losses account for from 4.88% to 13.76% of the whole sample and account for from 49.6% to 73.6% of negative earnings observations. In addition, we find that the changes in working capital are a common tool for managers to conduct earnings management behavior to avoid losses. Furthermore, by removing discretionary accruals from earnings, we also confirm that managers have used discretionary accruals as a tool to manipulate reported earnings upward to avoid losses.